₦airaland Forum

By January 2026, the new tax law will take effect, and Nigerians will once again grapple with the burden of higher taxes.
Let me be clear from the outset: there is nothing inherently wrong with government levying taxes. Governments require revenue to fund budgets, and budgets are not mere routine documents-they are actionable plans that require financing to be executed. Funding can come through taxes, borrowing, or other revenue sources. Ideally, government revenue is used to finance both recurrent expenditure (such as salaries and debt servicing) and capital expenditure (such as infrastructure development).

In theory, therefore, the purpose of taxation is straightforward: to increase government revenue in order to fund projects and improve public welfare.

Interestingly, the current tax structure is designed to be progressive. It assumes that lower-income earners should pay less tax, while higher-income earners contribute a larger proportion of their income. In simple terms, the richer you are, the higher the fraction of your income that goes to taxes.
However, there are critical concerns that must be addressed.

First, can people truly be exempt from paying taxes?

Under the new tax structure, certain categories of low-income earners are exempted from personal income tax, while small businesses with annual turnover below ₦250 million are also exempt. Individuals earning ₦800,000 and below annually are no longer required to pay personal income tax.

In absolute terms, the answer is yes- you can be exempted from paying a direct naira value as tax. That is, no specific amount is deducted from your income and remitted to the government. However, in real economic terms, the answer is no. Everyone still pays taxes, whether directly or indirectly.\

By January 2026, corporations will begin to incorporate the new tax regime into their pricing policies. Every good or service consumed will carry an element of the expanded tax base, reflected in higher prices or reduced quality. For small and medium-sized enterprises celebrating their exemption, this reality should raise concern. Most of their inputs are sourced from larger, heavily taxed corporations. Naturally, these corporations will pass on the tax burden through increased prices. In effect, SMEs and low-income earners will still bear the tax burden indirectly, defeating the very purpose of tax exemptions.

The second major concern is whether it is appropriate to raise taxes in a depressed economy.
This question is normative and depends on government policy objectives, but it deserves careful examination.
Taxes have two major effects. For individuals, taxation reduces disposable income- the amount left to spend or save. For salaried workers, taxes are deducted at source, immediately lowering spending capacity. Reduced spending translates into lower sales for businesses and, ultimately, reduced profits. Lower profits limit future expansion, discourage investment, and weaken job creation. This leads to higher unemployment and slower economic growth.

While businesses can theoretically borrow to expand, borrowing is neither cheap nor easily accessible. More importantly, businesses expand only when demand exists. In a low-demand environment, borrowing to expand makes little economic sense.
Nigeria, with an estimated population of over 230 million people, should in theory represent a massive domestic market. However, population size does not automatically translate into purchasing power. Consumer spending is the engine of economic activity, and inflation coupled with stagnant income growth has severely weakened purchasing power across the country.

The middle-income earners- estimated at about 10 to 15 million people- are particularly important. This group drives demand for basic goods and services, saves significantly, provides funds for lending, and has the capacity to invest through accumulated savings. Taxing this group at a rate as high as 21% significantly reduces their ability to consume, save, and invest. This creates a vicious cycle of weak demand, low investment, and sluggish growth.

Under the new tax system, purchasing power will weaken further. As consumer demand declines, businesses suffer, investment slows, and economic growth weakens.

Historically, tax increases are unpopular fiscal measures- even in developed economies. The United Kingdom, for example, is currently debating whether to raise or maintain its existing tax base. However, citizens in advanced economies generally do not struggle with basic amenities and can devote a larger share of income to consumption.
Can the same be said of Nigeria?

Rather than addressing structural macroeconomic issues, government after government has resorted to taxing an already impoverished population. There is a persistent tendency to copy and paste fiscal frameworks from advanced economies without first examining whether the underlying economic fundamentals are comparable.
Every economy is unique, and growth drivers are often heterogeneous.
Why replicate tax systems designed for infrastructure-rich, welfare-driven, consumption-heavy economies without first fixing Nigeria’s foundational issues?

The smarter approach is not to raise taxes but to cut wasteful government expenditure. Reducing frivolous spending would lower budget deficits and free up resources for meaningful development.

With reckless borrowing becoming less fashionable, the government now appears to be shifting the burden onto citizens and businesses already battered by poor economic performance-both under the current administration and its predecessor.
Whether the new tax system succeeds in raising government revenue is no longer the core issue. The real question is what becomes of Nigerians after the full implementation of this tax regime.
Until then, we watch and see.

Chamber2

Great analysis. Thank you for sharing.

Anither563:
Great analysis. Thank you for sharing.

Thank you for your feedback

The new tax policy would be beneficial in the long run

Salewa97:
The new tax policy would be beneficial in the long run

Time will tell. Nobody lives in the long run, including the government. Any small shock can distort or strengthen long run benefit.

Good analysis.

When you see a paid write up, it's always to obviously

Asking people that earn below 5 million per year round pay tax is wickedness

Everyone here knows I'm a supporter of tax but only taking the rich and middle class

This is absolute evil

The new tax law is a welcome development.

How, will school fees, nepa bill, hospital bill be free?

Salewa97:
The new tax policy would be beneficial in the long run

we all are not on #30k stipend, go get life laptop boy. be

ebukal67x:
Good analysis.

Taxing an already impoverished population is a no-go area.

Win12345:
we all are not on #30k stipend, go get life laptop boy. be

You're busy quoting bots

This is a well thought out piece. It is going to be tough for Nigerians next year, especially with inflation still high. The government should focus on cutting waste too.