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Effect of Nigeria's 2025 Tax Reforms on Tax Compliance among Small and Medium Enterprises in Nigeria

ABSTRACT

This study examined the effect of Nigeria's 2025 Tax Reforms on tax compliance among Small and Medium Enterprises (SMEs) in Nigeria. The enactment of the Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service (Establishment) Act, and Joint Revenue Board (Establishment) Act represents the most comprehensive reform of Nigeria's tax system in decades. These reforms seek to simplify tax administration, reduce multiple taxation, improve transparency, promote voluntary compliance, and create a more business-friendly environment, particularly for SMEs. Despite these objectives, concerns remain regarding the extent to which the reforms will influence taxpayers' compliance behaviour, especially among SMEs that account for a significant proportion of Nigeria's business sector. The specific objectives of the study are to examine the effect of tax policy simplification, digital tax administration, tax incentives, and taxpayer education on tax compliance among SMEs in Nigeria. A quantitative research design will be adopted using primary data collected through structured questionnaires administered to selected SME owners and managers. The study will employ descriptive statistics, correlation analysis, and multiple regression analysis to analyse the data and test the formulated hypotheses. The findings are expected to provide empirical evidence on whether the 2025 tax reforms improve voluntary tax compliance among SMEs. The study will also provide useful recommendations to policymakers, tax authorities, and business owners on strengthening tax administration while promoting compliance without imposing excessive burdens on businesses. The study contributes to the growing literature on tax reforms and tax compliance within developing economies, particularly in the context of Nigeria's evolving fiscal policy.

Keywords: Nigeria Tax Reforms 2025, Tax Compliance, Small and Medium Enterprises, Tax Administration, Tax Policy, Nigeria.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Taxation remains one of the most important sources of government revenue and serves as a critical instrument for economic development, fiscal sustainability, and wealth redistribution. Governments rely on tax revenue to finance public infrastructure, healthcare, education, security, and other essential public services. In developing countries such as Nigeria, tax revenue has become increasingly important due to fluctuations in crude oil earnings and the government's commitment to diversifying revenue sources away from oil dependence (IMF, 2025).

Small and Medium Enterprises (SMEs) play a significant role in Nigeria's economy through employment generation, innovation, poverty reduction, and contribution to Gross Domestic Product (GDP). Despite their economic importance, tax compliance among SMEs has remained relatively low due to factors such as multiple taxation, complex tax procedures, inadequate taxpayer education, high compliance costs, poor record keeping, and limited trust in government institutions. These challenges have reduced voluntary compliance and increased tax evasion within the SME sector.

Recognising these challenges, the Federal Government of Nigeria introduced a comprehensive tax reform programme culminating in the signing of four major tax laws in June 2025. These include the Nigeria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service (Establishment) Act (NRSA), and the Joint Revenue Board (Establishment) Act (JRBA). Collectively, these reforms seek to modernise Nigeria's tax system by harmonising tax laws, simplifying tax administration, strengthening revenue institutions, reducing multiple taxation, expanding the tax base, promoting digital tax administration, and improving the ease of doing business.

One of the major features of the reforms is the increased exemption threshold for small companies. Under the new tax regime, companies with annual turnover not exceeding ₦100 million and fixed assets below ₦250 million are exempt from Companies Income Tax, Capital Gains Tax, and the newly introduced Development Levy. This represents a significant increase from the previous threshold of ₦25 million annual turnover and is intended to reduce the tax burden on small businesses while encouraging business growth and formalisation.

The reforms also introduce greater digitalisation of tax administration through integrated tax systems, electronic filing, improved taxpayer databases, harmonised tax collection, and stronger coordination among federal, state, and local revenue authorities. These measures are expected to reduce compliance costs, minimise human interference, improve transparency, and encourage voluntary compliance among taxpayers. In addition, the establishment of the Nigeria Revenue Service replaces the former Federal Inland Revenue Service with expanded responsibilities aimed at improving efficiency and accountability in tax administration.

From a theoretical perspective, tax compliance is influenced by several factors including tax knowledge, perceived fairness of the tax system, simplicity of tax procedures, enforcement mechanisms, trust in government, and the cost of compliance. Modern tax reforms increasingly focus on encouraging voluntary compliance by simplifying tax laws and improving taxpayer experience rather than relying solely on enforcement and penalties. Consequently, Nigeria's 2025 Tax Reforms represent a shift toward a more taxpayer-friendly and digitally driven tax administration system that could positively influence compliance behaviour among SMEs.

Although the reforms are expected to improve tax compliance, empirical evidence regarding their effectiveness among Nigerian SMEs remains limited because of their recent implementation. Existing studies have largely concentrated on previous tax policies, multiple taxation, tax administration, or tax compliance generally, with little attention given to the new 2025 reforms. This creates an important research gap requiring empirical investigation.

Against this background, this study seeks to examine the effect of Nigeria's 2025 Tax Reforms on tax compliance among Small and Medium Enterprises in Nigeria by evaluating how various components of the reforms influence SMEs' willingness and ability to comply with tax obligations.

1.2 Statement of the Problem

Tax compliance among Small and Medium Enterprises (SMEs) in Nigeria has remained a major concern despite numerous reforms aimed at improving tax administration. Many SMEs continue to experience challenges associated with multiple taxation, complex tax regulations, high compliance costs, inadequate taxpayer education, and inefficient tax administration. Consequently, voluntary tax compliance remains relatively low, limiting government revenue generation and reducing the effectiveness of fiscal policy.

The introduction of Nigeria's 2025 Tax Reforms was intended to address these long-standing challenges by simplifying tax laws, harmonising tax administration, expanding tax exemptions for small businesses, strengthening digital tax systems, and improving coordination among tax authorities. While these reforms are expected to encourage greater voluntary tax compliance, their actual impact on SMEs remains largely unknown due to their recent implementation.

Furthermore, many SMEs may still lack sufficient awareness of the reforms or may encounter implementation challenges that could limit the intended benefits. Without empirical evidence, policymakers may find it difficult to determine whether the reforms have achieved their objectives or identify areas requiring further improvement.

It is against this backdrop that this study seeks to investigate the effect of Nigeria's 2025 Tax Reforms on tax compliance among Small and Medium Enterprises in Nigeria.

1.3 Objectives of the Study

The broad objective of this study is to examine the effect of Nigeria's 2025 Tax Reforms on tax compliance among Small and Medium Enterprises in Nigeria.

The specific objectives are to:

i. Examine the effect of tax policy simplification on tax compliance among SMEs in Nigeria.

ii. Determine the effect of digital tax administration on tax compliance among SMEs in Nigeria.

iii. Assess the effect of tax incentives introduced under the 2025 Tax Reforms on tax compliance among SMEs in Nigeria.

iv. Examine the effect of taxpayer education and awareness on tax compliance among SMEs in Nigeria.

1.4 Research Questions

The study seeks to answer the following questions:

i. What effect does tax policy simplification have on tax compliance among SMEs in Nigeria?

ii. What effect does digital tax administration have on tax compliance among SMEs in Nigeria?

iii. What effect do tax incentives introduced under the 2025 Tax Reforms have on tax compliance among SMEs in Nigeria?

iv. What effect does taxpayer education and awareness have on tax compliance among SMEs in Nigeria?

1.5 Research Hypotheses

H₀₁: Tax policy simplification has no significant effect on tax compliance among SMEs in Nigeria.

H₀₂: Digital tax administration has no significant effect on tax compliance among SMEs in Nigeria.

H₀₃: Tax incentives introduced under the 2025 Tax Reforms have no significant effect on tax compliance among SMEs in Nigeria.

H₀₄: Taxpayer education and awareness have no significant effect on tax compliance among SMEs in Nigeria.

1.6 Significance of the Study

The findings of this study will be beneficial to the Federal and State tax authorities, the Nigeria Revenue Service, policymakers, SME owners, tax consultants, researchers, and future scholars. The study will provide empirical evidence on the effectiveness of Nigeria's 2025 Tax Reforms in improving tax compliance among SMEs and offer recommendations for enhancing tax administration and voluntary compliance.

1.7 Scope of the Study

The study focuses on the effect of Nigeria's 2025 Tax Reforms on tax compliance among Small and Medium Enterprises in Nigeria. Specifically, it examines the influence of tax policy simplification, digital tax administration, tax incentives, and taxpayer education on tax compliance among SMEs.

Independent Variable

Tax policy simplification

Digital tax administration

Tax incentives

Taxpayer education

Dependent Variable

Tax compliance among SMEs

1.8 Operational Definition of Terms

Tax Reform: Government initiatives aimed at improving tax laws, tax administration, and revenue collection.

Tax Compliance: The extent to which taxpayers accurately report income, file tax returns on time, and pay taxes as required by law.

Small and Medium Enterprises (SMEs): Businesses classified according to Nigeria's SME definitions based on employment size and annual turnover.

Digital Tax Administration: The use of electronic platforms for tax registration, filing, payment, and compliance monitoring.

Tax Incentives: Fiscal measures designed to reduce tax burdens and encourage business growth and voluntary compliance.

References

International Monetary Fund. (2025). Nigeria: 2025 Article IV Consultation—Staff Report. Washington, DC: IMF.

Federal Ministry of Finance. (2026). General Guidelines for the Implementation of the Tax Acts 2025.

PwC Nigeria. (2025). The Nigerian Tax Reform Acts: Top 20 Changes to Know and Top 6 Things to Do.

PwC Nigeria. (2025). Nigeria Tax Reform 2025: Sectoral Analysis.

President Bola Ahmed Tinubu. (2025). President Tinubu: New Tax Laws, the Way Forward for Nigeria's Prosperity.