The Chairman of the Nigeria Revenue Service (NRS), Dr. Zacch Adedeji, announced on Wednesday that Nigeria presently lacks a system for taxing entities within the informal economy.
Adedeji explained that existing tax legislation is specifically structured for businesses operating formally.
The NRS chairman shared these insights during an interview with THISDAY's Editorial Board in Abuja, discussing the implementation of recent tax legislation.
He indicated that the primary method for taxing informal businesses involves encouraging them to formalize their operations.
"Regarding the informal sector, taxation is not feasible for informal entities; that's their defining characteristic. To tax them, they must first be formalized. We need to encourage them to register and expand their operations. Once formalized, they fit into established categories for taxation," Adedeji stated.
He added, "Education and engagement will continue. We have dedicated departments for media, engagement, and stakeholder relations to ensure solutions are tailored. Our objective is to support small businesses in growing or, at the very least, sustaining themselves."
Furthermore, Adedeji addressed public perceptions, clarifying that Value Added Tax (VAT) is not levied on impoverished Nigerians. Instead, he described it as a consumption tax that includes exemptions.
He highlighted that the Nigeria Tax Administration Act (NTAA) 2025 aims to alleviate the tax burden on low-income individuals, noting that the new tax framework targets income or profits for taxation, not capital or investments.
According to Adedeji, the new tax reforms have enhanced clarity, capacity, and accountability in tax administration, while technology and improved processes ensure better tracking of revenue collection.
He mentioned that globally, less than 10 percent of the population pays taxes, and reiterated, "VAT is not imposed on the poor."
Adedeji assured that under his leadership, businesses would not be forced to close due to non-compliance.
"If I aim for revenue growth, I must help businesses grow. My role is not to stifle businesses. I am not law enforcement or a crime fighter. Think of me as a gardener pruning a tree to yield more fruit.
"This is why audits are now integral to operations. Auditors collaborate with tax officers. I have instructed them never to shut down a business, as lost sales cannot be recovered. If a business isn't profitable, there's nothing to tax.
"That's why we now have tax service partners involved in every operation to provide guidance, explanations, and assistance to businesses."
He also clarified that his administration discontinued the tax credit scheme due to its susceptibility to abuse and because it compelled tax authorities to act as project supervisors, a role they are not equipped for.
Adedeji stated that tax credits fall outside the NRS's purview, and the service lacks the necessary expertise to evaluate projects.
He further explained that reforms concerning VAT represent a significant intervention, as the federal government has allocated increased financial resources to the states.
The NRS boss also pointed out that the federal government's decision to exempt food and agricultural products from VAT is intended to help control food inflation and make food more affordable.
Adedeji identified a lack of information as the primary obstacle in implementing tax reforms, adding that the government would continue to address emerging concerns.
"Trust is fundamental. People must first believe that the government is not aiming to complicate their lives. This understanding forms the basis of our efforts.
"We do not claim infallibility. Information scarcity is currently the biggest challenge, especially in our environment.
"We are actively listening. If any aspect is not functioning effectively, we will make adjustments. That is why we are here."
Addressing tax accountability and compliance, Adedeji emphasized, "Tax compliance is mandated by law; it's not optional. In other countries you cited, individuals pay up to 40 percent of their income in taxes. Benefits do not precede compliance.
"We must consider whether we are prepared for the Nigeria we envision. Over the past three years, we have significantly invested in education and skills development to enhance graduate employability. Accountability is not optional.
"Government officials are accountable for the utilization of tax revenue. Citizens are now rightly questioning these matters. The era of taking citizens for granted has ended."
Adedeji further commented, "Building trust takes time globally, not just in Nigeria. That's why we've concentrated on actual implementation rather than mere explanations. People are now witnessing the fulfillment of our promises.
"We welcome feedback. This process will inevitably have imperfections, but we will persist in making necessary adjustments. Transparency and adherence to the rule of law are non-negotiable. I have instructed my staff: everything must be conducted openly."
Adedeji also touched upon issues related to tax deduction and non-remittance.
He revealed that under the consolidated law, revenue agencies will no longer claim costs of collection but rather operational costs, stressing that government should be responsible for funding its agencies.
Among other clarifications, he confirmed that individual bank account balances are not subject to taxation.
"Let me explain the difficulty in doing that now. Salary is a deductible expense. The evidence of tax remittance serves as proof of salary payment. Therefore, the system is self-regulating.
"Regarding the cost of collection, one reason for consolidating the law was that agencies were collecting taxes independently. With consolidation, these expenses are now classified as operational costs. It is the government's responsibility to fund its agencies.
"I do not generate revenue; my role is to collect it. My primary task is to ensure businesses and individuals thrive. When they prosper, revenue flows automatically.
"Revenue growth stems from fostering a supportive environment, not from coercion. That is why our focus is on economic prosperity.
"Your bank account represents your assets. No one has the authority to tax your bank balance. Funds in your account do not automatically signify profit."
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