The Institute of Chartered Accountants of Nigeria (ICAN) has warned that many small and medium‑sized enterprises (SMEs) in Nigeria could undermine the success of the country’s tax reform because of poor documentation and record‑keeping. According to ICAN, a large number of SMEs lack the proper paperwork required under the new tax laws, making it difficult for authorities to identify, track and tax them correctly. This shortfall could seriously weaken the reforms’ intended goal of expanding the tax base across the economy.
Under the recently passed tax legislation, businesses with modest turnovers stand to benefit from simplified obligations and exemptions. But ICAN argues that without accurate documentation, many SMEs might remain invisible to tax authorities or face greater risk of non‑compliance, thus blunting the reform’s impact.
SMEs already face an array of structural and economic headwinds. High operating costs, inflation, rising utilities and multiple local levies have squeezed profit margins and pushed many businesses toward informality.
At the heart of the new reforms is a broader plan to formalise Nigeria’s economy and raise government revenue. The reform bundle, including the Nigeria Tax Act 2025 offers tax relief and compliance simplification for smaller companies. For instance, many SMEs with turnover below defined thresholds are exempt from company income tax and may avoid other levies.
But experts say the success of these reforms depends on two critical conditions: clear documentation by businesses, and robust enforcement by authorities. Without proper paperwork, such as tax‑identification registrations, transparent financial records and receipts, many SMEs may fail to benefit or be subject to high penalties and compliance headaches.
Given that SMEs constitute a large portion of Nigerian businesses and provide substantial employment, their failure to comply could weaken broader efforts to improve revenue mobilisation. Studies have shown that complicated, overlapping taxes and inconsistent enforcement previously pushed many SMEs into informality, reducing their contribution to the official economy.
Moreover, poor documentation doesn’t only undermine tax compliance; it also makes SMEs less eligible for financing, credit facilities, and formal business opportunities. Without records, banks and investors struggle to assess risk, which constrains growth and perpetuates the cycle of informality. Several analysts argue that for tax reform to succeed, parallel investments in capacity-building, SME education and digital financial infrastructure are crucial.
In short, ICAN’s warning signals a real risk: without a major push to strengthen record-keeping and business registration among SMEs, Nigeria’s tax reform may end up missing large swathes of the informal sector it aims to formalize.
If poor documentation among SMEs persists, the government may fail to widen the tax net, undermining revenue targets under the 2025 reform. That shortfall could impair public investment and fiscal stability just as Nigeria attempts to reduce dependence on oil revenue and diversify its economy.
