Nigeria's New Tax Direction: Impact on Young Entrepreneurs

Youth entrepreneurs own 67 per cent of enterprises in Nigeria, according to ThisDay’s report of 2021. For millions of young Nigerians, entrepreneurship is no longer a matter of ambition or innovation; it is a response to necessity. In the absence of sufficient formal employment opportunities, young people are building small businesses, freelancing, and creating informal income streams simply to get by.

Across the world, SMEs are recognised as engines of job creation and innovation. In Nigeria, they hold even greater significance, serving as a primary source of livelihood for millions. Tax policy, as currently structured, often assumes a level of stability, predictability, and profitability that simply does not exist for most young entrepreneurs. By attempting to expand the tax base without adequately addressing the structural weaknesses of the economy, the government risks imposing burdens on actors who are least equipped to bear them. Entrepreneurship in Nigeria is within an economic structure that is overwhelmingly informal. Estimates suggest that over 90 per cent of Nigeria’s workforce operates in the informal sector, with young people forming a significant majority within this group. These businesses are typically small-scale, unstable, and highly sensitive to economic shocks.

First, tax policy must recognise the unique position of young entrepreneurs within the economy. This means introducing targeted incentives for small and emerging businesses, including tax reliefs or reduced rates during the early stages of operation. Such measures would not only ease financial pressure but also encourage business formalisation over time. One of Nigeria’s new tax reforms is the corporate tax relief for small businesses, which means small companies with gross turnover of less than N100m and fixed assets of less than N250m are exempt from Company Income Tax, Capital Gains Tax, and four per cent Development Levy. While exempting small businesses from corporate taxes is a commendable step in this direction, it assumes that taxation is the primary barrier to formalisation. In reality, for many Nigerian entrepreneurs, the challenge is not what they might pay, but what they stand to gain. Creating incentives for formal registration, like two–to three-year tax holidays for newly registered small businesses, access to grants/loans only if registered, because Formalisation is driven more by opportunity and trust than by tax relief alone. So, the first thing to do is to shift the mindset.

Nearly 90 per cent of informal businesses in Nigeria make less than N500,000 monthly profit, so while Nigeria’s tax exemption for small businesses is progressive in design, it is limited in impact, because most SMEs are already operating at a survival level, and the reform ignores the conditions preventing them from growing. This contradiction lies at the heart of Nigeria’s current tax reform agenda. There is no denying the urgency behind these reforms. With one of the lowest tax-to-GDP ratios globally, hovering around 10 to 11 per cent, the Nigerian government has made clear its intention to expand revenue generation. Efforts to streamline tax administration, widen the tax net, and restructure value-added tax systems reflect a broader push toward fiscal sustainability. In principle, these are necessary steps. A government cannot function effectively without revenue, and overreliance on borrowing is neither sustainable nor desirable.

Furthermore, enforcing one unified tax channel and digitising tax collection to reduce human interference will also be a step to positively enforce what this new tax reform means for young entrepreneurs. SMEs still face multiple taxation: local levies, Informal charges, and harassment from the officials. The second thing to do is the practical fixes, which include simplification.

Another way to positively enforce what this new tax reform means for young entrepreneurs is to support SME capacity. Many small business owners lack financial literacy and proper record-keeping systems. Government-backed free bookkeeping tools, tax education programmes and SME advisory hubs will be a great way to help young entrepreneurs.

Lastly, seeing the big picture by fixing the environment. Tax reform must be accompanied by broader efforts to strengthen the business environment. Investments in infrastructure, access to affordable credit, and regulatory clarity are essential in creating conditions where businesses can thrive. Without these foundational elements, attempts to expand the tax base will continue to fall short.

Sustainable revenue is not gotten from struggling businesses; it is built through thriving ones. The goal should not be to tax more people, but to create more people worth taxing. Nigeria stands at a critical juncture. The push for increased revenue is understandable, even necessary. But if it comes at the expense of the very individuals driving economic activity at the grassroots level, it risks undermining the future it seeks to secure.

Young entrepreneurs are not merely a revenue base; they are the backbone of Nigeria’s economic potential. Until the economic policies of Nigeria consider the reality of young entrepreneurs who make up half of the economy, tax reform will remain not just ineffective, but counterproductive.