IS NIGERIA’S NEW TAX REGIME THE SAVIOUR WE NEED? UNMASKING THE CULTURE OF BACKDOOR TAXATION | Okorote Ozioma Nwachukwu

Introduction

It is common knowledge amongst Nigerians that the nation’s legal system is often more beautiful on paper than in practice. In many respects, the Nigerians laws remains a figment of ideal imagination-sound in reality but weak in execution. The law governing taxation is one of such areas plagued by this reality. Perhaps this is because Nigeria’s tax laws are wholesome adoptions of frameworks developed in more advanced economies, without sufficient adaptation to local realities. Or perhaps the concept of taxation is complex to many Nigerians.

Whatever the reason, there’s no denying that taxation plays a critical role in national development and revenue generation. Yet, Nigeria continues to struggle with effective enforcement and compliance. In recent years, the country’s tax-to-GDP ratio has been alarmingly low hovering around 5-6% a figure far below the African average.[1] This persistent shortfall prompted repeated amendments to key tax legislations such as the Companies Income Tax Act, Personal Income Tax Act, Stamp Duties, and Capital Gains Tax Act under what was known as -the Decentralized tax system or the old tax regime.

Despite the several amendments, the tax to GDP ratio still very low. Recognizing the the urgent need for reform, President Bola Ahmed Tinubu’s administration, initiated a comprehensive framework. This culminated in the enactment of four new tax reform laws signed on the 26^th of June, 2025[2] namely:

1. Nigeria Tax Act (NTA)
2. Nigeria Tax Administration Act (NTAA)
3. Nigeria Revenue Service Act (NRSA)
4. Joint Revenue Board Act (JRBA)

While the Nigeria Tax Act serves as the substantive law defining what tax exist and how they are charged, the Nigeria Tax Administration Act governs how taxes are assessed, collected and enforced. The Nigeria Revenue Service Act establishes the new Nigerian Revenue Service (NRS) in charge of administering the provision of the Act, while the Joint Revenue Board Act strengthens coordination across all tiers of government through a more robust Joint Revenue Board (JRB).

Undoubtedly, the new tax regime deserves commendation for its clarity and structure- at least in theory. It attempts to resolve the long-standing problem of multiple taxation across federal, state and local levels. Yet one critical question remains:

Will this new regime truly improve Nigeria’s tax-to-GDP ratio, or merely beautify a system whose root problem is still the manner in which taxes are paid and collected?

This article explores the issues of backdoor tax payments in Nigeria. It examines the gap between how tax payments ought to be made and how they are actually made in practice, investigates the causes of these informal payment channels and proposes practical, context driven solutions to address this systemic challenge.

Definition of Terms

To properly understand the concept of backdoor taxation, it is necessary to define two core terms-tax and backdoor taxation as used in this context.

Tax

A tax is simply a compulsory contribution imposed by government on individuals and entities for the purpose of generating revenue to fund public expenditure. it is not a voluntary payment, donation or gift; it is a legal obligation backed by law.

Charles E. MeLure Jr. defines tax broadly as “a compulsory charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a government organization in order to collectively fund government spending, public expenditures, or as a way to regulate and reduce negative externalities”[3]

Backdoor taxation

The word backdoor connotes secrecy, illegitimacy, and circumvention. In the context of this article, Backdoor taxation refers to instances where taxpayers pay legitimate taxes but through unauthorized or unofficial channels. This could mean settling and paying directly into tax officer’s personal account, cash payments without receipts or remittances made outside government approved systems such as Remita, or official revenue service portals.

In simpler terms backdoor taxation occurs when tax is paid the wrong way. The taxpayer fulfils their obligation in theory, but the payment fails to reach government coffers. Consequently, the payment cannot be verified, recorded or properly accounted for turning compliance into waste.

The idea of tax as a means of Public funding for government- for the greater good-is a noble, even genius. But to many Nigerians, it feels more like a financial burden or yet another corruption scheme by the government. As a result, citizens have resorted to various backdoor tax payments and in some cases, total evasion.

A common misconception among Nigerians is that taxation is not prominent is this part of the world but some borrowed culture from the Europeans-A myth based on lack of information and knowledge. In truth, taxation has been integral to nation building, during pre-colonial era traditional rulers acted as tax administrators, levying contributions on farm produce and trade goods[4]

Today taxation remains a statutory duty with the force of law, forming a key part of Nigeria’s revenue base. However, the misconception persist-not entirely without reason. It is still possible for a Nigerian to live their entire life without knowingly paying tax, or to have paid certain forms of tax (such as Stamp duties, PAYE) and still be ignorant about it.

Understanding what taxation truly means and how it has evolved from a legitimate system of public contribution into a practice often manipulated through unofficial routes helps shed light on the reality of backdoor taxation in Nigeria today.

Backdoor Taxation in Practice

In practice, taxation in Nigeria is largely depends on the tier of government involved. Yet one thing is common across all tiers: no filing is made to accompany payment, (underlining mine for emphasis). Tax payers simply pay without filing.

The observations discussed here are not based on speculation or hearsay but on firsthand experience and consistent field realities.

Federal Government & State Governments

At the federal and state level, tax payers typically remit tax without filing any documentation to disclose income, expenditure, profit or loss. Many assume that since the Act already prescribes a percentage for remittance, they can simply pay the amount.

While this informality may sometimes favour tax payers-allowing them to underpay due to lack of transparency in assessment it is equally disadvantageous to honest taxpayers who assume tax must simply be paid without filing as they lose the opportunity to deduct allowable expenditure from their tax liability.

Under this category, payment depends on the type of tax payers generate an invoice through Remita, pay into the Sigle Treasury Account (TSA) with the Federal Inland Revenue Service (FIRS) or State Internal Revenue Service (SIRS) and then drop a copy of their payment details with the respective office.

Another prominent way tax is paid in here is that many tax payers deliberately ignore their tax liabilities until tax officials visit their premises. During such visits, officials demand documents such as Tax Clearance Certificate for the previous year, Tax Identification Number (TIN), receipts of past payments, pay slips, PAYE remittance records (depending on the type of tax) etc.

At that point, the tax liability is typically negotiated and settled below the actual amount due, with payments made directly into the private accounts of the tax officials. In some cases, the taxpayer visits the revenue office and pays into the account of a preferred official-with or without a receipt.

Despite this informality, such taxpayers are often recorded as “compliant” for the year. No further notices are issued, and no follow up visits are made to verify remittance or ensure accuracy.

Local Government

At the local government level, the situation takes an even less formal turn.

Local government agents routinely visit business and residential premises with demand letters requesting arbitrary amounts for various levies and purposes. In some states as such as Ekiti, Ebonyi and Zamfara, taxpayers are accustomed to this practice that they approach the local councils directly to make payments-often preemptively, or to avoid harassment.

Upon receiving a demand letter, taxpayers are expected to negotiate what they can afford with the officials who served the notice. Once a fair amount is agreed upon, the payment is made directly into the private account of the serving officer and a receipt is issued immediately.

Alternatively, the taxpayer may choose to visit the local government office, negotiate and pay into the private accounts of the staff there. However, it is often considered “safer” to pay the field officers who deliver the demand letters, since they tend to return repeatedly until payment is made.

In a meeting with the Warri South Local Government Council head to requested the official account details of the council in order to make direct payment. the explained that paying directly into the local government account would mean paying the full, ridiculous sum stated in the demand notices, without any room for negotiation and that the procedure to pay same is very stressful and complicated. More revealing, he explained that since the government does not adequately pay the staff responsible for serving tax demand notices, they instead engage locals to deliver those notices and allow them keep part of the collections as compensation-remitting only a fraction to the council as tax.

If there’s a backdoor tax payment the question naturally flows-What’s the right way to pay tax?

TAX PAYMENT PROCEDURE IN NIGERIA

In paper tax can either be filed and paid by:

1. Gathering all required documents such as Tax Identification Number, Annual Return, evidence of income, allowable expenditure etc. depending on the type of tax
2. Download and fill the applicable tax (Form C08A, C08B, C)8C, or C08D)
3. Login to the FIRS self-filing system to file tax returns
4. Ensure that you obtain a receipt or acknowledgement of your records[5]

Causes of Backdoor Tax Payment

The first thing that comes to mind here is corruption, but the question that follows is: what is the cause of corruption? Non-patriotism? Perhaps. Yet, as flimsy and funny as it may sound, the mother of corruption that gives birth to many other forms of corruption in Nigeria including backdoor tax payment is convenience.

Most taxpayers in Nigeria do not know the proper procedure for paying tax-from filing to payment. they either understand the electronic nor the manual methods of filing and payig tax. many also lack the basic accounting skills to compute tax records for filing. Hence, Nigerians often opt for the most convenient method: paying directly into the private accounts of tax officials.

At first, the taxpayer does this in the hope that the official will eventually remit the money into the treasury Single Account. But over time, it becomes more convenient because it allows taxpayers to pay less than their actual liability.

Even Nigerians who understand electronic filing and payment may still resort to backdoor payment due to poor internet connectivity, system downtime, or technical failures on official platforms.

Other causes of backdoor tax payment and evasion

1. Un-skiled Tax Officials – As earlier discussed, many Nigerians do not fully understand the concept of taxation or how it operates in practice. Ironically, many of these individuals are employed in the FIRS and SIRS or now NRS not base on competence but through federal character, tribalism, and favouritism. Sadly, this weakens professionalism and muddles the entire tax landscape. Also, some tax officials intentionally exploit tax payers ignorance to solicit bribes.
2. Non registration of Taxpayers: A large number of taxable persons in Nigeria have not registered or obtained a Tax Identification Number (TIN), making enforcement difficult and tax records incomplete.
3. Lack of technological tools for compliance: In the 21^st century, technology is used globally to make tax administration efficient. But in igeria, public institutions-especially in the tax sector-remain largely analog. It is shameful that in this digital age, tax officials still visit organizations one by one to check compliance, requesting receipts that they themselves issued.

 

Ideally, technology should enable tax authorities to pull up every Tax Identification Number and automatically generate a list of organizations, businesses and individuals who have defaulted in remittances, triggering penalties or prosecution.

4. Lack of motivation to pay tax – Tax as we know, is an imposition by government to fund public projects such as road construction, and building or renovations of schools, hospitals, courts, etc. However, when taxpayers do not see visible-impact and instead witness blatant embezzlement of public funds they become discouraged and demoralized. This lack of trust leads may to cheat the system by paying only a fraction of their liability through the backdoor, or by evading tax altogether.
5. Non-enforcement of tax Laws– tax evasion is a crime and like every crime, it will persist until government actively enforces the law. Until the system begins to sanction offenders consistently, many taxpayers will continue to evade tax, believing that the enforcement system is weak or even dead.

 

IS THE NEW TAX REGIME A SAVIOUR TO BACKDOOR TAX PAYMENT/TAX EVASION?

While we must appreciate the new regime for simplifying the Nigeria’s tax system by unifying taxes across the tiers of government- thereby reducing the tax burden on taxpayers, we must not forget  that the major reason behind its creation was Nigeria’s low tax-to-GDP ratio,[6] which ranked among the lowest in Africa in 2024. The new regime was therefore introduced not necessarily to address backdoor payments or tax evasion, but primarily to improve revenue generation.

This brings us to the crucial question:

Will the new tax regime truly improve Nigeria’s tax-to-GDP ratio, or will it become another toothless bulldog?

To answer this, our main focus must be on the Nigeria Tax Administration Act (NTAA), 2025 which serves as the primary legislation for enforcing the substantive law.

To be forward, the Nigeria Tax Administration Act did not expressly envisage backdoor tax payments; however, certain provisions particularly those under Chapter Four (4) could potentially address backdoor taxation and evasion if the law were to meet the realities on ground.

Key Provisions and Their Gaps

1. Failure to register for Tax (Section 4)

The Act provides that a taxable person who fails to register for tax will pay fine of N50,000 for the first month of default and subsequently pay N25,000 for continued default until registration is completed.[7] However, the practical gap lies in identifying unregistered taxable persons in the first place. In reality, Nigeria’s tax enforcement primarily affects those who are visible-such as banks, oil companies and salary earners of banks and oil companies-while many self-employed persons and small businesses remain outside the net.

 

2. Failure to File Returns and proper book keeping (Section 101& 102)

The Act further provides that a taxable person who fails to file tax returns, or who files incomplete or false returns, shall pay an administrative penalty of N100,000 for the first month of the failure and 50,000 for subsequent failure.[8]

In theory this seem strict, but in practice, the system is not designed to detect defaulters effectively-because many tax-payers self-access and remit payments without proper filing. However, this may work well for corporate taxpayers already in the system. But not for small business owners.

Section 102 of the Act mandates every taxable person to keep proper business records and produce them when requested. Failure attracts N10,000 fine for individuals and N50,000 for companies. This section is not implemented in reality, because small Nigerian traders keep no books at all. Even educated professional rarely keep structured records it’s too much work for most Nigerians to compute records, hence they look for easier alternatives.

 

3. Failure to use Fiscalisation or Approved Technology (Section 103 & 104)

provides for refusal to use fiscalisation system by tax official and not using the approved electronic system for accounting records the act provides that  taxable person that refuses use of electronic systems like fiscalisation machines after 30 days of receiving the notice, will be liable to pay N1,000,000 for the first day of refusal and N10,000 for each day of refusal. When the taxable person fails to use the approve technology the person will pay a fine of N200,000 plus 100% of tax he should have paid and interest at the Central Bank.[9] This provision is not applicable in reality, if it were many tax payers must have spoken about a time tax officer tried installing a technological device in their premises or fined them for non-compliance. Enforcement may be limited to large retailers, fuel stations and formal enterprises.

4. Failure to Remit or Self-Account for Tax (Section 107)

The Act provides that a taxpayer that fails remit tax by the 21^st of every month will pay the unremitted amount, 10% annual penalty, interest at CB rate, and possible 3 years imprisonment.[10] While this is a powerful anti-corruption, enforcement is still weak as NRS (as the case maybe) must rely on audits, or whistleblowers to detect non-remittance. Also, tax authority rarely prosecutes for non-remittance

5. Failure to comply with Notices/Supply Information (Section 108)

While Section 108 of the Act prescribe daily fine of N100,000.00 per day for ignoring official notices and failing to provide requested data. This is only enforceable to registered taxpayers. The provision is Worthless for unregistered or untraceable taxpayers.

6. Offences by Authorized and Unauthorised Persons

Section 114 of the Act provides for offence by Authorized and Unauthorized Persons it provides thus:

“A person, whether or not appointed for the administration of this Act, any other tax law or employed in connection with the assessment and collection of a tax who-

• Demands or accepts any gratification from a taxable person in the performance of his functions under this Act or any other tax law,
• Withholds for his own use or otherwise any portion of the amount of tax collected,
• Renders a false return, whether orally or in writing, of the amount of tax collected or received by him
• Defrauds any person, embezzles money or otherwise uses his position to deal wrongfully with the relevant tax authority,
• Steals or misuses the documents of the relevant tax authority, or
• Compromises on the assessment or collection of any tax, commits an offence and is liable on conviction to a fine equivalent to 200% of the sum in question or imprisonment for a term not exceeding three years or to both[11]

This section exists precisely because of Nigeria’s long-standing culture of embezzlement and abuse of official positions. Therefore, rather than merely copying OECD-style provisions from foreign models, the Act should have gone further to create practical Nigeria specific mechanisms for accountability.

For instance the Act could have provide specifically, the position of the Nigeria Revenue Service (NRS) staff responsible to collect tax payment. the NRS ought to also have an internal policy regulating the staff, stating what his report should contain, and there should also be an External Auditor to audit the NRS, on tax received, and report to the government.[12]

To answer our question, No-the new tax regime is not a saviour to the Backdoor tax settlement and payment, neither does the act cures tax evasion. In fact, it is important for one to note that the old tax regime, provides for penalties to tax evasion and backdoor payments as it is currently doing yet the reality of taxation did not reflect same.

Nigeria does not have problem with laws, it is one thing to have a law and another thing to ensure it is in practice otherwise the legal space will just be messy unless extra steps (though may seem petty) is taken to ensure our laws barks and bite. Hence to achieve this we must look at the remedies to backdoor tax settlement and payment and tax evasion.

PANACEA TO BACKDOOR TAX PAYMENT/TAX EVASION

1. Technological Enforcement (Digital tax audit): Government should deploy a centralized electronic tax audit system directly linked to the National Identification Number (NIN) National Identification Cards, and Corporate Affairs Commission (CAC) database. This will automatically detect unregistered taxpayers and ensure they comply with the Act by paying fine in accordance with section 100 of the Act.

 

2. Flat rate tax for small and informal businesses: Local market women, artisans, and other informal businesses with no accounting knowledge should be taxed through a fixed, reasonable flat rate model payable quarterly or annually. This will encourage inclusion without overwhelming non-literate tax payers and reduces the temptation to negotiate payments through backdoor routes.

 

3. Third party report: Nigerian government should invest in third party report system in ensuring that tax payers file truthful reports. The third-party report is simply NRS tracing digital trail of buyers and comparing same to what sellers file, or checking their banks through their financial reports or getting annual returns filed with CAC.

 

4. Tax Literacy and Public Awareness Campaign: Many Nigerians pay tax unknowingly (e.g through Stamp duties or VAT) and thus underestimate their civic duty. A consistent awareness program led jointly by the Nigerian Revenue service (NRS) and the media can educate citizens on proper filing procedures, taxpayers rights and penalties for backdoor remittance.

 

5. Independent Tax Oversight Committee: The NRS should be audited annually by an Independent Tax Oversight Committee (ITOC) comprising civil society accountants, ad judiciary representatives to ensure collected funds are properly remitted to the Single Treasury Account.

 

6. Judicial and Legislative Reinforcement: Existing penalties in the Nigeria Tax Administration Act must be strictly enforced. Courts should treat tax evasion as economic sabotage, with expedited proceedings and mandatory recovery orders. The legislature should amend the Act to make electronic filing and fiscalisation systems mandatory for all taxable persons within two years of its commencement.

 

Conclusion

While the Nigeria Tax Administration Act, 2025 and related enactments represent bold attempt to sanitize the fiscal landscape, legislation alone cannot cure systemic rot. Backdoor tax payment thrives not merely because of weak law, but because of weak enforcement and low public trust.

Therefore, to truly strengthen Nigeria’s tax system and improve the tax-to-GDP ratio, reform must go beyond drafting; it must include digital enforcement, human integrity, and practical inclusion of small businesses. Until payment methods are streamlined, monitored, ad trusted, the Nigeria tax regime will remain clean only on paper.

 

[1] “Revenue Statistic in African 2024- Nigeria”, Organization for Economic Co-operation and Development (OECD) < https://www.oecd.org/cotent/dam/oecd/en/topics/policy-sub-issues/global-tax-revenues/revenue-stastistics-africa-nigeria.pdf > accessed 20th October, 2025

[2] “Top 20 changes to know and top 6 things to do: The Nigerian Tax Reform Acts” < PWC: <pwc.com/ng/en/publications.the-nigeria-tax-reform-acts.html> Accessed 4^th September, 2025

[3] Charles E. McLure Jr. “Taxation” Britannica

[4] Saviour Archibong ‘An Overview of Taxation I Nigeria’ Available at:https://download.ssr.com/24/03/18/ssrn_id4762979_code4809207.pdf?response-content-disposition=inlie&X-Amz-Security-Token=IQoJb3JpZ2VjEKX%2F%2F%2F%@f%2F% (Accessed 4^th September, 2025)

[5] Federal Inland Revenue Service Available at https://ww.firs.gov.ng/company-income-tax?utm_source=chatgpt.comAccessed (5^th September, 2025)

[6] International Monetary Fund (IMF), 2023 “Nigeria’s Tax Revenue Mobilization: Lessons from Successful Revenue Reform Episodes10/13/2025

[7] S. 100 of the Nigeria Tax Administration Act, 2025

[8] S. 101 of the Nigeria Tax Administration Act, 2025

[9] S. 103 and 104 of the Nigeria Tax Administration Act, 2025

[10] S. 107 of the Nigerian Tax Administration Act, 2025

[11] S. 114 (1) (a)-(e)

[12] S. 114 of the Nigerian Tax Administration Act, 2025

OKOROTE OZIOMA NWACHUKWU is a passionate litigation lawyer with a growing interest in taxation, tax reform and governance. Her interest in tax law is driven by a conviction that Nigeria can overcome its mounting debt not only through financial discipline but by giving earnest attention to taxation as a sustainable means of generating revenue and funding national development.

Although she ever set out to be a writer, Ozioma finds herself writing when it becomes necessary, when talking is no longer an option. This work reflects her deep sense of responsibility towards justice, structure and doing things the right way.

Beyond the courtroom, Ozioma is a firm believer in Christ and identifies with the Church of Christ. Her faith shapes her worldview and guides her choices. From her reasoning to her actions and inactions.