New Tax Law in Nigeria: Companies Face ₦5 Million Penalty for Contracts Awarded to Unregistered Persons

LAGOS, NIGERIA – In a significant move to enhance tax compliance and streamline fiscal administration, Nigeria’s newly enacted tax regime introduces stringent penalties for non-compliance. Effective from January 2026, companies and government agencies that award contracts to unregistered taxable persons could face an administrative penalty of ₦5 million. This provision, outlined in Section 100(1) of the Nigeria Tax Administration Act 2025, aims to enforce mandatory tax registration and promote transparency across business transactions.

The reform is part of a broader package of four key statutes: the Nigeria Tax Act 2025, Nigeria Tax Administration Act 2025, Nigeria Revenue Service (Establishment) Act 2025, and Joint Revenue Board (Establishment) Act 2025. These laws seek to harmonize Nigeria’s tax framework, simplify procedures, reduce burdens on low-income earners and small businesses, and incentivize investments while fostering voluntary compliance.

Key Provisions of the New Tax Regime

Under the updated tax laws, all taxable persons including individuals, companies, non-residents deriving income from Nigeria (excluding passive income), and government entities must register with the Nigeria Revenue Service (NRS) and obtain a unique Tax Identification Number (TIN). Failure to do so not only exposes individuals and businesses to fines but also triggers penalties for those engaging with them.

The ₦5 million penalty specifically targets statutory bodies or companies that award contracts to unregistered vendors or service providers. This measure is designed to close loopholes in tax evasion and ensure that all parties in commercial dealings are compliant with registration requirements. According to experts, this will increase pressure on Micro, Small, and Medium Enterprises (MSMEs) to register promptly, potentially raising compliance costs but ultimately contributing to a more equitable tax system.

Other Notable Penalties and Offences

The new regime outlines a range of offences and corresponding penalties to deter non-compliance:
Failure to Register or Obtain TIN: Fines based on the duration of the infringement.
Late or Inaccurate Tax Returns: An initial ₦100,000 fine, plus ₦50,000 for each subsequent month.
Late Tax Payments: 10% penalty on the outstanding amount, plus interest tied to the Central Bank of Nigeria’s monetary policy rate.
Fraud or False Declarations: Fines ranging from ₦1 million to ₦10 million, potential imprisonment, or both.

Non-Compliant Taxpayers (General)

After a 30-day notice, a ₦1 million daily penalty for ongoing defaults.
Specialized Sectors (e.g., Oil Companies or Virtual Assets Providers) Heavier fines, such as ₦10 million initial penalties plus daily accruals, with risks of license revocation.

Penalties extend to corporate directors, managers, or officers unless they can prove they were unaware or attempted to prevent the offence.

Implications for Businesses and Compliance Strategies

This ₦5 million penalty clause is expected to reshape how companies vet contractors and vendors in Nigeria. Businesses are advised to implement due diligence processes, such as verifying TINs before awarding contracts, to avoid financial and reputational risks.

For MSMEs, the reforms offer incentives like reduced tax burdens, but the emphasis on registration could pose initial challenges. The overall goal is to boost revenue collection, minimize disputes through mechanisms like the Office of the Tax Ombud and Tax Appeal Tribunal, and support Nigeria’s economic growth objectives.

Taxpayers should consult with professionals or visit the Nigeria Revenue Service website for guidance on registration and compliance. Staying informed about these changes is crucial to navigating Nigeria’s evolving tax landscape in 2026 and beyond.

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