Tax Reform Tightens Corporate Contract Access, Elevating Compliance Bar for SMEs
Nigeria’s evolving tax landscape is poised to significantly reshape business engagement, with new provisions under the Nigeria Tax Administration Act (NTAA), 2025, introducing a stringent compliance requirement for businesses seeking corporate contracts. This reform, aimed at formalising enterprises, risks excluding thousands of small and informal businesses from lucrative supply chains unless they secure Tax Identification Numbers (TINs).
The crux of the matter lies in Section 100(2) of the NTAA, which imposes a N5 million administrative penalty on any statutory body or company awarding contracts to unregistered individuals or entities. An unregistered person is defined as anyone conducting business without tax authority registration and a valid TIN. This measure effectively shifts the vendor tax-registration risk onto the contracting company, incentivising a “no Tax ID, no contract” approach.
Marvis Oduogu, lead, taxation at Stren&Blan Partners, highlights the direct implication: “The concern about the N5 million penalty is a valid one. A company can avoid the risk simply by selecting another supplier. Consequently, informal artisans, freelancers, transporters, farmers, and other micro-suppliers may be excluded from corporate supply chains unless they obtain tax IDs.” This provision compels businesses to enhance vendor screening, making tax registration a non-negotiable prerequisite.
However, tax consultant Yvonne Afolabi suggests a dual outcome. While acknowledging the potential exclusion of informal players, she posits that the provision could accelerate the formalisation of small businesses. “It is likely to accelerate formalisation by encouraging SMEs to register with the tax authorities and obtain a TIN,” Afolabi stated. “However, its success will depend on how simple, affordable, and efficient the registration process is. If compliance is easy, the provision could broaden the tax base and improve tax administration. If not, it may discourage smaller informal businesses from participating in formal supply chains.”
While TINs have long been a requirement, the NTAA, 2025, amplifies the compliance burden by placing direct responsibility on the engaging company. This is expected to lead to more rigorous verification processes before onboarding vendors, issuing purchase orders, signing contracts, or processing payments. Established companies already often request TINs, but the new law is anticipated to intensify scrutiny, potentially leading to mandatory tax ID verification as a compulsory step and periodic revalidation of existing vendors.
For businesses already operating within the formal economy, this shift is unlikely to cause significant disruption. Oluwafemi Imonikhe, managing director of Adunola West Africa International Enterprises, notes that his corporate clients consistently demand TINs, a standard for serious contracts. He anticipates the reform will further drive formalisation as companies increasingly demand proof of registration to mitigate the N5 million penalty risk.
This development is part of a broader suite of Nigerian tax reforms, including electronic invoicing and digital tax administration, which are collectively raising the bar for participation in the formal economy. As corporate caution grows, tax compliance is emerging as a critical determinant of access to business opportunities. The ultimate success of this reform hinges on Nigeria’s ability to streamline the formalisation process for small businesses, ensuring that compliance requirements do not become an insurmountable barrier to entry.
