Tax expert and Partner at PwC Nigeria, Kenneth Erikume, has called on finance teams and businesses to urgently automate key compliance processes to avoid costly penalties under Nigeria’s new tax regime.
Erikume gave the advice while speaking at FirstBank’s Nigeria Economic Outlook 2026, warning that the new tax laws impose significant penalties for errors that should no longer be left to manual processes.
Nigeria’s tax reform took effect from January 1, 2026.
What the expert is saying
Erikume said it is critical to get things right the first time without errors, as it will help businesses avoid costly penalties.
“If I were to advise people, it is to automate those processes that these new laws bring huge penalties on or impose huge penalties on. Because in those areas, getting it right the first time without any errors is actually critical and important. And you do not leave it to human error,” he said.
Responding to questions on how finance teams should update ERP, payroll and invoicing systems to align with the Tax Reform Act, Erikume said many organisations were already racing against time.
“If they are trying to comply now, it’s almost too late. The law is already in full swing. It started 1st of January,” he said.
However, he noted that businesses that had not fully gone live still had room to review and correct their systems, as most regulatory findings were yet to be concluded.
Payroll updates most urgent
According to Erikume, payroll systems require the most immediate attention, given employers’ obligation to pay staff salaries at the end of the month.
He said payroll logic must be updated to reflect the new graduated tax structure, including tax exemptions of up to N800,000, higher marginal rates, and a 25% tax rate on income above N50 million.
“The logic and the rules in your payroll system, have to be updated with the new rules,” he said.
He explained that employees earning below N25 million annually would see higher take-home pay due to reduced taxes, while those earning above that threshold would face higher tax deductions.
From a human capital perspective, Erikume said companies must also decide how to manage the impact on higher-earning employees.
“For the staff earning above N25 million, is the company going to absorb some of that cost by doing a payroll review to coincide with that change?” he asked.
VAT reform creates cost-saving opportunities
Beyond payroll, Erikume highlighted transaction taxes, particularly Value Added Tax (VAT), as another major area requiring urgent system updates.
He described the VAT reform as a significant opportunity for businesses to reduce costs, noting that companies can now claim VAT on fixed assets and overheads—an option previously limited mainly to manufacturers.
“For every company in Nigeria today, your costs can be reduced by 7.5% because you now have an extended ability to claim the VAT on your expenses,” he said.
Using PwC as an example, Erikume disclosed that the firm stood to benefit by over N500 million annually from the new VAT framework.
“That’s value going into your profit or loss account immediately,” he added.
However, he stressed that companies must update their systems to properly recognise VAT as an asset rather than expensing it incorrectly.
TIN validation and vendor controls now critical
Erikume also warned that businesses face penalties of up to N5 million for transacting with vendors who do not have a Tax Identification Number (TIN).
As a result, he said vendor onboarding and validation processes must be strengthened.
“You need to do an update of your vendor validation process to ensure that if you’re onboarding a supplier, that person provides a tax identification number,” he said.
He added that even small, informal transactions—such as engaging roadside artisans—now require proper tax documentation.
“Otherwise, you’ll be in trouble,” he warned.
Withholding tax errors carry heavy penalties
Another high-risk area, according to Erikume, is withholding tax, where under-deduction or failure to remit can attract penalties of up to 40%.
“Government can basically do nothing and just get additional 40% penalty from you by wrong deduction and payment of withholding tax,” he said.
This, he explained, makes automation essential to eliminate errors and ensure accuracy.
Summing up, Erikume stressed that businesses must work closely with IT teams—not just finance units—to deploy robust, automated systems that comply with the final version of the law.
He also cautioned companies to ensure that their systems are aligned with the final version passed by the National Assembly, noting that multiple draft versions had circulated.
