Tag: economy

2026 Economic Outlook for Nigerian MSMEs: Data Driven Insights from PwC, IMF & Local Realities.

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As we step into the Ember Period, when the year glows with the intensity of renewed resolve, it is a decisive moment for Nigerian Micro, Small, and Medium Enterprises (MSMEs) to reflect, recalibrate, and project forward. Today’s Tuesday Notes series seek to equip business leaders, entrepreneurs, and in-house counsel with actionable intelligence rooted in robust data and local realities.

This edition examines the 2026 outlook, drawing from the IMF and PwC half-year reports, while situating these global insights within Nigeria’s economic context. The challenges of foreign exchange reforms, high inflation, infrastructure bottlenecks, and regulatory changes define the terrain in which MSMEs operate. Yet opportunities abound in digital transformation, sustainability, and Africa-wide trade integration.

Global Trends, Local Implications

The IMF projects global GDP growth of 3.0% in 2025 and 3.1% in 2026, while PwC estimates more modest figures at 2.3%–2.7%. These numbers indicate a slower but resilient global economy. For Nigerian MSMEs, this matters in two key ways: export opportunities into growing markets like India and Sub-Saharan Africa, and exposure to global risks such as tariffs, commodity price shocks, and currency volatility.

Globally, inflation is easing, with advanced economies stabilizing near 2%. But in Nigeria, inflation remains elevated, crossing 30% in mid-2025 and projected to average above 20% into 2026. For MSMEs, this means continued pressure on input costs and consumer demand, requiring smarter pricing, supply chain efficiencies, and cost controls.

Interest rates in advanced economies are easing gradually, but Nigeria faces persistently high rates following CBN’s tightening cycle to stabilize the naira. Lending rates for SMEs often exceed 20%, constraining access to credit. Nigerian MSMEs must therefore explore alternative financing channels—private equity, impact investors, fintech-driven credit platforms—while pushing for policy reforms that unlock cheaper capital.

Nigeria’s MSME Landscape

MSMEs contribute about 46% to Nigeria’s GDP and account for over 80% of employment, according to PwC’s MSME Survey. Yet the sector is highly vulnerable to exchange rate volatility, energy costs, and regulatory complexity.

The IMF forecasts Nigeria’s GDP growth at 3.2% in 2025 and 3.0% in 2026, driven by non-oil sectors like agriculture, services, and fintech. But inflation, currency weakness, and infrastructure deficits remain structural hurdles.

For decision makers, this dual reality—growth potential but fragile fundamentals—demands strategic recalibration. Nigerian MSMEs must:

(i) Diversify beyond domestic markets by leveraging AfCFTA, particularly into West African trade corridors.

(ii) Invest in digital tools, including generative AI, to cut costs and expand reach.

(iii) Build resilience into supply chains by integrating regional suppliers and hedging against FX risks.

Legal and Regulatory Considerations

For in-house counsel and legal advisors, the years ahead will require sharper focus on compliance, contracts, and risk management:

i. Tax and fiscal reforms: The Federal Government continues to broaden its tax net. MSMEs must ensure proper structuring and compliance to avoid penalties while exploring available incentives.

ii. CBN regulations: Ongoing currency and banking reforms will affect FX access and loan conditions. Counsel should review financing contracts closely to capture currency and interest rate risks.

iv. Trade agreements: The AfCFTA presents opportunities but requires legal preparedness—compliance with rules of origin, dispute resolution mechanisms, and cross-border contract drafting.

v. Technology and data governance: As more MSMEs adopt AI and digital platforms, compliance with Nigeria Data Protection Act (NDPA) and intellectual property laws becomes critical.

vi. Sustainability standards: Climate reporting and green certifications are gaining traction globally; Nigerian MSMEs seeking export markets must prepare for these requirements.

Strategies for Thriving in 2026

For Nigerian MSMEs, thriving in the next 18 months requires balancing immediate resilience with long-term reinvention. Practical strategies include:

i. Conducting scenario planning using IMF, PwC, and CBN data to anticipate FX and inflation movements.

ii.Strengthening governance structure, which implies boards, compliance units, and in-house counsel navigate regulatory uncertainty.

iii.Partnering regionally to expand trade and reduce dependency on volatile local inputs.

iv. Investing in workforce upskilling, particularly digital and legal literacy.

v. Pursuing sustainable practices that align with green financing opportunities.

Conclusion: Igniting Nigeria’s Ember Glow

As 2025 draws to a close, Nigerian MSMEs face a demanding yet opportunity-rich horizon. Global trends signal moderation, while local realities call for resilience and reinvention. Decision makers and in-house counsel must therefore embrace the sevenfold wisdom of the Ember Period—turning uncertainty into fuel for transformation.

At AEO Law Practice, we remain committed to supporting Nigeria’s business leaders with data-driven insights and legal foresight to ensure MSMEs not only survive, but glow brighter in 2026 and beyond.

Recent Tax Reforms: The Economic Stabilisation Bill and The Nigeria Revenue Service (Establishment) Bill.

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Recent Tax Reforms: The Economic Stabilisation Bill and The Nigeria Revenue Service (Establishment) Bill.

  1. The Economic Stabilisation Bill

On 23 September 2024, the Federal Executive Council approved the Economic Stabilisation Bill (ESB), with focus on amending tax, fiscal, and establishment laws, required for the enhancement of economic stability and growth.

The bill, driven by recommendations from the Presidential Fiscal Policy and Tax Reforms Committee, chaired by Mr. Taiwo Oyedele, is set to deliver the Federal Government’s accelerated stability and advancement plan.

The following amendments were proposed as provisions for the Economic Stabilisation Bill:

  • Amendments to income tax laws to facilitate employment opportunities for Nigerians in the global value chain, including the digital economy. With focus on the Companies Income Tax Act amongst others, Nigerians will be able to provide services to foreign companies without requiring them to be incorporated in Nigeria. It is anticipated that the development will create new employment, income and entrepreneurship opportunities.
  • Amendments to the Foreign Echange Act, to facilitate electronic transactions over cash to increase liquidity and empower the Central Bank of Nigeria to attract international funds through foreign exchange transactions and remittances to Nigeria.
  • Zero-rated VAT and improved incentive regime to promote exports in goods, services, and intellectual property.
  • Amendments to facilitate investment in the gas sector and simplify local content requirements to ensure competitiveness.
  • Tax reliefs for private sector employers in respect of wage awards and transport subsidies provided to their employees.
  • Tax relief to companies that generate incremental employment and retain such employees for a minimum of three years.
  • Fiscal discipline and enhancement of remittances from government agencies and corporations to the Consolidated Revenue Fund of the Federal Government.
  • Collaboration with states to suspend certain taxes on small businesses and vulnerable populations, including road haulage levies and other charges on transportation of goods.
  • Introduction of a “Tax Identification Consolidation and Collaboration (TICC)” initiative to expand the tax base and create level playing field for businesses.
  • Provision of additional funding for the Students Loan Scheme.

These reforms approved by the FEC are set to be transmitted to the National Assembly for passage into law and if enacted, are expected to play a pivotal role in stabilising Nigeria’s economy and fostering long-term sustainable growth.

Additionally, the Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, revealed that the Fiscal Responsibility Act will be overhauled to guide government owned companies on how to share surpluses and build reserve funds from their revenues.

B. The Nigeria Revenue Service (Establishment) Bill

Furthermore, on 3 October 2024, President Bola Ahmed Tinubu introduced four critical fiscal bills to the National Assembly titled “The Nigeria Revenue Service (Establishment) Bill. The Bill is designed to modernize tax administration, enhance revenue collection efficiency, and create a comprehensive, unified tax legislation for Nigerians as enumerated below:

1. 1 Nigeria Revenue Service Bill

The Nigeria Revenue Service (NRS) Bill replaces the Federal Inland Revenue Service (Establishment) Act, 2007 (“FIRS Act”). Key reforms introduced in this Bill include:

  • Tax Collection Assistance

The NRS can now assist States, Local Governments (LGs), or other government entities in collecting taxes, provided there is mutual agreement. This provision aligns with the federal structure of Nigeria, allowing collaborative revenue generation.

  • Separation of Tax Administration.

The bill establishes tax administration as a distinct legislative framework, previously consolidated under the FIRS Act. This highlights the importance of a dedicated statute for tax governance.

1.2  Joint Revenue Board Bill

The Joint Revenue Board (JRB) Bill succeeds the previous Joint Tax Board (JTB) framework and seeks to streamline tax coordination across all levels of government. Notable provisions include:

  • Integrated Taxpayer Database

The JRB shall be responsible for maintaining a comprehensive and integrated database of all taxable persons in Nigeria, working alongside the NRS, State Internal Revenue Services (SIRS), Local Government Revenue Committees (LGRC), and other government agencies. This is a significant step toward a more centralized and efficient tax system.

  • Tax Tribunal and Ombudsman.

The Tax Appeal Tribunal (TAT), which existed under previous tax legislation, remains in place. Additionally, the Bill introduces a Tax Ombudsman—an independent arbiter to mediate disputes between taxpayers and revenue authorities, promoting transparency and fairness in tax administration.

1.3 Nigeria Tax Administration Bill

The Nigeria Tax Administration Bill outlines detailed procedures for tax registration, reporting, and compliance. Significant elements of this Bill include:

  • Mandatory Tax Identification Number (TIN).

All Ministries, Departments, and Agencies (MDAs), including non-resident entities, are now required to obtain a TIN. This mirrors provisions in the Companies Income Tax Act (CITA) and the Personal Income Tax Act (PITA), reinforcing the importance of a centralized identification system for taxpayers.

  • Upstream Oil & Gas Taxation.

Companies in the upstream oil sector are required to file both estimated and actual tax returns, enhancing transparency and predictability in tax obligations. Furthermore, they are to pay taxes on a monthly installment basis, a shift from the annual payment system previously in place.

  • VAT Fiscalisation System: The Bill introduces a Value-Added Tax (VAT) Fiscalisation System, a new electronic platform for recording and reporting taxable supplies. This is a progressive step towards improving VAT collection efficiency and reducing evasion.

2.    Nigeria Tax Bill

The Nigeria Tax Bill represents the most comprehensive reform, overhauling Nigeria’s tax system by repealing 11 existing tax laws. It consolidates various tax provisions into a unified framework. Key reforms include:

  •  Presumptive Tax Regime.

The Bill introduces a presumptive tax regime for individual taxpayers, a significant reform which shall focus on improving tax compliance from the informal sector, in line with provisions under the PITA.

  • Changes to Corporate Income Tax (CIT).

The CIT rate for small companies will be pegged at 0%, while other companies will face rates of 27.5% in 2025 and 30% from 2026. Large companies, including Multinational Enterprises (MNEs) with turnovers above ₦20 billion, will be subject to an effective tax rate of 15%, regardless of deductions or allowances. This echoes global trends in taxing MNEs based on economic activity within the jurisdiction.

  • Personal Income Tax Reforms

The Bill revises individual income tax bands, with progressive rates that increase with income. The highest marginal rate stands at 25% for income above ₦50 million.

  • Development Levy

A phased Development Levy is introduced, starting at 4% in 2025 and reducing to 2% by 2030. This levy will replace existing levies such as the Tertiary Education Tax Fund (TETFUND), NITDA, and NASENI levies. The Student Loan Fund will be the sole beneficiary of the Development Levy from 2030.

  • Tax Deductions

The Bill expands the range of eligible deductions, including interest on mortgage loans, adding to previously allowable deductions such as contributions to the National Housing Fund (NHF), National Health Insurance Scheme (NHIS), and pension funds.

3.   Tax Refund Timeline

Tax refunds are now to be processed within 90 days, while VAT refunds are to be settled within 30 days. This provision aligns with global best practices and emphasizes the government’s commitment to a fair tax system.

4.    Incentives for Tax Revenue Assistance.

Individuals or entities assisting tax authorities in generating revenue are now entitled to rewards, incentivising participation in revenue generation and compliance enforcement.

5.    Revenue Distribution and Deduction Powers.

The Accountant-General of the Federation (AGF) now has the authority to deduct funds from MDAs at source following a warrant issued to the NRS. Additionally, VAT revenue is to be distributed with 10% to the Federal Government, 55% to the States, and 35% to Local Governments, with the states and LGs sharing based on a 60% derivation formula, benefiting high-revenue states like Lagos and Rivers.

     Conclusion

The Economic Stabilization Bill is crucial for addressing Nigeria’s fiscal challenges, promoting economic resilience, curbing inflation, stabilising currency, and fostering growth by implementing measures to boost revenue, spending efficiency, and job creation while the Nigeria Revenue Service (Establishment) Bill proposed by President Tinubu serves the purpose of streamlining tax administration, enhance revenue collection, and improve fiscal accountability in Nigeria.

Author

Adeola Osifeko Esq LLB, LLM ACIS

Partner AEO Law Practice

Email: adeola@aeolawpractice.com LinkedIn: https://www.linkedin.com/in/adeola-osifeko/

THE VALUE ADDED TAX REFORM PROPOSAL.

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In February 2020, the erstwhile Minister of Finance, Budget and National Planning issued the Value Added Tax (VAT Modification Order) 2020, which modified the provisions of the First Schedule to the VAT Act adding to, and expanding the list of goods and services specified in its provision whilst extending VAT exemption status to 868 items covering amongst other things medical and pharmaceutical products, essential raw materials for the production of pharmaceutical products, basic food items, baby products, book and educational materials..

Recently the Presidential Fiscal Policy and Tax Reforms Committee chaired by Mr. Taiwo Oyedele seeks to reduce VAT burden on household spends proposed that VAT rate be reduced to zero per cent (0%) on food, health, and education, while tax exemption be extended to rent, transportation, and small businesses.

Additionally, the Committee seeks to review the rate of VAT by 2.5% on non-essential items, in order to partially offset the impact on the tax reduction rate and exemption for essential items in order to protect the masses, and grant opportunity for states who earn 85% of VAT revenue.

This proposed VAT reform also extends to businesses so that they benefit from the full credit of VAT remitted from their assets and services thereby lowering their overall costs and moderating inflation.

DISTINGUISHING THE CURRENT & PROPOSED VAT REGIMES.

The Value Added Tax (VAT Modification Order) 2020 and the Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) VAT proposed reforms are directed to adjust VAT application. However, they differ in scope, objectives, and specific reforms as enumerated below:

1. Value Added Tax (VAT Modification Order) 2020:

This VAT Modification Order, often implemented as a response to immediate fiscal needs, was part of the broader tax adjustments made to address specific challenges occasioned by the pandemic. The changes were largely focused on improving VAT revenue and addressing concerns raised by businesses and the public.

Key Features:

  • Modification of VAT rates: This order typically involved adjustments to VAT rates on certain goods and services, such as reductions or increases in the VAT rates applied to specific industries.
  • Introduction of zero-rated and exempt goods: The VAT Modification Order often reclassified goods and services, adding or removing items from zero-rated or VAT-exempt categories.
  • COVID-19 Response: The 2020 modification included temporary measures to support sectors hardest hit by the COVID-19 pandemic, such as healthcare, personal protective equipment (PPE), and essential goods.

Objectives:

  • Increase government revenue by expanding the VAT base.
  • Provide targeted relief for sectors affected by the pandemic.
  • Simplify VAT compliance for businesses through clearer rules and reclassifications.

2. Presidential Fiscal Policy and Tax Reforms Committee (PFPTRC) VAT Proposed Reforms:

The PFPTRC VAT proposed reforms represent a long-term and comprehensive approach to VAT reform to overhauling the tax system. These reforms typically involve a broader policy framework designed to address inefficiencies, improve compliance, and ensure equitable taxation.

Key Features:

  • Zero % VAT and exemption base expansion on essential items: One of the main objectives of the PFPTRC reforms is to include zero percent (0%) VAT on essential items such as food, education, and healthcare, along with exemptions for rent and transport, while raising VAT rates on non-essential items to offset these reductions.
  • Improved compliance mechanisms: The reforms emphasize better enforcement of VAT laws, improved collection systems, and reduced VAT evasion by employing digitization of VAT filing and payment processes.
  • Simplification of VAT structure: The proposed reforms simplify the VAT system by reducing complexities in rate classifications and exemptions, making it easier for businesses to comply.
  • Revenue allocation adjustments: The proposed reform changes  how VAT revenues are shared between different levels of government and national development projects.

Objectives:

  • Increase revenue sustainability by reducing VAT exemptions and strengthening compliance.
  • Enhance fairness and equity in the tax system, ensuring that all sectors contribute fairly.
  • Improve economic efficiency by streamlining VAT procedures and removing distortions in the tax system caused by too many exemptions or reduced rates.
  • Long-term fiscal stability actualised through reformed VAT framework that is adaptable to changing economic conditions.

Comparison:

AspectVAT Modification Order 2020PFPTRC VAT Proposed Reforms
ScopeShort-term, targeted adjustments  Long-term, comprehensive reforms
ObjectiveImmediate revenue needs and COVID-19 relief  Broader fiscal sustainability, fairness,     and compliance
VAT BaseModifications to specific items, some exemptions/zero-rated changesBroader base, reducing exemptions
EnforcementSome changes to simplify complianceFocus on improved compliance, through digitization
Sector FocusPandemic-affected sectors, essential goodsAll sectors with emphasis on equitable distribution of tax burdens
Revenue Impact Export Services & Intellectual PropertyImmediate but potentially limited revenue impact Imposes VAT on these export services and intellectual property, making them more expensive and less attractive internationallyLong-term, sustainable revenue growth Introduces a 0% VAT rate on the export of services and intellectual property to boost global competitiveness,

Conclusion:

While the VAT Modification Order 2020 was more reactive, addressing specific issues like pandemic relief and short-term revenue generation, PFPTRC VAT proposed reforms are more proactive, seeking to create a long-term VAT system that is fairer, more efficient, and sustainable. It contemplates structural changes, whereas the 2020 order was more of a temporary adjustment to respond to urgent needs.