PwC Partner Advises Nigerian Firms on Digital Transformation for Tax Compliance

Beyond compliance, the new regime offers significant cost-saving incentives through Value Added Tax (VAT) restructuring

The Federal Government’s comprehensive tax reform officially commenced on January 1, 2026, introducing a sophisticated fiscal framework that demands heightened precision from corporate Nigeria. Kenneth Erikume, Partner and Tax Expert at PwC Nigeria, has issued a strategic call to action for finance teams to automate their compliance processes immediately. Speaking at FirstBank’s Nigeria Economic Outlook 2026, Erikume warned that the transition from manual to digital systems is no longer optional, as the new laws impose severe penalties in some cases up to 40% for errors that were previously overlooked.

The Critical Deadline for Payroll Alignment

The most immediate pressure for Nigerian employers lies in payroll management. With the January month-end salary cycle approaching, Erikume noted that payroll logic must be fundamentally restructured to accommodate the new graduated tax bands.

Under the 2026 reform, the personal income tax structure has been rebased:

• Tax-Free Threshold: Individuals earning ₦800,000 or less annually are now fully exempt.

• Middle-Income Relief: Taxpayers earning between ₦800,001 and ₦25 million will generally see a reduction in their effective tax rate, resulting in higher take-home pay.

• High-Earner Surcharge: A top marginal rate of 25% now applies to income exceeding ₦50 million.

Erikume advised companies to proactively review compensation packages for leadership and high-earning staff, as the increased tax burden on salaries above ₦25 million may require strategic adjustments to maintain talent retention.

VAT Reform: A ₦500 Million Profit Opportunity

Beyond compliance, the new regime offers significant cost-saving incentives through Value Added Tax (VAT) restructuring. Previously, the ability to claim "input VAT" (tax paid on business purchases) was largely restricted to manufacturers. The 2026 reform expands this to nearly all corporate entities, allowing businesses to recover VAT paid on fixed assets and general overheads.

Erikume highlighted that this change effectively reduces operational costs by 7.5%. For a firm the size of PwC, he estimated an annual bottom-line benefit exceeding ₦500 million. However, he cautioned that finance teams must update their Enterprise Resource Planning (ERP) systems to treat VAT as a recoverable asset rather than an expense to capture these gains legally.

Strengthening Vendor Controls and TIN Validation

The era of informal vendor engagement has effectively ended with the introduction of the Nigeria Tax Administration Act 2025. Businesses now face a ₦5 million penalty for awarding contracts to vendors who do not possess a valid Tax Identification Number (TIN).

This "zero-tolerance" approach requires an immediate overhaul of procurement workflows. Erikume stressed that even small-scale engagements such as hiring local artisans or independent consultants now require formal tax documentation. Failure to validate a vendor’s TIN before payment could trigger automated audits and substantial administrative fines.

Mitigating High-Risk Withholding Tax Penalties

Withholding tax (WHT) remains one of the highest risk areas under the new regime. According to the PwC partner, the government has introduced a 40% penalty for under-deduction or failure to remit WHT.

"The government can essentially generate a 40% premium just from corporate errors," Erikume warned, noting that manual calculations are highly susceptible to these discrepancies. He urged IT and finance units to collaborate on deploying robust, automated software that aligns with the final

Conclusion: The Urgency of Digital Compliance

As the 2026 tax laws are already in full swing, the "grace period" for businesses has narrowed. While companies still have a window to review their systems before the first major filing deadlines, the margin for error has disappeared. For institutional investors and policymakers, the successful automation of these processes will be the primary indicator of corporate resilience in Nigeria’s evolving economic landscape.