Can Tax Harmonisation Improve Ease of Doing Business in Nigeria?

Taiwo Oyedele, chair of the Presidential Fiscal Policy and Tax Reforms Committee and now nominated as Minister of State for Finance, has said at least 12 states have enacted a tax harmonisation law, with others at various stages.

Tax harmonisation, if done seriously, can reduce these frictions and improve the ease of doing business. But it will only work if it changes what businesses actually experience on the ground.

To understand why the reforms matter, it is necessary to understand how dysfunctional Nigeria’s tax environment had become.

Nigeria’s tax-to-GDP ratio stood at just 7.9% before the reforms, among the lowest in sub-Saharan Africa, according to the Lagos Chamber of Commerce and Industry. The country ranked 131 out of 190 economies in the World Bank’s 2020 Ease of Doing Business index, an improvement from 146 in 2018, but still far from competitive.

What tax harmonisation is supposed to fix

For many businesses, especially SMEs, the biggest cost is not the statutory rate. It is the time, risk and disruption involved in dealing with multiple authorities: state and local government revenue agents, sector regulators, ad hoc levies, stickers and collections tied to the movement of goods. Where the rules are unclear or overlapping, enforcement becomes discretionary, and discretion becomes a hidden tax.

Duplication is one of them. When multiple layers of government impose similar charges on the same activity, firms either overpay, under-comply or spend resources disputing demands. Nigeria has long wrestled with the impact of multiple taxation on competitiveness.

Complexity is another problem. When businesses face dozens of different taxes and levies, each with its own paperwork and payment channel, compliance stops being routine. Oyedele’s reform agenda has been publicly described as an effort to cut the number of taxes imposed across tiers of government from over 60 to fewer than 10. Whether the final count lands exactly there or not, the direction matters: simplify the system.

Enforcement friction is also central to the problem. Government has announced measures aimed at coercive collection practices, including a ban on cash collection and roadblocks used for tax and levy enforcement, alongside a presumptive tax framework for small and informal businesses. If enforced, that is directly connected to ease of doing business because it targets the informal barriers that slow logistics and raise transaction costs.

Where harmonisation can genuinely improve the business climate

The biggest gain is predictability. Investors can price known costs; they cannot price arbitrary ones. A harmonised tax regime that standardises what can be collected, by whom, and through which channel reduces the number of unknowns that make Nigeria a risk-premium market. That matters for domestic investors too. Expansion decisions often depend on whether opening a new branch in another state means entering a new maze.

Another gain is lower compliance cost. The World Bank’s Doing Business framework, when it still published country reports, treated paying taxes as a major component of the business environment, measuring time spent and number of payments, not just rates. Nigeria has historically struggled on ease-of-paying-taxes indicators because administrative burden is a real cost. Harmonisation, paired with digital payment systems and a unified taxpayer identity, can reduce both the number of payments and the time spent managing disputes.

There is also the potential for formalisation without strangulation. Nigeria’s informal economy is large, and governments want to widen the tax net. The danger is that widening the net becomes a new excuse for harassment. A clear presumptive tax regime, simple, transparent and payable digitally, can bring microbusinesses into the system while reducing street-level extraction, provided the state actually removes the parallel levies and enforces the ban on cash collection and roadblocks.

Why it may fail in practice

Harmonisation is easy to announce and hard to implement because Nigeria’s fiscal structure is decentralised. States and local governments depend heavily on internally generated revenue, and many have built collection ecosystems around agencies, contractors and enforcement teams with incentives tied to how much they can collect, not how fair the process is. If harmonisation threatens those incentives, resistance will be quiet but effective: the law may pass, yet the old collections continue under new names.

Partial adoption is another problem. Oyedele’s claim that 12 states have enacted the law is a start, not a finish. If some states harmonise and others do not, businesses still face a patchwork, only a slightly smaller one. The investment benefit of harmonisation comes when firms can expand across states with consistent expectations.

There is also the gap between formal reform and informal enforcement. Even if cash collections and roadblocks are banned, enforcement capacity still matters. If agencies are not disciplined, if complaints channels do not work, or if courts are slow, businesses will still choose avoidance over compliance. Reform that lives only in Abuja circulars does not improve ease of doing business in Aba, Onitsha, Kano or Apapa.

Credibility may be the biggest test of all. Businesses comply more willingly when they can see the trade-off: taxes translate into services, or at least into a fair system. Nigeria’s low tax-to-GDP ratio is partly a capacity issue and partly a trust issue. Harmonisation can improve the system, but if it is seen mainly as a revenue squeeze during hard economic times, resistance will grow and informality will deepen.

What would make it work

For harmonisation to measurably improve ease of doing business, certain conditions are non-negotiable.

A strict single-channel rule is essential. Taxes must be payable through verifiable digital channels, with receipts recognised across agencies. The ban on cash collection points in the right direction, but it has to be enforced beyond press statements.

There must also be a clear list of allowable taxes and levies at each tier of government, backed by penalties for illegal collections. Harmonisation is not just about alignment; it is also about subtraction. If the old levies remain, businesses will feel no relief.

Fast and affordable dispute resolution is equally important. When a firm is wrongly billed or harassed, it needs a practical remedy: a hotline that works, an ombudsman with authority, and timelines for refunds or reversals. Without that, “harmonised” simply becomes another word for centralised frustration.