Top 7 Tax Filing Mistakes and the Penalties They Attract

Tax filing mistakes remain a major problem in Nigeria, with many individuals and businesses still facing avoidable penalties because of errors in their returns. 

Even with ongoing reforms and the growth of digital filing systems, poor tax knowledge and weak record-keeping continue to expose taxpayers to compliance risks, especially among small businesses and self-employed professionals.

Experts say a large share of tax penalties each year comes from repeated mistakes that often reflect weak compliance systems rather than the difficulty of the tax laws themselves. As filing deadlines draw closer, these issues usually become more noticeable, increasing the chances of costly errors.

Missing Filing Deadlines Remain a Major Problem

One of the most common problems is missing filing deadlines. Many taxpayers fail to submit monthly returns, such as Value Added Tax and Withholding Tax, on time, even though they are usually due by the 21st of the following month. Individuals also struggle with the March 31 deadline for annual personal income tax returns, particularly those with more than one source of income.

Companies are expected to file within 6 months after their financial year-end, but delays are still common. Under Section 101 of the Nigeria Tax Administration Act 2025, failure to file returns attracts a penalty of N100,000 for the first month and N50,000 for each additional month the default continues.

Wrong Tax Calculations Can Lead to Heavy Penalties

Another major issue is incorrect tax computation. This includes using the wrong tax rates, ignoring allowable deductions, or wrongly calculating taxable income. Some taxpayers understate what they owe and later face underpayment penalties, while others overpay and place unnecessary pressure on their cash flow.

Section 101 of the NTAA 2025 treats incorrect returns as seriously as failure to file, meaning the same penalties may apply.

Poor Record Keeping Weakens Compliance

Poor record keeping and incomplete documentation also continue to create serious problems. Many businesses still do not maintain proper books, making it difficult to determine their true income, expenses, and tax obligations. 

Where invoices, receipts, and contracts are missing, valid deductions may be rejected during an audit, leading to higher tax bills and possible penalties.

Section 102 of the NTAA 2025 states that failure to keep or provide books and records attracts a penalty of N10,000 for individuals and N50,000 for companies.

Failure to Remit Collected Taxes Is a Serious Breach

Failure to remit taxes already collected is another serious breach. Some businesses collect taxes such as VAT or Withholding Tax from customers or vendors but fail to pay them over to the relevant tax authority. This is especially common where internal controls are weak.

Under Section 107 of the NTAA 2025, failure to remit deducted, collected, or withheld taxes by the due date attracts a penalty equal to the amount not remitted, an administrative penalty of 10 percent per year on the unpaid amount, and interest at the prevailing Central Bank of Nigeria Monetary Policy Rate.

Withholding Tax Errors Can Increase Tax Burden

Withholding Tax mismanagement is also a frequent problem. Some businesses fail to deduct WHT when required, deduct the wrong amount, or fail to obtain the necessary credit notes after making payments. 

Without proper documentation, they may not be able to claim WHT credits, which can increase their tax burden and expose them to further compliance issues.

Section 105 of the NTAA 2025 provides that failure to collect, deduct, or withhold tax attracts a penalty of 40 percent of the amount that should have been deducted.

Failure to File Nil Returns Still Counts as Non-Compliance

Another common mistake is failure to file nil returns. Some taxpayers wrongly believe they only need to file when they have income or profit to declare. In reality, tax authorities still expect returns to be filed even when there has been no business activity. Startups and inactive businesses often make this mistake.

Under Section 101 of the NTAA 2025, failure to file nil returns attracts the same penalties as not filing at all.

Misreporting Income and Expenses Can Trigger Audits

Misclassification of employees and expenses is another area of risk. Some businesses classify employees as independent contractors to avoid Pay As You Earn obligations, while others treat personal spending as business expenses. These mistakes can distort tax returns and increase the risk of audits and penalties when discovered.

Inaccurate income declaration is also a major issue, especially for people with multiple income streams. Income from freelance work, consulting, investments, or side businesses is sometimes left out of tax returns. 

This makes the filing incomplete and may result in penalties if tax authorities later detect the omission during reviews or audits. As Nigeria widens its tax net, experts warn that underreporting income is becoming more dangerous.