On a bustling afternoon at Agbara Market in Ogun State, business had barely picked up when a familiar scene unfolded. A group of men moved from shop to shop; not as customers, but as tax collectors. Traders pleaded, explaining that profits had been poor and sales sluggish. Their appeals fell on deaf ears.
Each shop was told to pay ₦10,200 as annual tax or risk immediate closure. After tense negotiations, most traders handed over ₦7,200 in cash and received handwritten receipts.
“This is how it happens every year,” a small business owner said bitterly. “They come without notice and force us to pay.”
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From Agbara to Idumota in Lagos, Onitsha Main Market, motor parks, and mechanic villages nationwide, the pattern is the same. States and local governments have long relied on informal collectors, middlemen, and task forces often operating in cash, sometimes violently, and usually without transparency.
That era, according to Nigeria’s tax reform architects, is drawing to a close.
January 1, 2026: A Clean Break from the Past
Nigeria is preparing to roll out one of its most sweeping tax reforms in decades. Effective January 1, 2026, the new framework introduces dozens of targeted exemptions and reliefs, bans cash-based tax collection, ends multiple taxation, and criminalises the use of touts and roadblocks for revenue generation.
At the centre of the overhaul is the 2025 Nigeria Tax Act (NTA), which establishes a unified, digital-first system for tax administration. Under the new law:
- All tax payments must be made electronically via PoS, mobile wallets, or internet banking.
- Banks are required to report individuals with monthly transactions of ₦25 million and companies with ₦100 million to tax authorities.
- Large cash transactions will be restricted, in line with global best practices.
- Federal MDAs are banned from collecting cash from January 2026.
The objective is clear: transparency, efficiency, and accountability.
Yet as the deadline approaches, concerns are mounting that states and local governments many of which depend heavily on opaque, informal revenue streams may resist or struggle to comply.
Ending Roadblocks, Spikes, and Fear
Across Nigeria’s highways and city roads, makeshift barricades, wooden spikes, and uniformed “task forces” have become a common sight. Drivers and traders are routinely stopped and forced to pay “local government levies,” “union dues,” or other questionable charges.
The new tax laws explicitly reject this approach. Arbitrary levies, sudden increases in taxes, and roadside harassment are outlawed. The intent is to replace fear-driven collection with predictable, rule-based systems.
But implementation remains the big question.
Cashless Collection Is Long Overdue — Experts
Simon Samson, chief economist at ARKK Economics and Data Limited, describes the ban on cash collection as long overdue.
“Phasing out fiscal cash collection is a good thing,” he said. “Digital payments create a trail. That transparency reduces corruption and ultimately increases government revenue.”
However, Samson warns that Nigeria risks repeating past mistakes if infrastructure is not strengthened first. He recalls the chaos of the 2023 naira redesign, when digital channels were overwhelmed and failed transactions left consumers stranded.
“We announced big changes before the systems were ready,” he said. “If digital payments are to replace cash entirely, capacity must be upgraded so the system doesn’t collapse under pressure.”
While PoS machines and mobile transfers are widespread, he stressed the need for more robust platforms and simple tools like QR codes especially for rural communities.
Are States and LGs Ready?
Despite federal momentum, experts believe subnational governments are lagging behind.
“I don’t think states and local governments are ready,” Samson said. “Even at the federal level, it’s not clear that all the groundwork has been done.”
He predicts a temporary hybrid system, combining electronic and limited cash payments may be unavoidable during the transition. Still, he dismisses fears that the reforms will reduce Internally Generated Revenue (IGR).
“I don’t see IGR falling in the long run. If anything, transparency should improve collections,” he said.
States May Adapt Faster Than LGs
Abdulfatai Adedeji, a research fellow at the Centre for the Study of Economies of Africa (CSEA), agrees that states are better positioned to adapt than local governments.
He noted that consultations between the Presidential Tax Reform Committee and state governments, including engagement through the Nigeria Governors’ Forum, have laid some groundwork for alignment.
“At the state level, adoption may be quicker,” Adedeji said. “But local governments are a different ballgame.”
According to him, the financial structures of many LGs remain opaque, making it unclear whether they can abandon informal practices like roadside cash collection.
“We don’t know their readiness, their systems, or whether they were even carried along in the reform process,” he said. “There’s little evidence states are harmonising tax administration with their local governments.”
Digital Capacity Exists, Governance Is the Test
Despite governance concerns, Adedeji believes Nigeria now has the technological foundation to support a cashless tax system. Advances in banking, financial inclusion, and internet penetration make nationwide digital collection feasible.
“We are not where we were a decade ago,” he said. “It won’t be perfect, but with existing infrastructure, this reform is doable.”
He pointed to the success of electronically collected levies such as VAT and bank transfer charges as proof that digital systems can scale.
On IGR concerns, Adedeji said outcomes will depend on income profiles. While some taxes remain federally pooled, personal income tax is collected by states. Under the new law, individuals earning up to ₦100,000 will pay no personal income tax, a change that could affect states differently depending on their workforce composition.
A Future Without Touts?
If fully implemented, the new tax regime promises a radical shift: no more harassment in markets, no more road spikes, no more arbitrary levies, and no more cash vanishing into private pockets.
For now, traders in places like Agbara in Ogun and Idumota in Lagos can only hope that the next knock on their shop doors comes not from forceful collectors with cash receipts, but from a transparent digital system that respects their dignity and protects their livelihoods.
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