Nigeria Cannot Tax Its Way To Prosperity, It Must First Build More Businesses

By Enam Obiosio

For decades, Nigeria approached taxation from the wrong end of economic development. We behaved as though government revenue creates economic prosperity, when, in reality, economic prosperity creates government revenue. That distinction is far from academic; it explains why successive tax policies struggled to broaden the country’s fiscal base despite imposing countless taxes, levies and compliance obligations. Governments can legislate taxes, but they cannot legislate prosperity. Prosperity emerges only when businesses multiply, expand, employ people and create wealth. That is why I regard the latest disclosure by the Minister of Finance and Coordinating Minister of the Economy, Dr Taiwo Oyedele, as one of the most consequential economic signals to emerge from Nigeria this year. If about 10,000 businesses are now applying daily for registration with the Corporate Affairs Commission (CAC) because recent tax reforms have made formalisation more attractive, then the country may finally be correcting a structural mistake that has constrained economic growth for decades.

What excites me is not the registration figure itself but the philosophy that appears to have produced it. Nigeria has historically attempted to expand the tax net by strengthening enforcement, increasing compliance requirements and introducing additional taxes whenever public revenue came under pressure. That strategy delivered predictable outcomes. Millions of entrepreneurs simply remained outside the formal economy because operating informally appeared less costly than complying with a system they neither trusted nor understood. The latest reforms appear to reverse that logic. Rather than asking how government can collect more taxes from existing businesses, they begin by asking how government can persuade more businesses to become formal. That is an entirely different economic proposition, and I believe it is a far more sustainable one.

The genius of every successful tax system lies in recognising that compliance is fundamentally an economic decision rather than merely a legal obligation. Entrepreneurs calculate costs and benefits every day. If registration exposes them to bureaucracy, multiple taxation and regulatory uncertainty, many will avoid it. If, however, registration opens the door to tax exemptions, affordable finance, business development services, skills training and greater commercial opportunities, formalisation becomes an investment rather than a burden. Governments rarely succeed when they compel participation through fear; they succeed when they make participation economically rational. That is precisely why the reported surge in business registrations deserves to be interpreted as evidence of changing incentives rather than changing attitudes.

I have always maintained that Nigeria’s informal economy has been widely misunderstood. It is fashionable to describe informal businesses as tax evaders, yet many of them are simply rational economic actors responding to distorted incentives. They remain outside formal structures not because they reject government but because government has often failed to demonstrate the commercial value of entering the formal system. Once that value becomes visible, behaviour changes naturally. The objective, therefore, should never be to wage war against the informal economy. It should be to make the formal economy so attractive that entrepreneurs voluntarily migrate into it. Every successful economy has achieved formalisation through incentives before enforcement. Nigeria cannot become the exception.

This is why I consider business registration to be far more than a legal process. Every newly registered enterprise expands the country’s productive architecture. It becomes visible to financial institutions, making access to credit more achievable. It becomes eligible for government support programmes, allowing management capacity to improve. It begins to keep financial records, enhancing transparency and business discipline. It acquires a commercial identity capable of attracting investors, suppliers and customers. More importantly, it becomes part of the nation’s economic statistics, allowing policymakers to make decisions based on stronger evidence rather than incomplete assumptions. Formalisation is therefore not merely about documentation; it is about integrating businesses into the engines of national productivity.

The emphasis on ending multiple taxation may ultimately prove to be the most economically significant aspect of the reforms. For years, Nigerian entrepreneurs have faced a maze of overlapping taxes, levies and regulatory charges imposed by different tiers of government. The financial costs have been considerable, but the uncertainty has been even more damaging. Businesses invest where rules are predictable, not where obligations multiply without coordination. Simplifying tax administration does more than reduce compliance costs; it restores confidence. Investors rarely demand zero taxation. They demand clarity, consistency and fairness. A predictable tax system lowers the cost of doing business far more effectively than a complicated system with marginally lower tax rates.

Equally important is the government’s recognition that small and medium-sized enterprises should no longer be viewed through the lens of social welfare. I have never accepted the notion that supporting small businesses is an act of generosity. It is one of the smartest economic investments any government can make. Across the world, the most dynamic economies are powered not by a handful of large corporations but by thousands of growing enterprises that innovate, compete and employ people. Nigeria is no different. Every thriving industrial economy was built upon entrepreneurs who started small but operated within systems that encouraged expansion rather than survival. When government strengthens small businesses, it is strengthening the country’s future tax base, employment capacity and productive potential simultaneously.

Yet I would caution against celebrating registration figures prematurely. Formalisation is only the first milestone in a much longer economic journey. Registering thousands of businesses each day will matter little if those businesses remain unable to secure financing, navigate regulation, access markets or survive beyond their early years. The credibility of the reforms will therefore depend less on how many enterprises enter the formal economy than on how many eventually grow into stable employers, exporters and taxpayers. Sustainable economic transformation occurs when businesses scale, not simply when they register. Government must therefore ensure that the ecosystem surrounding these reforms is as supportive as the reforms themselves.

This is where Dr Oyedele’s broader economic philosophy becomes particularly significant. His argument that Nigeria has largely restored macroeconomic stability and must now convert that stability into productivity and shared prosperity reflects an important evolution in policy thinking. Stable exchange rates, stronger external reserves and improved fiscal balances are valuable achievements, but they remain intermediate outcomes rather than final objectives. Macroeconomic stability creates opportunities; productive businesses convert those opportunities into jobs, incomes and higher living standards. Stability is therefore the platform upon which prosperity must be built, not prosperity itself. That distinction will increasingly determine whether current reforms are remembered as temporary adjustments or lasting economic transformation.

I also believe these developments should change how Nigerians evaluate public policy. For too long, reform debates have focused almost exclusively on government revenue. We ask whether tax collections have increased, whether fiscal deficits have narrowed or whether borrowing has declined. Those questions remain important, but they are incomplete. The more fundamental question is whether government policies are creating conditions in which productive enterprise flourishes. An economy that continuously creates new businesses will eventually generate stronger revenues, broader employment and greater resilience. An economy that concentrates solely on extracting revenue from an already narrow tax base ultimately weakens its own productive capacity. The difference between the two approaches is the difference between managing scarcity and creating abundance.

Ultimately, I do not see these reforms primarily as tax reforms. I see them as enterprise reforms disguised as fiscal policy. Their greatest success will not be measured by the taxes government collects but by the businesses government helps to create, formalise and sustain. If Nigeria can continue replacing coercion with incentives, bureaucracy with simplicity and uncertainty with confidence, the country will gradually build a larger formal economy capable of financing public services without imposing excessive burdens on productive enterprise. That would represent a profound shift in our economic development model.

In the final analysis, countries do not become prosperous because governments become better tax collectors. They become prosperous because governments create environments in which businesses willingly emerge from the shadows, invest with confidence, employ people at scale and generate wealth that government can subsequently tax fairly and efficiently. That is why I regard the current reforms as potentially transformational. If they continue to persuade entrepreneurs that joining the formal economy is commercially wiser than avoiding it, Nigeria will have achieved something far more enduring than higher tax revenue. It will have begun rebuilding the productive foundation upon which every prosperous nation ultimately rests.