Entrepreneurs warn that increasing VAT could wipe out small businesses that rely on direct marketing and freelance services, as essential expenses remain non-deductible.
The federal government’s proposed increase in the Value Added Tax (VAT) from 7.5% to 12.5% has sparked widespread concern among Nigeria’s small and informal entrepreneurs, who say the hike could cripple their businesses and push many out of operation.
The proposed VAT hike, part of a broader package of tax reform bills recently passed by the Senate, is intended to boost government revenue and streamline the tax system. However, stakeholders in the informal sector argue that the move risks wiping out thousands of mobile, office-to-office, and freelance businesses operating with limited overhead and capital.
“For us, every naira counts,” said Chidi Umeh, a freelance marketer based in Lagos. “An advertising service that cost N100,000 could now rise to N112,500 due to VAT alone. We don’t have the pricing power to pass that on to clients.”
Umeh’s concern is shared by many in Nigeria’s informal economy—one that accounts for nearly 60% of the country’s employment. From mobile printers and freelance designers to content creators and direct marketers, these businesses operate largely without formal registration but are still affected by the ripple effects of VAT charged by vendors, landlords, and media platforms.
Critics say the reforms fail to account for key realities of these operations. The proposed VAT framework excludes core operating costs like transportation, power supply, and telecommunications from the list of deductible expenses. As a result, these small entrepreneurs will have to shoulder VAT costs on the full value of their services—without any relief.
“This is a death sentence for hustlers,” said Aminat Bello, who runs a two-person creative agency handling content design and advert placements. “Transport, data, and electricity are our biggest costs, and none of them will be deductible under the new structure.”
While government representatives argue that the reform targets high-value transactions and formal enterprises, there’s growing concern that the blanket increase in VAT will disproportionately impact the smallest players—those who operate under the radar but keep the wheels of the grassroots economy turning.
Labor groups and tax experts have also weighed in, warning that the unintended consequence of the VAT hike may be an exodus of micro-enterprises from the already thin formal tax net—resulting in reduced overall compliance and trust in government policy.
“It’s not reform if it wipes out the engine of the real economy,” read a statement from a coalition of informal sector associations. “It’s repression wrapped in bureaucracy.”
As the harmonization of the tax bills moves forward in the National Assembly, industry watchers say urgent amendments are needed—particularly provisions that exempt micro and small businesses or provide relief for non-deductible essentials.
What’s Next?
With a decision expected in the coming weeks, small business owners are hoping lawmakers will listen before it’s too late. If the current proposal passes unchanged, Nigeria could see a major downturn in grassroots economic activity—and a widening of the already deep gap between the formal and informal sectors.
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