In a significant shift aimed at strengthening tax compliance and closing revenue leaks, Nigeria Tax Administration Act, 2025 (NTAA 2025), introduces a stringent new penalty regime requiring companies and statutory bodies to deal only with tax‑registered persons in their procurement activities.
Under this law, firms that award contracts to unregistered persons risk an administrative fine of ₦5 million per contract — a punitive step designed to enforce compliance across the private and public sectors.
What the Law Says
Under Section 100(2) of the NTAA 2025, “a statutory body or company who awards a contract to an unregistered person shall be liable to pay an administrative penalty of ₦5,000,000.”
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An “unregistered person” refers to any individual, business or legal entity that is required to be registered for tax purposes in Nigeria but has not obtained a valid Tax Identification Number (TIN), or completed mandatory registration with the relevant tax authority.
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Notably, even if a business is incorporated with the Corporate Affairs Commission (CAC), it is still considered unregistered for tax purposes if it lacks proper tax registration and a TIN.
Companies and government agencies are thus under clear legal obligation to verify tax registration status before onboarding vendors, suppliers, consultants, or contractors. Failing to do so could trigger the significant ₦5 million administrative penalty.
Policy Rationale
The core intent behind this provision is to expand the tax net and compliance culture in Nigeria. For years, many firms — especially small and informal businesses — operated without formal tax identification, making them outside the reach of tax authorities.
By penalising contracting parties for engaging unregistered vendors, lawmakers aim to:
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Encourage universal tax registration and compliance;
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Strengthen traceability in the procurement cycle;
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Discourage tax evasion and informal economic activity;
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Bolster government revenue mobilisation efforts.
The new rule essentially shifts some compliance responsibility from vendors to contracting companies and statutory bodies, making them gatekeepers of the tax‑compliant business ecosystem.
Broader Penalty Regime
The N5 million penalty is one of several administrative sanctions under the NTAA 2025 intended to tighten tax compliance. Other notable penalties include:
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Failure to register for tax — ₦50,000 in the first month, ₦25,000 for each subsequent month the default continues.
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Failure to file tax returns or filing inaccurate returns — ₦100,000 in the first month and ₦50,000 thereafter.
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Refusal to grant access –for technology deployment to tax authorities — ₦1 million initial penalty and ₦10,000 for each additional day.
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Failure to use mandated fiscalisation systems — ₦200,000 plus 100% of the tax due and interest at the prevailing Central Bank of Nigeria Monetary Policy Rate (CBN MPR).
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Failure to withhold tax where required — 40% of the amount not deducted.
In extreme cases, the law includes criminal sanctions — potentially involving imprisonment of up to three years, or fines of the principal amount due plus up to 50% of penalties, or both.
Compliance Imperatives for Businesses
To avoid the new penalties, companies and statutory bodies must take proactive steps to embed tax compliance into their procurement and vendor management processes:
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Verify TIN status before awarding contracts.
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Integrate tax registration checks into vendor onboarding frameworks.
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Maintain updated records of vendor tax registration and compliance.
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Sensitise procurement, finance, and legal teams about NTAA 2025 requirements.
Failing to incorporate these checks not only risks hefty administrative fines but could also expose organisations to reputational damage and enforcement action.
Conclusion
The introduction of a ₦5 million penalty for awarding contracts to unregistered persons marks a significant milestone in Nigeria’s tax reform efforts.
As businesses adapt to the new landscape, tax compliance — once an administrative afterthought — is rapidly becoming central to corporate governance and risk management.
Ultimately, the NTAA 2025 places the onus on companies not just to comply with tax rules themselves, but to ensure their partners and vendors are equally compliant — adding a new dimension to corporate accountability in Nigeria’s evolving tax regime.