Common Tax Filing Errors in Nigeria and Their Penalties Explained
Tax filing errors continue to be a significant challenge in Nigeria, with both individuals and businesses facing substantial penalties due to mistakes in documentation, computation, and reporting. According to tax advisory firm Uboh Sunday & Co., despite ongoing reforms and the introduction of digital filing systems, gaps in tax awareness and record-keeping remain widespread, particularly among small businesses and self-employed professionals.
Major Tax Filing Errors and Their Penalties
Below are the key tax filing errors identified by experts, along with the associated penalties under Nigerian law.
1. Missed Filing Deadlines
Failure to meet statutory deadlines is one of the most frequent compliance issues. Monthly filings such as Value Added Tax (VAT) and Withholding Tax (WHT), typically due by the 21st of the following month, are often missed. For individuals, the March 31 deadline for annual returns under the Nigeria Tax Administration Act 2025 presents challenges, especially for those with multiple income streams. Companies are required to file within six months after their financial year-end, yet delays remain common.
Under the law, failure to file returns attracts a penalty of N100,000 for the first month and N50,000 for each subsequent month of default.
2. Errors in Tax Computation
Incorrect tax calculations are another major source of penalties. Common issues include applying the wrong tax rates, failing to account for allowable deductions, and miscalculating taxable income. The law treats incorrect filings with the same severity as non-filing, meaning affected taxpayers are subject to similar penalties.
3. Poor Record-Keeping and Incomplete Documentation
Weak documentation practices continue to undermine tax compliance. Many businesses lack proper bookkeeping systems, making it difficult to determine accurate income and expenses. The absence of supporting documents such as invoices and receipts can lead to disallowed deductions during audits, increasing tax liabilities.
Failure to maintain records attracts penalties of N10,000 for individuals and N50,000 for companies under the Act.
4. Failure to Remit Collected Taxes
Tax experts highlight the failure to remit collected taxes as a serious compliance breach. Businesses that deduct or collect VAT or WHT but fail to remit them to authorities risk penalties, including the full amount not remitted, an additional 10 per cent annual charge, and interest tied to the monetary policy rate of the Central Bank of Nigeria. This issue is particularly common among small and medium-sized enterprises with weak internal controls.
5. Withholding Tax Mismanagement
Improper handling of withholding tax is another recurring problem. Some businesses fail to deduct WHT where required, deduct incorrect amounts, or do not obtain credit notes after remittance. Without proper documentation, companies are unable to claim WHT credits, increasing their effective tax burden.
The law prescribes a penalty of 40 per cent of the amount not deducted.
6. 'Nil' Returns Not Filed
Tax authorities require returns to be filed even when there is no income or business activity. However, many startups and dormant businesses fail to submit 'nil' returns, assuming they are exempt. This misconception leads to penalties, as non-filing is treated the same regardless of business activity.
7. Misclassification and Income Underreporting
Incorrect classification of employees and expenses also creates compliance risks. Some firms classify employees as contractors to avoid Pay-As-You-Earn (PAYE) obligations, while others mislabel personal expenses as business costs. In addition, failure to declare all income sources, especially from freelance work, investments, or side businesses, remains a key issue. Experts warn that as Nigeria's tax system expands, underreporting income is becoming increasingly risky.
Expert Recommendations for Tax Compliance
To avoid these errors and penalties, experts urge early filing, proper documentation, and professional guidance. Authorities advise starting the filing process well before deadlines to allow sufficient time to resolve any issues that may arise during submission. Maintaining accurate records and seeking advice from tax professionals can help ensure compliance and reduce the risk of costly mistakes.
As tax filing deadlines approach, these issues tend to become more pronounced, increasing the risk for taxpayers. By understanding common errors and their penalties, individuals and businesses can take proactive steps to improve their tax compliance in Nigeria.
