Godswill Michael
Nigerians are keeping more money outside the banking system as fear and uncertainty over the new federal tax law set to take effect on January 1, 2026 reshape saving and spending behaviour across the country.
Across major cities and rural communities, Nigerians say uncertainty over the scope and enforcement of the new tax regime has triggered anxiety around bank deposits, personal income and business transactions.
That concern is already reshaping financial behaviour, with more people limiting bank transfers, restructuring how they describe payments, or choosing to hold physical cash rather than keep funds in their accounts.
These fears are unfolding against a difficult economic backdrop. When the President Bola Tinubu led government assumed office in 2023, it moved quickly to remove fuel subsidies, a decision that drove transportation costs sharply higher and pushed food prices upward nationwide.
This was followed by the devaluation and effective floating of the naira, further eroding purchasing power and deepening financial strain for millions of households.
On May 29, 2023, the day the President was sworn in, the official exchange rate at the Central Bank of Nigeria’s Investors’ and Exporters’ (I&E) window stood at about ₦460–₦465 to the dollar. At the same time, the parallel market, where most Nigerians access foreign exchange, traded between ₦740 and ₦775. The naira later weakened to around ₦1,850–₦1,900 per dollar in February 2024, following the administration’s foreign exchange unification policy and broader market liberalisation.
As of January 7, 2026, the exchange rate stood at about ₦1,460 per dollar on the parallel market and ₦1,419 at the official CBN rate, reflecting ongoing volatility driven by demand and foreign currency availability.
Central Bank data underline the growing preference for cash. In November 2025, currency outside banks stood at ₦4.91 trillion out of a total ₦5.26 trillion in circulation, up from ₦4.65 trillion out of ₦5.06 trillion in October, when 91.87 per cent of cash was held outside the banking system. The late-year build-up of physical cash points to rising liquidity demand in the informal economy and lingering reluctance to keep money in banks.
The pattern was consistent throughout the year, with cash outside banks remaining above 89 per cent. In January 2025, for instance, ₦4.74 trillion of the ₦5.24 trillion in circulation, about 90.49 per cent was held outside banks.
Although Nigeria is often described as the “giant of Africa,” many citizens remain uncertain about the government’s economic direction. Analysts note that while some countries operate flexible exchange-rate systems, no major economy leaves its currency entirely unregulated. The United States, China, Japan and European Union members all intervene at various points to stabilise their currencies, a contrast often cited by critics of Nigeria’s approach.
The introduction of the controversial tax law at the start of 2026 has further intensified public anxiety. Many Nigerians say they remain unsure how far the policy will go, who will be affected, and how compliance will be monitored.
A civil servant in Abuja Garba Nuhu said colleagues now avoid certain transaction descriptions when sending money electronically. According to him, “there is a growing belief that carefully worded transfers might help avoid unwanted attention from tax authorities,” even though no official guideline supports such claims.
Another resident and trader, Oluwaseye Dosumu, said she now splits customer payments between cash and transfers, fearing that sudden spikes in bank inflows could raise questions she may not be equipped to answer. She noted that it is the uncertainty rather than the tax itself, that drives her concern.
Tinubu’s record as Lagos State governor, where aggressive tax reforms significantly boosted internally generated revenue, suggests the administration views taxation as a long-term fiscal strategy. Even as civil society groups call for clearer guidelines and broader stakeholder engagement, many Nigerians believe the policy is here to stay.
The Nigeria Labour Congress (NLC) has warned that the combination of heavy taxation, low wages and rising national debt poses a serious threat to Nigeria’s economic and democratic stability, urging the Federal Government to urgently rethink the new tax laws and re-engage organised labour.
Speaking recently at the book launch and 85th birthday celebration of former NLC president Hassan Summonu, NLC President Joe Ajaero accused the government of excluding workers and the poor from critical policy decisions, saying Summonu’s message of “Organise, Don’t Agonise” remains a rallying call for the labour movement.
He described the event as “a moment of reflection on the state of our nation and the condition of the working people whose sweat builds it,” while questioning public borrowing: “Where are all the monies being borrowed by the federal government?”
Ajaero insisted that “the state has a duty to engage, not enrage,” stressing that policies on fuel pricing, taxation, wages and social services must involve workers’ representatives. On the tax reforms, he said “the tax laws went through a process that clearly excluded Nigerian workers and the masses,” warning that the outcome is “laws with serious alterations directed at making workers and the poor poorer.”
He added that “tax that taxes the national minimum wage is not fair,” describing the burden on people living in poverty as “regressive.”
Calling for a policy rethink, Ajaero urged the government to pause, reconstitute PenCom’s board and address public concerns, warning that “insisting on going ahead amid confusion is like muddling along in darkness” and undermines democracy.
He vowed that labour “will continue to organise and fight for a Nigeria where no worker has to agonise over poverty, insecurity, heavy taxation or a stolen future riddled with national debt.”
What remains uncertain is whether public confidence can be rebuilt through transparency, clearer communication and meaningful relief measures in an economy already stretched thin.
