Nigeria’s advertising and marketing sector confronts operational headaches alongside promised tax relief as the country’s sweeping fiscal reforms take effect, with industry leaders warning that compliance complexities could offset financial benefits for smaller agencies.

The tension emerged during a webinar hosted by the Advertising Regulatory Council of Nigeria (ARCON) on Tuesday, where executives highlighted a fundamental challenge: whilst agencies with turnover below ₦100 million will pay zero company income tax under the new Nigerian Tax Act, those same firms could face cash flow pressures from withholding tax deductions that tie up operating funds in tax credit notes.

Jehoshaphat Akinadewo, Regional Head of Quality Control at Omnicom Media Group WeCA, pointed to this contradiction. “A business with turnover below ₦100 million may be exempt from company income tax but still face withholding tax deductions, which could tie up operational cash in tax credit notes,” he said.

The observation underscores a recurring pattern in Nigerian fiscal policy: reforms that promise simplification often introduce new administrative burdens that fall heaviest on smaller operators with limited financial infrastructure.

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A more fundamental issue revolves around how tax authorities assess agency income. Tunji Adeyinka, Group Managing Director of The Republican Group, emphasised that agencies handle substantial client funds that pass through their books but don’t represent actual revenue.

“What you have as turnover is not the same as your income. Agencies handle high pass-through costs for clients, and tax authorities must recognise that not everything passing through an agency’s books belongs to the agency,” Adeyinka explained.

This distinction matters significantly for tax calculation. An agency might show ₦500 million in turnover whilst earning only ₦50 million in actual income after client media buys, production costs and third-party expenses. Whether tax assessments account for this reality will determine whether the reforms help or harm agency economics.

Femi Olarinde, Head of the Fiscal and Tax Reforms Implementation Division at the National Revenue Services, acknowledged the concern but placed responsibility on agencies to document clearly. “If your records clearly show what constitutes your income and what belongs to clients, the tax authority will only tax the actual income. Proper documentation and invoice clarity are key,” he said.

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That response suggests the burden of proof sits with agencies rather than the tax authority adjusting its assessment methodology.

The reform introduces electronic invoicing requirements that could prove particularly problematic for advertising operations. Akinadewo raised a practical question about implementation: “Electronic invoicing may require agencies to connect their accounting systems to the government platform, but the advertising industry raises multiple types of invoices during campaign execution. The question becomes: which invoice should be uploaded to the platform?”

Campaign work typically generates invoices for creative development, media buying, production costs, talent fees and various other line items. Whether each requires separate electronic submission, how bundled invoices should be handled, and what happens when clients request invoice revisions mid-campaign remain unclear.

These aren’t theoretical concerns. Agencies operate on tight timelines where invoice delays can affect cash flow, client relationships and vendor payments. Adding a government verification layer to that process introduces potential bottlenecks.

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Not everything in the reform disadvantages agencies. The ability to reclaim input VAT represents a significant shift that could improve margins if executed properly.

“Service industries previously could not claim input VAT. Under the new regime, they can now offset input VAT against output VAT, and where there is excess, the tax authority is expected to refund within thirty days,” Olarinde explained.

However, Adeyinka immediately qualified that benefit with a warning about prerequisites. “One of the advantages this law offers our industry is that we can reclaim input VAT. But if you do not have proper record keeping, you cannot reclaim the VAT you have already paid,” he said.

This creates a dividing line between agencies with robust financial systems and those operating with basic bookkeeping. The former can capture the VAT benefit. The latter may continue absorbing VAT costs despite theoretical eligibility for refunds.

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Adeyinka framed the reform as fundamentally about financial infrastructure. “Compliance will be critical under the new regime, and it begins with sound record-keeping. If an organisation does not have a robust accounting system capable of capturing its financial records properly, it will run into serious issues,” he said.

That observation suggests the reform could accelerate consolidation in the advertising sector. Agencies that have invested in proper accounting systems, legal compliance and financial documentation gain an advantage. Smaller operations without those capabilities face mounting pressure to either upgrade infrastructure or exit.

Obinna Aniche, Group President of Red Slate Group Ltd, acknowledged this dynamic whilst defending the broader reform intention. “If implemented thoughtfully with the sector, this reform can formalise creative businesses that currently sit outside the tax radar and improve transparency, which will ultimately strengthen investor confidence,” he said.

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The reference to businesses “outside the tax radar” signals that informal operators currently avoid taxation entirely. Bringing them into the formal system through simplified rates and clearer rules could level competitive dynamics, though enforcement will determine whether informal operators actually comply.

The reform specifically addresses digital marketing companies, influencer networks and cross-border platforms, sectors that have grown rapidly without clear tax treatment. Olarinde noted that “advertising agencies, media buying firms, PR consultancies and digital marketing companies play a critical role in the economy. But these taxes will directly affect pricing, margins and compliance costs, so firms must pay close attention to proper documentation and tax planning.”

What that means in practice for influencer marketing platforms, programmatic advertising technology, and social media content creators remains ambiguous. These business models often involve multiple parties across jurisdictions with revenue flowing through complex arrangements that don’t map neatly to traditional agency structures.

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ARCON Director-General Olalekan Fadolapo positioned the council as an industry advocate in ongoing implementation discussions. “Our role as regulator is to lead advocacy for the industry. We will engage the tax authorities and ensure the sector takes maximum benefit from this new tax framework,” he said.

Fadolapo confirmed ARCON has established a tax committee with representatives from sectoral groups to examine implementation issues. “This is a continuous conversation. There are still many definitions, classifications and industry nuances that we must work through together,” he added.

Whether that advocacy proves effective depends on how receptive tax authorities prove to sector-specific concerns versus their mandate to maximise revenue collection and simplify administration.

The reform takes effect with the Nigerian Tax Act, consolidating previous legislation into a single framework. The shift from oil revenue dependence toward diversified taxation creates pressure on authorities to demonstrate collection efficiency.

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For advertising and marketing firms, the coming months will reveal whether the promised simplification materialises or whether compliance complexity simply shifts form. Smaller agencies face particular pressure to upgrade financial systems or risk being unable to capture VAT benefits and document income properly.

Larger agencies with established compliance infrastructure may benefit from the formalisation push if it levels competition with informal operators who previously avoided taxation entirely.

The sector’s ability to translate these regulatory changes into actual business advantage will depend less on the tax rates themselves than on execution details that remain under negotiation between ARCON, industry groups and the National Revenue Services.