Tax Compliance Costs and Financial Performance of Small and Medium Enterprises in Nigeria: The Moderating Role of Tax Administration Efficiency

Small and Medium Enterprises (SMEs) are the backbone of Nigeria’s economy but are significantly affected by tax compliance costs, constraining their growth. This cross-sectional survey study examined the influence of tax compliance costs on the financial performance of Lagos-based SMEs and the moderating role of tax administration efficiency. Questionnaires were administered to SME owners and managers between January and April 2026 (412 usable responses) and analysed with hierarchical multiple regression and moderation analysis in SPSS 29. Tax compliance costs had a significant negative relationship with financial performance (β = −0.412, p < 0.001). Tax administration efficiency significantly moderated this relationship (interaction β = 0.187, p < 0.001), so the negative effect was weaker where administration was more efficient. Firm size was a significant control variable; sector was not. The study recommends tax administration reforms that promote taxpayer-friendly digital platforms to ease compliance for SMEs.