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EVOLVING TAX LAW IN NIGERIA: CHANGES AND DEVELOPMENT.

Nigeria’s 2025 Tax Reform Acts: A New Fiscal Dawn.

On June 26, 2025, President Bola Ahmed Tinubu signed into law four transformative tax reform bills, marking a historic overhaul of Nigeria’s tax system. These laws—the Nigeria Tax Act (NTA), Nigeria Tax Administration Act (NTAA), Nigeria Revenue Service (Establishment) Act (NRSA), and Joint Revenue Board (Establishment) Act (JRBA)—aim to modernize, simplify, and streamline the country’s tax framework. With Nigeria’s tax-to-GDP ratio languishing at just over 10%, significantly below the African average of 16–18%, these reforms are designed to boost revenue, enhance compliance, and promote economic equity without overburdening vulnerable populations. Below is an in-depth look at the key developments, their implications, and what stakeholders need to know to navigate this new fiscal landscape.

A Unified and Simplified Tax Framework

The cornerstone of the 2025 reforms is the Nigeria Tax Act (NTA), which consolidates over 20 disparate tax laws, including the Companies Income Tax Act (CITA), Personal Income Tax Act (PITA), Capital Gains Tax Act (CGTA), Value Added Tax Act, and Stamp Duties Act, into a single, cohesive statute. This consolidation eliminates over 50 overlapping or redundant taxes, reducing complexity and ambiguity for taxpayers. By creating a unified legal framework, the NTA aims to enhance transparency, promote consistency, and align Nigeria’s tax system with global best practices, particularly in addressing the complexities of a digital and interconnected economy.

A major thrust of the NTA is reducing the number of taxes to a manageable single-digit figure, eliminating “nuisance taxes” that yield minimal revenue, are costly to administer, and disproportionately burden small businesses and low-income earners. For instance, small companies with an annual turnover of ₦100 million or less and total fixed assets not exceeding ₦250 million are now exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and the newly introduced Development Levy. This represents a significant increase from the previous threshold of ₦25 million, offering substantial relief to small and medium enterprises (SMEs).

Key Tax Rate Changes and Incentives

Corporate Income Tax (CIT)

While initial drafts proposed reducing CIT rates for large businesses from 30% to 27.5% in 2025 and 25% in 2026, these reductions were not included in the final legislation. Large companies will continue to pay a 30% CIT rate, alongside a new 4% Development Levy on assessable profits, which replaces multiple sectoral levies such as the Tertiary Education Tax, IT Levy, and NASENI Levy. This levy will gradually decrease to 2% over five years. Additionally, companies with a turnover of ₦50 billion or more, or those part of multinational groups with global turnover exceeding €750 million, must pay a minimum Effective Tax Rate (ETR) of 15%, aligning with OECD global minimum tax rules to prevent base erosion and profit shifting (BEPS).

Personal Income Tax (PIT)

The NTA introduces significant relief for low-income earners. Individuals earning ₦800,000 or less annually are now fully exempt from PIT, a compassionate measure in a country where millions live on less than a dollar a day. A ₦200,000 housing relief is also included within the consolidated relief allowance. New PIT brackets have been introduced, with rates ranging from 0% for the first ₦300,000 to 25% for income above ₦50 million, aiming to ensure progressive taxation. Additionally, the definition of “resident individual” has been clarified to include those with substantial economic or family ties in Nigeria, expanding the tax net for worldwide income.

Value Added Tax (VAT) Reforms

The VAT rate remains at 7.5% for 2025 but is set to increase to 10% in 2026, 12.5% from 2026 to 2029, and 15% from 2030, aligning with ECOWAS standards. Essential goods and services—such as food, healthcare, education, residential rent, and baby products—are now exempt from VAT, reducing costs for low-income households. Businesses can recover VAT paid on expenses and assets through tax credits, lowering their tax burden. A new VAT revenue-sharing formula emphasizes derivation, with 60% of VAT revenue allocated based on where services are rendered, incentivizing states to boost economic activity.

Economic Development Incentives

The NTA replaces the “pioneer” tax holiday with the Economic Development Incentive (EDI), offering a 5% tax credit per annum for five years on qualifying capital expenditure in priority sectors like manufacturing, mining, renewable energy, and agro-processing. Unused credits can be carried forward for another five years. Additional deductions are available for R&D expenditure (capped at 5% of turnover), infrastructure investments, and donations to public-interest institutions. Incentives for sustainable practices, such as exemptions for electric vehicle production and biogas equipment, aim to encourage investment in Nigeria’s renewable energy sector.

Enhanced Tax Administration and Compliance

The Nigeria Tax Administration Act (NTAA) establishes a uniform procedural framework for tax assessment, collection, and enforcement across federal, state, and local governments. It mandates the use of Tax Identification Numbers (TINs) for all taxable individuals and businesses, integrated with national identity systems like NIN and BVN. Financial institutions must demand TINs for transactions, with non-compliance potentially leading to restrictions or sanctions. The NTAA also empowers tax authorities to disregard tax avoidance arrangements, strengthening anti-evasion measures.

The Nigeria Revenue Service (Establishment) Act replaces the Federal Inland Revenue Service (FIRS) with the Nigeria Revenue Service (NRS), a more autonomous and performance-driven agency responsible for administering corporate income tax, VAT, petroleum taxes, and non-resident taxation. The Joint Revenue Board (Establishment) Act creates the Joint Revenue Board, Tax Appeal Tribunal, and Office of the Tax Ombud to enhance coordination, resolve disputes, and protect taxpayer rights, fostering trust and fairness in tax administration.

Withholding Tax (WHT) and Digital Taxation

The Deduction of Tax at Source (Withholding) Regulations 2024, effective January 1, 2025, introduce changes to the WHT regime. The WHT rate for goods supplied by Nigerian businesses is now 2%, with exemptions for goods manufactured directly by producers, telephone charges, internet data, and airline tickets. The regulations clarify penalties for submitting fake receipts and exemptions for certain banking and brokerage fees. Additionally, the reforms address digital and cross-border transactions by introducing Controlled Foreign Company (CFC) rules, taxing Nigerian companies on undistributed profits of foreign subsidiaries, and imposing a 15% minimum ETR on multinational enterprises.

From 2026, banks must report accounts with monthly transactions exceeding ₦5 million to the NRS, enhancing transparency and curbing tax evasion. These measures reflect Nigeria’s commitment to aligning with global digital tax standards.

Implications and Challenges

Benefits for Stakeholders

· Low-Income Earners: Exemptions from PIT and VAT on essentials increase disposable income, potentially improving living standards.

· Small Businesses: Simplified compliance and tax exemptions free up cash flow, encouraging formalization and investment in growth.

· Large Businesses: Tax credits for VAT and incentives for R&D and sustainable practices reduce costs, though higher CGT (30% from 10%) and the Development Levy may increase tax burdens.

· Government: Increased revenue from a wider tax net and streamlined administration supports infrastructure, healthcare, and education without reliance on loans.

Implementation Hurdles

Despite the reforms’ ambitious goals, implementation remains a critical challenge. Many local government areas lack the digital infrastructure, trained personnel, and broadband access needed for effective tax administration, potentially widening regional disparities. Federal-state tensions over revenue collection could undermine harmonization efforts. Moreover, the absence of mandatory public disclosure of revenue forgone through tax incentives raises transparency concerns. The success of these reforms hinges on robust institutional capacity, transparent enforcement, and public trust, as emphasized by Taiwo Oyedele, head of the Presidential Fiscal Policy and Tax Reform Committee, who claims 90% public support.

Preparing for the New Tax Landscape

Businesses and individuals must act swiftly to adapt:

· Sensitize Stakeholders: Conduct workshops to educate management and staff on the reforms’ impact.

· Assess Impacts: Analyze how changes affect corporate structures, supply chains, and compliance obligations.

· Reframe Tax Strategies: Align tax planning with commercial goals, leveraging incentives like the EDI.

· Consult Professionals: Engage tax advisors to navigate compliance, audits, and dispute resolution.

Conclusion

Nigeria’s 2025 Tax Reform Acts represent a bold step toward a fairer, more efficient, and globally aligned tax system. By prioritizing low-income earners, supporting SMEs, and embracing digital transformation, the reforms aim to boost fiscal capacity, reduce economic inequality, and foster investor confidence. However, their success depends on overcoming implementation challenges and building public trust. As Nigeria transitions to this new fiscal reality, proactive preparation by businesses, investors, and taxpayers will be crucial to unlocking the full benefits of these landmark laws.