UNDERSTANDING NIGERIA’S RECENT TAX REFORMS: KEY HIGHLIGHTS AND IMPLICATIONS

By Temiloluwa Olowoyo and Talodabioluwa Iseoluwa Sanni.

1. BACKGROUND AND RATIONALE FOR NIGERIA’S RECENT TAX REFORMS

Nigeria’s recent tax reforms did not happen by chance. They grew out of real economic pressure that had been building for years. For a long time, government revenue depended heavily on crude oil. When oil money was flowing, the system held up. When it slowed down, the cracks became obvious.

From 2023, oil revenues became less reliable. Global prices moved unpredictably, production was limited by OPEC agreements, while local challenges reduced output further. As income from oil fell, government spending did not fall at the same pace. Budget deficits widened, and borrowing increased. Debt servicing costs rose, while inflation and pressure on the naira made the situation harder to manage.

These conditions exposed deeper problems in Nigeria’s tax system. Despite the size of the economy, tax revenue remained low compared to national output. A small group of salary earners and registered businesses carried most of the tax burden. Many people and businesses operating in the informal economy paid little or nothing. At the same time, tax laws were scattered across many statutes, some of them outdated. This made compliance difficult, increased disputes, and allowed gaps in enforcement, especially between federal and state authorities.

Faced with these challenges, policymakers began to rethink how taxation should work in Nigeria. The focus shifted away from quick fixes and towards long-term reform. Rather than simply raising tax rates, the aim became to widen the tax base, make the rules clearer, and improve how taxes are administered. The idea was to create a system where more people participate, but in a fairer and more predictable way.

The reforms that resulted in the Nigeria Tax Act 2025 follow this approach. By bringing several tax laws into a single framework and strengthening coordination among revenue authorities, the new system seeks to reduce complexity and improve compliance. It also reflects global trends in taxation, particularly in areas such as digital income and cross-border transactions, while leaving many details to future regulations.

Ultimately, the recent tax reforms represent a strategic response to economic reality. They are intended to support fiscal sustainability, reduce vulnerability to oil revenue shocks, and create a more coherent tax system capable of funding public services over the long term. Understanding this background is essential to appreciating the specific changes introduced by the new tax laws.

• OVERVIEW OF KEY CHANGES INTRODUCED BY THE NEW TAX LAWS

The Nigeria Tax Act 2025, together with the supporting Nigeria Revenue Service Act, Nigeria Tax Administration Act, and Joint Revenue Board Act, forms the backbone of Nigeria’s new tax system. These laws consolidate and replace multiple older statutes, such as the Companies Income Tax Act and Personal Income Tax Act. For taxpayers, this means a simpler legal framework, fewer conflicting provisions, and a single point of reference for both compliance and enforcement.

• Personal Income Tax

For individual taxpayers, the reforms introduce a more progressive approach. The tax-free threshold has been raised, which effectively exempts low-income earners from paying personal income tax. Income bands are now wider, and rates increase gradually for higher earners. For example, someone earning slightly above the new threshold will pay a small percentage, while high-income individuals contribute a larger proportion. PAYE remains the primary method of collection, but the rules are clearer and filing is more predictable.

• Businesses and Professionals

Small and medium-sized enterprises (SMEs) benefit from simplified rules and reliefs. Businesses below certain turnover and asset limits may pay little or no corporate income tax, while larger firms continue to pay standard rates. The reforms also introduce a development levy to replace multiple small taxes and fees, reducing administrative burden. Freelancers and professionals are now expected to keep clearer records of deductible expenses, which include rent, tools, and professional subscriptions. These changes encourage compliance while avoiding unnecessary penalties.

• Expansion of Taxable Income

The reforms broaden the definition of taxable income to reflect modern economic activity. Income from digital platforms, such as Uber or Jumia, is now clearly taxable. Foreign-sourced income, benefits-in-kind like company cars or housing allowances, and certain capital gains are also included. These provisions aim to ensure that income is taxed fairly and consistently, even as the economy evolves beyond traditional business models.

• VAT and Consumption Taxes

Value Added Tax (VAT) remains at its current rate, but the scope of zero-rated and exempt items has been expanded to include essentials such as basic food items, medical products, educational materials, and books. Businesses can recover input VAT more effectively, and digital platforms are required to collect and remit VAT at the point of transaction. This ensures smoother compliance and reduces the risk of underpayment.

• Administration and Compliance

The reforms place strong emphasis on digital compliance. Taxpayer identification numbers (TIN) are linked to the Bank Verification Number (BVN) to prevent duplicate or fraudulent filings. E-invoicing and digital filing platforms streamline reporting, while monthly returns replace much of the previous annual filing confusion. Penalties remain in place for non-compliance, but guidance and warnings are prioritised during the transition phase, particularly for small-scale and first-time taxpayers.

• International and Cross-Border Tax Rules

Large multinational corporations with significant turnover now face minimum taxes and anti-avoidance rules aligned with international standards, including OECD guidelines on Base Erosion and Profit Shifting (BEPS). While these changes mostly affect big companies, they also signal Nigeria’s commitment to fair taxation and global best practices. Most individual taxpayers will feel little direct effect from these provisions.

Overall, the key changes combine simplification, fairness, and modernisation. They set the stage for taxpayers to understand their obligations more clearly and comply more efficiently, while also preparing the economy for a broader, more sustainable revenue base.

• IMPLICATIONS FOR INDIVIDUAL TAXPAYERS

The new tax reforms affect individuals in different ways depending on income level, employment type, and sources of earnings. Overall, the system aims to be fairer, simpler, and more transparent.

• Employees and Salary Earners

Low-income earners are the biggest winners. Individuals earning below the new tax-free threshold—N800,000 per year—pay no personal income tax. This benefits workers earning the minimum wage, domestic workers, small farmers, and other low-income earners. For those earning above the threshold, tax is progressive, meaning higher earners pay proportionally, while middle-income earners see only moderate increases.

Example: Chinedu, a mid-level banker earning N4 million annually, can deduct his rent, pension, and health insurance before tax. These deductions reduce his taxable income, lowering his overall tax bill by thousands of naira.

PAYE remains in place, but filing and remittance are easier thanks to digital systems and clearer rules.

• Self-Employed Persons and Professionals

Freelancers, consultants, and professionals now have clearer guidance on deductible expenses such as office rent, tools, and professional subscriptions. Self-assessment remains, but digital filing platforms simplify reporting. First-time filers receive guidance rather than immediate fines, encouraging voluntary compliance.

Example: A freelance graphic designer in Lagos earning N3.5 million can deduct legitimate business expenses, significantly lowering taxable income while staying fully compliant.

• Informal Sector Participants

The reforms begin to bring informal workers into the tax net without overburdening them. Traders, artisans, and market operators below certain thresholds may not pay personal income tax, but registration provides access to formal banking, credit, and government programmes.

Example: A market trader in Oshodi earning below N800,000 per year can remain exempt from tax, yet benefit from loans and small business grants available to registered taxpayers.

• New and Emerging Income Types

Income from digital platforms, investments, virtual assets, lotteries, and capital gains is now explicitly taxed. Individuals with multiple income streams need to track and report these earnings. Deductions for legitimate expenses are allowed, but records must be maintained for audits conducted through the new digital systems.

Example: A crypto trader or online freelancer earning N1 million above the threshold will report gains, deduct business-related expenses, and pay tax on the net amount.

• Compliance Tips for Individuals

Keep accurate records of all income and deductible expenses

Register for TIN if not already done

Use digital filing platforms to submit returns and monitor payments

Consult tax clinics or advisers if income streams are complex

The new reforms aim to reduce the burden on ordinary Nigerians, protect low-income earners, and create a clearer, more predictable tax system for everyone. Early awareness and simple planning can help taxpayers take full advantage of deductions, reliefs, and exemptions while staying compliant.

• IMPACT OF THE NEW TAX REGIME ON BUSINESSES AND CORPORATE ENTITIES
  • Consolidation of tax legislations

One major impact of the new tax law in the tax landscape for corporate entities in Nigeria is that it consolidates various taxes that are littered across various legislations before now, the earlier situation makes it quite difficult to properly understand the tax regime, however, with the advent of the Nigeria Tax Act, 2025, several taxes have been consolidated, easy reference to taxes that are payable by corporate entities can now be easily done, some tax acts have been repealed and their provisions incorporated into the new tax Act.

There is the introduction of the new Development Levy at 4%, this consolidates the former Tertiary Education Tax at 3%, the Information Technology Levy at 1%, the National Agency for Science and Engineering Infrastructure Levy at 0.25% and the Police Trust Fund Levy at 0.005%.

• Taxation based on Significant Economic Presence (SEP)

Before now, companies without physical structure or that has no entity incorporated in Nigeria have not been properly captured into the tax net, however, by the principle of Significant Economic Presence, where there are indices that these companies earn income from operating in Nigeria remotely, there is no longer doubt as to whether or not they will be taxed or how they will be taxed

•  Just Large and Small Companies 

The earlier categorisation of companies into Small, Medium and Large is gone, there is now just small and large company and by implication, it means the earlier tax bracket of 20% rate is off the table, small companies under the new tax act refers to companies with an annual turnover of #100million, this is a significant increase from the earlier #25million and as long as the fixed asset of the company is below #250million, the company enjoys 0% tax rate.

For large company, the 30% tax rate is applicable, this follows the unification of all sources of income of a company, that is, the total assessable profits from all sources including chargeable gains, all charged at 30%, a flat rate for all large companies.

• Capital Gain Tax Rate Upped 

The earlier Capital Gain Tax charged at the rate of 10%  under the Capital Gains Tax Act has been increased to 30%, by implication, any sale of a company’s assets, shares etc at a profit will now be taxed at 30%. The CGT now effectively covers digital and virtual assets such as crypto currency and NFTs.  In addition however, gains below #150million (used to be #100million) and which chargeable gain does not exceed #10million within a 12month period are exempted. 

It is important to note that Small companies are also exempted from payment of CGT as well as the new Development Levy

•  Economic Development Tax Incentive (EDTI)

An incentive that used to be Pioneer Status no longer applies, but now, there is the Economic Development Tax Incentive which introduces a tax credit of 5% per annum, this covers money spent on fixed assets like machinery or buildings, this, however, is only applicable to qualified companies that have met the necessary requirements, to qualify, a company must have their capital  expenditure verified by the Industrial Inspectorate Department and where such incentive is not used within the first 5years, it can be carried forward for another 5 years, after which it expires. 

• The Minimum Effective Tax Rate (ETR)

The ETR of a corporate body is the average rate at which its pre-tax profits are taxed and on the flip side, the Statutory Tax Rate is the legal percentage established by the law. Under the new act, the ETR is pegged at 15%. This effectively targets large companies, that is, Nigerian companies that are members of multinational group with aggregate group turnover of EUR750million and above or have an annual turnover of #50billion, they will be taxed at the rate of 15% on their net income.(this is however subject to some qualifications under the Act)

• Support for Local Innovation

Companies that engage in Research and Development can now deduct up to 5% of their annual revenue as expenses on such R&D, this ultimately allows for creativity and innovation within the local sector thereby encouraging long term capital investment.

• Businesses not registered as a Company (LTD)

Under the Act, where a business is yet to be registered as a company, the act still views the profit made in the business as a personal income and thus will be taxed subject to the applicable rates for personal income tax, to avoid this and to take advantage of the various tax exemptions for small companies under the act, individuals that still operate under Business names should take steps to register as a company and to also take advantage of certain incentives under the act.

• Introduction of the Electronic Fiscal System (EFS) for VAT Compliance 

There is now a mandatory requirement for the usage of EFS for VAT administration by all persons making taxable supplies to report and record transactions.

• TAX ADMINISTRATION COMPLIANCE AND ENFORCEMENT UNDER THE NEW LAWS
  • The Nigeria Revenue Service

Under the Nigeria Revenue Service (Establishment) Act, the Federal Inland Revenue Service has been rechristened as the Nigeria Revenue Service (NRS) which will now see to the administration of the Act and streamlining compliance and improving efficiency, it will now operate effectively under a more autonomous structure which will assume a digital dimension and ultimately promote coordinated enforcement especially as its powers have been expanded including collecting non tax revenues.

Some of the mandates and powers of the Service include administering and enforcement of all federal tax laws and collect revenues accruing to the federation; assess and account for taxes, levies and charges imposed by federal legislation and as an extension of their power to ensure compliance, they also have power to trace, freeze, seize or confiscate proceeds of tax fraud or evasion. They can also collaborate with other national and international bodies for the exchange of tax information, maintain a centralized tax payer database and issue Taxpayer Identification Number (TIN)

• Joint Revenue Board (JRB)

The JRB will, to a large extent, see to it that the regime of multiple taxation is totally gone, this is because it will create an avenue for the relevant tax authorities across the federal, state and regional levels to operate based on a uniform and harmonized data base where they share information, execute harmonized policies without any form of contradiction. So, the JRB is a central administrative point which brings together the federal, state and local revenue authorities to operate seamlessly to prevent regulatory overlap.

To ensure this, the JRB is composed of all state internal revenue services, the FCT-IRS, and representatives of key federal agencies such as the Nigeria Revenue Service, Nigeria Custom Service, Nigeria Immigration Service, FRSC, NIMC, RMAFC.

• The Tax Ombuds office.

The Joint Revenue Board of Nigeria (Establishment) Act established the Tax Ombuds Office. This is an independent body where tax complaints can be lodged and addressed. It resolves any sort of discrepancies complained of by tax payers administratively without subjecting same to litigation, it will investigating any complaints of administrative malpractice or delay. It is to act as a neutral channel for mediation, liaising with the relevant tax authorities on behalf of the tax payers

• The Tax Appeal Tribunal (TAT)

The TAT is to ensure disputes arising from tax assessment and enforcement is resolved independently whilst providing the needed expertise. Each zone is to have its own division of the Tribunal and any appeal from it lies to the Federal High Court.

• CHALLENGES, OPPORTUNITIES AND THE WAY FORWARD
  • Challenges
    • Implementation and enforcement

If there is one force that constantly militates against the various laws in Nigeria, it is the lack of proper enforcement and this is due to the dearth of adequate infrastructure ranging from insufficient skilled man power and outdated paper-based system. And as it seems, under the new tax law, there is now a greater emphasis on the digitalization of the system for a more productive and seamless administration of the act, but this might pose some difficulties, while some states may be able to transition seamlessly or upgrade their systems, some others might have a difficult time doing same and this may work negatively on the level of collaboration expected between the relevant tax authorities, thus the system may remain fragmented. 

• Political and Public Resistance

New tax laws can face significant pushback from various stakeholders, including labour unions, civil society groups and even state governments who fear loss of fiscal autonomy and equally strong is the taxpayers’ perception that their taxes have not been used wisely, further eroding public trust in government’s fiscal policies and thus encourages non-compliance.

• Low tax awareness and education

Tax literacy is a big issue in Nigeria where a larger percentage of the populace are not properly informed about government policies and what is expected of them, especially when a new law is enacted. It has gotten to a stage where half-formed opinions lacking in proper statistics are being peddled and the unsuspecting tax payer believes same, hook, line and sinker. A classic example is the ongoing story making the rounds as to how a certain percentage of any money entering your account from January 1^st 2026 belongs to the government, if only there is a continuous tax education on the matter, it will not only ensure compliance but equally see to effective administration of the act.

• Other forms of challenges that may surface are:
• Capacity mismatch and insufficient manpower
• Compliance cost
• Large informal economy etc.

• OpportunitiesTax relief for small businesses

It is indeed going to be a favourable dispensation for small businesses as they have been exempted from payment of certain taxes; Company Income Tax, Development Levy and Capital Gains Tax, this will ultimately free up cash flow for reinvestment and growth.

• Zero Rated VAT Recovery.

Businesses selling essential goods and services (basic food items, medical/ pharmaceutical products, educational materials) can now recover the input VAT costs incurred on production or provision which was not possible previously.

• Simplified tax system

The new laws consolidate multiple taxes and levies (like TET, IT Levy, NASENI and Police Trust Fund) into a single 4% Development Levy

• Withholding Exemption on Locally Manufactured Goods

Manufacturers are explicitly exempt from Withholding Tax on the sale of locally produced goods which eases liquidity pressure and improves cash flow

• Low burden on low income earners

Individuals earning #800,000 or less per year are now fully exempt from personal income tax.

• Rent relief Allowance.

Tax payers can claim a deduction of 20% of their annual rent paid, up to a maximum of #500,000, from their assessable income.

• Digital Compliance

The mandatory move to e-invoicing and digital filing streamlines processes, potentially reducing administrative overhead and compliance cost in the long run.

• WAY FORWARD

The new tax laws are commendable and will greatly improve the business landscape in Nigeria, encouraging investment and allowing small businesses to prosper. The harmonized tax system introduced will help the government to realize effective tax collection, quick resolution of tax disputes and promoting efficiency, especially with the introduction of technology into the system.

In other to sustain this, it is important that there is proper public enlightenment to keep people informed, put in place the necessary infrastructures without which all the benefits associated with the tax act will be a mirage and ultimately, there is need to limit government interference and embrace political will, where all these are assured, then the tax regime will assume a new look and boost Nigeria’s economy.

• REFERENCES

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Khadijat Akewushola. A New Fiscal Framework: Key Provisions of Nigeria’s 2025 Tax Reform Laws. 2025. The Nigeria Economic Summit Group.

Templars. Understanding the new Tax Regime: Key changes and Impact. 2025. Client Alert

Adewale Ajayi. The Nigeria Tax Act, 2025, Key Changes to Existing Tax Laws. 2025. KPMG

Cyril Lee Oriaifoh, Prof Osasu Obaretin. Nigeria Tax Reform Acts, Challenges and Prospects. 2025. International Journal of Research and Innovation in Social Sciences.

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