Sequel to a series of reviews, edits, and an overall cumbersome legislative process, the President of the Federal Republic of Nigeria, President Bola Ahmed Tinubu, on the 26th day of June, 2025, signed into law 4 Tax Reform Bills, namely;
- The Nigeria Tax Act, 2025 (NTAA)
- The Nigeria Tax Administration Act, 2025 (NTA)
- The Nigeria Revenue Service (Establishment) Act, 2025 (NRSA)
- The Joint Revenue Board of Nigeria (Establishment) Act, 2025 (JRBEA)
This marks a significant milestone in Nigeria's fiscal landscape as these laws usher in novelty by importing international and global best practices, all the while taking into account the prevalent circumstances of the domestic needs of the country.
Though enacted in June 2025, for the purpose of administrative convenience and in a bid to enable what some may regard as a "more practical implementation", the acts are set to take effect on the 1st day of January, 2026. This gives room for the newly established bodies to firmly settle their structures, hand over responsibilities, and possibly harmonization of records, to name a few.
NOTABLE REFORMS INTRODUCED
The advent of these tax laws has introduced several reforms and changes, which are positive for the most part. Some of these reforms include, but are not limited to, the following;
1. Repeal & Consolidation, and Amendment of Tax Laws: The enactment of the NTA repealed certain laws, such as the Capital Gains Tax Act, the Companies Income Tax Act, the Personal Income Tax Act, the Value Added Tax Act, the Stamp Duties Act, etc. This, therefore, means that the laws regulating the payment of the above state taxes have been consolidated under a uniform law.
Sections and provisions of certain laws were amended (deletion, addition, and/or supplementation). Such laws include but are not limited to the following: The Tertiary Education Trust Fund (Establishment) Act, 2011, The Petroleum Industry Act, 2021, The Customs, Excise Tariffs, etc (Consolidation) Act, etc.
The repeal, consolidation, and amendment are particularly relevant as they eliminate duplicity, ambiguity, and above all, arbitrary administration of tax laws.
2. Establishment of the Nigeria Revenue Service (NRS): The Nigeria Revenue Service (Establishment) Act, 2025, repeals the Federal Inland Revenue Service (Establishment) Act No. 13, 2007. In effect, the FIRS has been abolished and replaced by the NRS. Practically, however, the body will be renamed and all activities will be reviewed to ensure compliance with the reform bills, which have now become Acts.
The NRS, unlike the FIRS, has been charged with the sole responsibility of revenue collection, assessment, and overall revenue management. This follows the fact that the NRS will be the sole revenue management agency acting on behalf of the Federal, State, and Local Governments.
The advent of the NRS also created room for harmonization of the revenue collection and assessment by taking over the duties as relates to revenue collection from other agencies such as the Nigeria Customs Service, effectively creating a One Stop Centre for payment of taxes. This ensures the agencies focus on their primary administrative duties.
3. Autonomy of the State Inland Revenue Service (SIRS): The provisions of the NRSA grant autonomy to the state inland revenue service of the various states in the country. This essentially means, the management, assessment, and collation of taxes within a state are not subject to Federal interference, unless a formal request is made by the state and local government tax boards for Federal aid in the administration of taxes.
4. Tax Exemptions: The new laws have made a rather radical list of classes of persons (natural and juristic) that are exempted from some or all forms of tax obligations, some of these include;
- Persons earning below N1,300,000 (One million Three Hundred Thousand naira) per annum.
- Businesses having an annual turnover less than N50,000,000 (Fifty Million Naira) annually.
- Full exemption for members of the Armed Forces.
5. Development Levy: By Section 59 of the NTAA, Nigerian companies will now be mandated to pay development levy, which will be 4% of the accessible profits (profits taxed before deducting tax deductions and losses) of the company. The purpose of this is to consolidate and make up for shortages in monies of the Police Trust Fund (PTF), Tertiary Education Tax Fund (TET Fund), Information Technology Levies (IT), to name a few.
Small Companies are exempted from payment of this levy.
6. Reforms on Value Added Tax;
- VAT Rate: The 7.5% VAT rate remains.
- Input VAT Recovery: The act has now provided for input VAT Recovery, which is an international practice. This means that businesses can now recover their input VAT in so far as the input VAT is directly related to their product or services, which are subject to VAT. This is particular but not limited to essential services, goods, and assets.
- Essential Goods Tax Exemption: Essential goods, services and fixed assets are exempt from VAT, some of these include; basic food items (Agricultural produce harvested in Nigeria), educational books and materials, tuition fees, sanitary pads, medical equipment and services, pharmaceuticals, Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) etc. See Sections 185-187 NTAA
- E-invoicing and VAT Fiscalization: the reform provides in Section 157 NTAA for e-invoicing and VAT fiscalization. Businesses in Nigeria shall now have a compulsory e-invoicing VAT fiscalization system to aid in the collection of VAT
7. Tax for Non-Residents;
- The NTA introduced a set of rules called the "Force of Attraction Rules," which provide that profitable engagements (short or long term) by non-residents will be taxed as the non-resident's company's Permanent Establishments within Nigeria, regardless of whether those activities are conducted through the physical establishment in Nigeria.
- Foreign companies will now pay a minimum tax per earnings before interest and tax (EBIT) of their total profits made in Nigeria, which must not be less than the withholding tax rate applicable to the income.
8. Reforms on Capital Gains Tax: Two changes are incidental to the payment of Capital Gains Tax (CGT), and they are:
- There was an increase in CGT for Nigerian Companies from 10% – 30%. Conversely, the CGT for individuals will be taxed based on the current income tax rate applicable to their current tax band.
- There will be payment of Capital Gains Tax on indirect transfer of shares; this reform of the NAT ensures that, where offshore disposal of shares occurs. The Nigerian CGT takes effect.
This may not be automatic in all circumstances, as it will be subject to international treaties, bilateral agreements, or Charters.
The amount payable on the tax exemption for the transfer of shares has been increased from N100,000,000 (One Hundred Million Naira) to N150,000,000 (One Hundred and Fifty Million Naira), for 12 consecutive months, as long as the profit does not exceed N10,000,000 (Ten Million Naira).
9. Economic Development Incentive: What was formerly granted to foreign companies with pioneer status, called the "Tax Holiday Incentive," has now been substituted with the "Economic Development Tax Incentive". It is to the effect that the eligible company is granted an incentive of 5% tax concession (or tax credit) per annum for 5 years on the capital expenditure purchased within 5 years from the date of production.
When a company has unused tax credits, it can be rolled over for another 5 years only, after which, if it remains unused, it expires.
10. Minimum Effective Tax Rate: The minimum effective tax rate was introduced. It is applicable to companies belonging to a multinational group or conglomerate having an aggregate annual turnover of N50,000,000,000 (Fifty Billion Naira) and above. They will be required to pay 15% of their Net Income as ETR.
This does not apply to Life insurance companies because the net income excludes gross and investment income for policyholders and Free Zone companies that export and do not belong to a multinational group.
11. Tax Ombudsman: The act provided for a mechanism called the "Tax Ombuds Office" where taxpayers (natural or juristic) can lay complaints about duties, levies, surcharges, percentages payable, and other tax-related issues. This office is positioned to act as a quasi-judicial body to resolve such disputes.
EFFECTS OF THE TAX REFORMS
It is important to note that these new laws are laced with so many incentives and consolidated laws, so much so that about 50-60% of Nigerians have now become exempt from one form of tax or the other.
The tax reforms are long overdue; they come with their pros and cons, but overall, they provide a more practical and even field for the administration of taxes in the country. Some of the key points to note regarding this reform include:
- Businesses and individuals alike ought to undertake a comprehensive reassessment and identify loopholes these reforms may have occasioned and take active steps to remedy them.
- There will be a need to improve tax compliance mechanisms and ensure it is up to date and in line with the reform requirements, especially given the fact that the laws come into force in January 2026.
CONCLUSION
Nigeria's new tax framework is a progressive overhaul of a fragmented system. Businesses and individuals are expected to stay informed and ensure compliance with the laws, as whole some as these laws may seem, the penalties for lack of compliance are perceived to be very strict on erring persons.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
