What The New Tax Reform Acts Mean For Business (Names) Owners In Nigeria

INTRODUCTION

On June 26, 2025, the President of the Federal Republic of Nigeria signed the Tax Reform Bill into law. This new tax reform bill includes four new Acts, namely- The Nigeria Tax Act (NTA), The Nigeria Tax Administration Act (NTAA), The Nigeria Revenue Service (Establishment) Act (NRSA) and The Joint Revenue Board (Establishment) Act (JRAB). This Act has introduced a new era for Nigerian employees and businesses. These reforms have abolished the previous tax statutes and have unified all Tax related laws into a single legislation – The Nigeria Tax Reform Compendium.¹

This article centres on how the new Tax Reform Act affects business owners and income earners who are registered as business names under the Corporate Affairs Commission (CAC). Since the introduction of the new tax regime, many business owners have expressed concern that a large portion of their income will be paid as tax, leaving them with little or no profit. This article seeks to clarify the position of such business owners under the new tax laws, explaining how the provisions apply specifically to individuals and enterprises registered as business names.

OVERVIEW OF THE NIGERIA TAX ACT.

The Nigerian Tax Act (the "NTA") is a statute which has merged existing laws on companies' income tax, personal income tax, value-added tax, capital gains tax, and other tax enactments.² However, the point of discussion for this article will be the Personal Income Tax

WHAT IS PERSONAL INCOME TAX AND WHAT PERCENTAGE OF AN INDIVIDUAL'S INCOME IS PAID AS PERSONAL INCOME TAX?

According to the Federal Inland Revenue Service, Personal Income Tax refers to the total earnings or revenue received by an individual from various sources during a given period, typically a financial year. It encompasses all the money an individual earns from different activities and sources, both employment-related and non-employment-related.³

For individuals who earn income through businesses registered under business names, their taxable income is determined from the assessable profits generated by such trade or business.⁴

Under the new Tax Reform Act, Section 58 introduces a tax-exemption threshold of ₦800,000 per annum meaning that individuals whose total annual income does not exceed this amount are not required to pay personal income tax. Beyond this threshold, the Act adopts a progressive tax structure that increases the applicable rates for higher income earners to promote equity and fairness in taxation.⁵

The applicable tax rates now range from 0% to 25%, depending on the taxpayer's income level, as detailed in the Fourth Schedule of the Act. This ensures that individuals with lower incomes pay little or no tax, while those with higher earnings contribute a larger proportion of their income to government revenue.⁶

HOW DOES THE PERSONAL INCOME TAX COVERS BUSINESS NAMES?

It is corporate legal practice and standard that once a company is incorporated, it attains a separate and independent legal personality from its members. It is treated as a human in law who can sue, be sued, acquire properties and take decisions in its name,⁷ and that is why a company is taxed in its own name. However, this is not the case with business names. A business name in law is not distinct from its proprietor, therefore, under this circumstance, it can be deduced that whatever law that governs the proprietor will govern the business name as they are seen as one and same person. It is with respect to this that a conclusion has been arrived at that the taxes to be paid by a business name is the same as that to be paid by the proprietor which is the Personal Income Tax.

TAXATION OF BUSINESS NAMES

Under the new tax regime, before ascertaining the taxable profit of business names, certain allowable deductions must be made. This approach promotes fairness — one of the key objectives of the Tax Reform Act. In simple terms, business owners are taxed only on their net profit, after deducting expenses that were wholly and exclusively incurred in generating their income.⁸

The Act allows the following deductions:⁹

1. Interest on loans or debts used for the purpose of running the business.
2. Rent or premiums paid for land or buildings used in generating income.
3. Staff costs, including salaries, wages, benefits, and allowances paid to employees.
4. Repairs and maintenance expenses on premises, machinery, equipment, or tools used for business purposes.
5. Expenses incurred to establish, preserve, or defend ownership rights over an asset used in the business.
6. Contributions to approved staff pension or retirement schemes in line with the Pension Reform Act or similar laws.
7. Losses or damages to stock or inventory, where proven to the satisfaction of the tax authority.
8. Bad or doubtful debts arising from genuine business transactions, if they were not owed by related parties.
9. Pre-business expenses, meaning costs incurred within six years before starting the business that would have been deductible if the business had already started. These are treated as if they were incurred on the first day of business.
10. Dividends or mandatory distributions made by an approved real estate investment company to its shareholders.
11. Compensating payments made in regulated securities lending transactions that qualify as interest under the Act.
12. Expenses on assistive devices or disability-related products, such as hearing aids, wheelchairs, or braille materials.

In essence, the new law ensures that only genuine business profits — after accounting for necessary operational costs — are subject to tax.

Additional Allowable Deductions for Individuals

Furthermore, after the deductions under Section 20 have been made, an individual is also entitled to personal reliefs and eligible deductions. These deductions are designed to reduce the individual's taxable income further, thereby ensuring that taxation reflects the taxpayer's true financial capacity and aligns with the fairness objective of the Tax Reform Act.

Under the new regime, the allowable personal deductions include payments made by the individual during a year of assessment in respect of the following:¹⁰

1. Contributions to the National Housing Fund (NHF).
2. Contributions to the National Health Insurance Scheme (NHIS).
3. Contributions made under the Pension Reform Act.
4. Interest on loans obtained for the development of an owner-occupied residential property.
5. Annuities or life insurance premiums paid during the year preceding the year of assessment, whether on the individual's own life or that of a spouse, including payments made for deferred annuity contracts.
6. Rent relief, amounting to 20% of the annual rent paid, subject to a maximum of ₦500,000, whichever is lower — provided that the individual declares the actual rent paid and other relevant information as required by the relevant tax authority.

After these allowable deductions and reliefs have been applied, the remainder of the individual's gross income constitutes the taxable income. This taxable income is then assessed and taxed in accordance with the progressive tax bands and rates prescribed under Section 58 and the Fourth Schedule of the Act, which are properly described in the table below:11

CONCLUSION

In conclusion, the drafters of the Tax Reform Act have shown fairness and balance in their treatment of individuals and business owners operating under business names. The Act clearly acknowledges the necessity to protect the income and sustainability of small and medium-scale enterprises by allowing considerable deductions and reliefs for expenses genuinely incurred in generating income. This ensures that business owners are not viciously taxed on their gross earnings but only on their actual profits after legitimate business costs have been accounted for.

Therefore, citizens and entrepreneurs should not be worried that all their profits will be taken as tax. The new tax reform promotes equity by protecting important business expenditure and applying only a reasonable percentage of tax on the net profit of individuals and business name owners. Generally, the reform provides a fair balance between the government's need for revenue and the taxpayer's right to retain a reasonable piece of their income, thereby promoting a more transparent and supportive tax environment for Nigerian businesses.

Footnotes

1. Koleade Adeoye & Mofolajesusewa Oyelami 'Nigeria's 2025 Tax Reform Acts Explained: Key Changes, Business Impacts, and Compliance Strategies' (August 23, 2025) in https://www.bakertilly.ng/insights/nigerias-2025-tax-reform-acts-explained (Accessed October 20, 2025).

2. Pavestones 'Tax Administration in Nigeria – A Review of the 2025 Nigerian Tax Reform Laws' (July 10, 2025) in https://www.afriwise.com/blog/tax-administration-in-nigeria---a-review-of-the-2025-nigerian-tax-reform-laws (Accessed October 20, 2025).

3. FIRS 'Personal Income-FIRS-Simplifying Tax, Maximizing Revenue' in https://www.firs.gov.ng/personal-income-tax (Accessed October 30, 2025)

4. Section 28 of the Nigeria Tax Act, 2025.

5. KPMG 'The Nigeria Tax Act (NTA), 2025' (June 2025) in https://assets.kpmg.com/content/dam/kpmg/ng/pdf/2025/06/The%20Nigeria%20Tax%20Act%20(NTA),%202025.pdf (Accessed October 21, 2025).

6. Ibid.

7. Section 42 of the Companies and Allied Matters Act, 2020.

8. Section 20 of the Nigeria Tax Act, 2025.

9. Section 20 (1)(a-m) of the Nigeria Tax Act, 2025.

10. Section 30 of the Nigerian Tax Act, 2025.

11. Mercans 'Nigeria – Changes to Personal Income Tax' (September 11, 2025) in https://mercans.com/resources/statutory-alerts/nigeria-changes-to-personal-income-tax-september-2025/#:~:text=Changes%20to%20Personal%20Income%20Tax%20(Effective%20January%201%2C%202026),-A%20new%20progressive&text=A%20full%20tax%20exemption%20has,CRA)%20has%20been%20completely%20abolished. (Accessed October 22, 2025).

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.