INTRODUCTION ON THE TAX REFORM ACT IN NIGERIA

Nigeria tax landscape has undergone a historic transformation with the enactment of the Tax Reform Act, 2025, signed into law by president Bola Ahmed Tinubu on June 26, 2025, and set to take effect from January 1, 2026; the Act repeals and consolidates several tax laws into a single modern framework. It is part of reforming legislations, which are the Nigeria Tax Act (NTA), Nigeria Tax Administration Act (NTAA), Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board (Establishment) Act. Together they mark the boldest attempts in decades to simplify Nigeria’s Taxation System, broaden the tax base, and improve administration.

THE NEW INNOVATIONS OF THE TAX REFORM ACT IN NIGERIA

The act introduces several groundbreaking provisions that reshapes both corporate and individual systems of taxation in Nigeria. These innovations include:

• 1. Consolidation of the Tax Laws

The tax reform Act repeals and harmonises the multiple Acts like the Company Income Tax (CITA), Personal Income Tax Act (PITA), and Stamp Duties Act and brings them under one umbrella, hence reduces duplication, contradictions and compliance burdens in the process. One of the significant areas of development is that he creates capital allowances through clarifying claiming tax deductions on assets; it also gives benefits to pioneer industries which are industries eligible for tax holidays were refined.  It also harmonised the law through the digital front through significant Economic Presence (SEP) and provided legal frameworks for taxing income from digital assets, including the crypto currencies.

Evidence of this, is provided for in Section 1 of the Nigerian tax Act 2025 which provided for a unified fiscal legislation in Nigeria. Section 2 of the Act provides that the law is applicable to everyone in Nigeria.

• 2. Minimum Effective Tax Rate (Global Standard)

It introduced a 15 % Minimum Effective tax rate for multinationals, aligned with OECD/G20 global reforms. It also introduces controlled foreign company (CFC) rules to capture untaxed profits held abroad.  Furthermore According to section 57 of the Nigerian Tax Act 2025, companies which are large or multi-national companies must ensure that their effective tax rate is at least 15 %, if their actual tax paid is divided by defined profits is below 15% , they must pay the top-up tax to reach 15%.

This applies to large companies multi-national enterprises which turnover is at the range of 2 billion naira, the profit base is slightly adjusted would be net profit before tax minus 5% plus personal cost for the ETR Calculation.

 

• 3. Development Levy

 It created a unified 4 % levy on assessable profits for companies, replacing multiple overlapping levies. Such as education Tax, IT Levy, and police Trust Fund Levy.  Section 59 of the Nigerian Tax Act 2025 provides for development tax levy, which serves as an additional contribution by companies to support national development funds, especially in education, technology, and infrastructure.

Companies like the tertiary education trust fund (TETFUND), The National Information Technology Development Agency (NITDA), The National Agency for Science and Engineering Infrastructure (NASENI). The levy would be collected by the Nigerian Revenue Service (NRS), the levy does not apply to Companies who have assessable profits which are taxable due to hydrocarbon purposes, and in other words companies which are regulated under the petroleum industry tax Act (PIA) are exempted due to their petroleum profits.

• 4. Capital Gains Tax (CGT) Overhaul

The new reform tax Act abolished the capital gains tax, CGT is now aligned with corporate income tax at 30 %, for individuals gains will now be taxed progressively in line with their personal income tax rate, its covers indirect transfer of shares and helps to strengthen anti-avoidance for certain individuals or shareholders who might want to engage in Tax Avoidance.  Section 27 and Section 28 of the Nigerian Tax Act 2025 repealed and gains from asset disposal are now treated as part of general “income, profits or gains”

For individuals capital gains are now taxed according to the progressive personal income tax rate under the Nigerian tax Act.  Also the concepts of indirect transfers for example disposal of shares in a holding company that owns Nigerian assets is now exclusively included within the capital gains tax or income tax framework.

• 5. Personal income Tax Reform

It raises the exemption threshold to eight hundred thousand Naira (#800,000), thereby relieving low income earners. It maintains progressive rates up to 25 % for high earners. Section 28 of the Nigerian Tax Act 2025 provides for the total income of an individual which includes employment income, business profits, dividends, interest rates, royalties and capital gains. The goal is to bring all forms of personal earning under a unified and transparent tax structure.

It simplifies previous laws by merging the provisions of the repealed, section 30 of the law discusses the calculation of an individual’s personal income tax act, it introduced what is called chargeable income.  Sections 58 provide for exemption as individuals earning 800 thousand naira or less per year are now exempted from paying income tax.   It was defined to relieve low-income earners and broaden the gap.

• 6. Value Added Tax Reform

According to section 144 and 145 of the Nigerian Tax Act, Value added Tax remains at 7.5%, but businesses can now claim input VAT on a wider range of items Including services and capital assets, it further introduced e-invoicing and fiscalisation to curb evasion, a system notable for its effectiveness in countries like Kenya, Rwanda and Ghana, e-invoicing is the mandatory use of

electronic invoices that are generated, validated and stored through government approved digital platforms while Fiscalisation is the use of technology-driven systems that monitor and report sales transactions directly to the tax authority in real time or near real time.  What this means is that with its effective use, transaction is captured and reported accurately, hereby reducing opportunities for underreporting or tax evasion, hence preventing businesses from not remitting the VAT they collect or revenue leakages and difficulty in auditing businesses like SMEs and Informal Sector Operators.

• 7. Sector-specific Adjustments

The petroleum sector now has new clarities as pertaining to royalties, decommissioning and gas incentives. It also gave continued incentives but stricter rules for businesses selling in customs territory.

• 8. Institutional Innovation

Section 3  of the Nigerian Tax Administration Act, it established the Nigeria Revenue Service (NRS) which is built to replace the Federal Inland Revenue Service, and strengthens the Joint Revenue Board to harmonise Federal, State and Local government tax Administration.  The same sections gives exclusive power to the body, enabling it to administer different types of taxes which includes income tax, stamp duties, tax incentives.

THE BOTTLE NECKS OF THE LAW

While innovative, the act is not without challenges, some of which are:

• 1. Compliance Burden for Business

The introduction of new reporting standards, e-invoicing, and top-up tax rules demand sophisticated accounting systems. This may be difficult for small and medium businesses to keep up as they are largely likely to struggle with the transition.

• 2. Risk of Over-taxation

The fact that the 4 % levy while combined with the capital gains tax increases, it could significantly cause a raise in the tax burdens of larger firms and companies hereby bringing the ripple effect of discouraging investment.

• 3. Administrative Readiness  

The implementation would hinge on the readiness of the Nigerian Revenue Service and the efficiency of digital tax systems, both of which may face initial teething problems.

• 4. Legal Uncertainty

There is the possibility of disputes over interpretation, as there might be possible complications as to the transitional provisions and the validity of certain contracts before the commencement of the law in January 1^st of 2026.

• 5. Impact on Free Zones

Stricter conditions on free zone exemptions could undermine Nigeria’s attractiveness for foreign investors especially these targeting export markets.

WHAT TO EXPECT IN THE TAX REFORM ACT IN NIGERIA

Looking forward, stakeholders should anticipate

• 1. Stronger Tax Administration

The tax Reform Act of 2025 introduces a unified and mordernised tax framework through the Nigeria Tax Act (NTA). This consolidates multiple existing laws like the companies Income Tax Act and personal and personal income tax Act into a single regime, reducing overlaps and ambiguities to enhance efficiency for both residents and non-residents.

A key pillar is the establishment of the Nigeria Revenue Service (NRS) as the central authority for administering taxes, including petroleum royalties previously handled by other bodies, alongside the joint revenue service for better inter-agency coordination. Compliance is bolstered by mandatory e-invoicing and fiscalisation for VAT via real-time validation systems, monthly royalty filings, and the creation of a tax ombuds office to handle disputes and tax payer’s complaints, ensuring faster resolutions and greater transparency.

• 2. More Revenue for Government

By broadening the tax base aligning with global standards, the reforms are projected to significantly boost federal revenue, with measures like a progressive VAT increase from 7.5% to 10% in 2025, 12.5% from 2026 to 2029, and 15% by 2030, alongside full input VAT recovery on business expenses to encourage compliance.

Additional revenue streams include a 4% development levy on assessable profits replacing levies like the tertiary education tax, a 15% minimum effective tax rate (ETR) for large multinationals and firms with turnover of 50 million naira, top up taxes on low tax foreign subsidiaries, and controlled foreign company (CFC) rules taxing undistributed profits of controlled entities. The capital gains tax (CGT) rate has also risen to 30 % for companies, capturing gains from indirect share transfers and reducing arbitrage opportunities.

• 3. Relief For low Income earners   

To ease the burden on vulnerable groups, the Act introduces progressive personal income tax (PIT) rates from 0% to 25%, fully exempting individuals earning #800,000 or less annually from income tax and gains, while offering reliefs like 20% rent deductions up to #500,000. Essential goods and services such as food, medical products, educational materials, tuition fees, and electricity are now zero rated for VAT, allowing cost recovery and shied low-income households from price hikes. Further protections include raising the tax exempt threshold for loss-of-employment compensation or injury from 10 million naira to 50 million naira, and CGT exemptions on personal residences, low value assets, and up to two vehicles, promoting financial security for everyday earners.

• 4. Possible Pressure on Large Corporations

Larger corporations face heightened compliance and financial strains under the reforms, with the companies income tax (CIT) rate set at 30% for firms exceeding small company thresholds less than or equal to 100 million and assets less than or equal to 250 million naira, which enjoys 0% CIT, Coupled with the new 4% development levy and 30% capital gains tax on corporate gains, including offshore disposals. Restrictions on interest deductibility now extend to all connected party loans, not just foreign ones, , increasing taxable income.

• 5. Long term Impact

Need for Regulatory Guidance as a sweeping overhaul, the Act’s implementation hinges on detailed guidelines from the Nigeria Revenue Service to clarify complex provisions, such as the rollout of e-invoicing and fiscalisation systems, eligibility criteria for the EDTI credits (e.g., minimum NGN100 billion investments in renewables), and application of CFC rules or the expanded tax nexus for non-residents beyond traditional permanent establishments. Sector-specific ambiguities like deductibility for petroleum decommissioning funds or mining environmental remediation require prompt circulars to avoid compliance pitfalls, while definitions of “substantial economic ties” for resident status in PIT need refinement to prevent disputes. Without timely guidance, businesses risk penalties, underscoring the urgency for stakeholder consultations and phased rollouts starting January 2026.

• 6. Long-Term Impact

Over the horizon, the reforms promise a more equitable and efficient fiscal system, fostering economic growth by curbing evasion through digital tools and a streamlined single-digit tax count, potentially unlocking investments via incentives like EDTI and exemptions for agriculture and education in their first five years. While initial corporate pressures may spur efficiency and innovation, sustained revenue gains. Projected to fund infrastructure and social programs, it could reduce Nigeria’s debt reliance and enhance global competitiveness via OECD-aligned minimum taxes. For low-income groups, ongoing reliefs may boost consumption and poverty alleviation, though success depends on equitable enforcement, ultimately, these changes aim to build a transparent, business-friendly environment that supports inclusive development and tax base expansion by 2030.

The Tax Reform Act represents a significant milestone in the pursuit of a fair, efficient, and growth oriented fiscal system. By simplifying the tax structure, broadening the tax base and promoting transparency, the reform seeks to enhance revenue generation while reducing the burden on ordinary taxpayers. However, the success of the Act depends on effective implementation, institutional capacity and public compliance. Continuous evaluation and stakeholder engagement remain essential to ensure objectives of equity, efficiency and economic sustainability are achieved. Ultimately the tax reform Act opportunity to strengthen fiscal governance and promote inclusive national development.

CONTRIBUTORS

Lead Partner EKO SOLICITORS AND ADVOCATES

Counsel, EKO SOLICITORS AND ADVOCATES

Counsel EKO SOLICITORS AND ADVOCATES

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