Introduction
In a landmark move to reshape the nation's economic landscape, President Bola Ahmed Tinubu formally enacted four major Tax Reform Bills on June 26, 2025. These new statutes, the Nigeria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service Act (NRSA), and the Joint Revenue Board Act (JRBA), represent the most significant overhaul of Nigeria's tax system in decades. While the official commencement date is still pending, it is widely anticipated to be on or after January 1, 2026.
The primary goals of these reforms are to stimulate economic growth, boost government revenue, create a more transparent and efficient business climate, and strengthen tax administration across federal, state, and local levels. For every Nigerian: from the individual earner and small business owner to the large corporation and multinational investor, understanding these changes is critical. Below is a detailed breakdown of the 20 most important alterations and the 6 immediate actions you should consider.
- New Relief for Small Businesses: The definition of a "small company" has been significantly expanded. Companies with an annual gross turnover of ₦100 million or less (up from ₦25 million) and total fixed assets not exceeding ₦250 million are now exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and a new Development Levy.
- Higher Capital Gains Tax for Companies: The rate of Capital Gains Tax (CGT) for companies has been raised sharply from 10% to 30%, aligning it with the standard CIT rate. For individuals, capital gains will now be taxed at their applicable personal income tax rate, based on their income bracket.
- Closing Offshore Transfer Loopholes: The law now imposes CGT on the indirect transfer of shares in Nigerian companies. This means if shares are sold in a foreign holding company that owns assets in Nigeria, it may trigger a tax liability here, subject to international treaty exceptions. The tax-free threshold for direct share sales has been increased to ₦150 million in 12 months.
- Introduction of a Consolidated Development Levy: A new 4% Development Levy on assessable profits will replace and consolidate several existing levies, including the Tertiary Education Tax (TET) and the Police Trust Fund levy. Only small companies, as newly defined, are exempt.
- Global Minimum Tax for Large Corporations: To ensure large multinationals pay their fair share, a Minimum Effective Tax Rate (ETR) of 15% will apply to Nigerian companies that are part of a global group with a turnover above €750 million or have a local turnover above ₦50 billion. If a subsidiary pays less, the Nigerian parent company may owe a "top-up" tax.
- Tax on Retained Foreign Profits: Nigerian companies controlling foreign subsidiaries may now face tax on the undistributed profits of those foreign companies if it is determined that profits could have been paid as dividends without harming the business.
- Broader Tax Net for Foreign Companies: The rules for taxing non-resident companies have been expanded. New "force of attraction" rules mean that activities of related parties in Nigeria can be attributed to a foreign company's local presence. Profits from Engineering and Construction contracts can also be taxed in Nigeria, even if some work is done abroad.
- Minimum Tax for Non-Residents: Non-resident companies with a taxable presence in Nigeria will face a minimum tax based on their Nigerian-sourced earnings, ensuring they pay no less than the applicable withholding tax rate or 4% of their income.
- Revised Rules for Free Zone Enterprises: Free Zone companies will continue to enjoy tax exemptions on exports. However, if more than 25% of their sales are to the Nigerian domestic market, proportionate taxes will apply. A more significant change looms in 2028, when any domestic sales could lead to taxation of their full profits.
- New Investment Incentive (EDI): The old "pioneer status" tax holiday is replaced by the Economic Development Incentive (EDI). This offers a 5% annual tax credit for 5 years on qualifying capital expenditure, providing a direct reduction in tax liability for investing in qualifying projects.
- Restructured Personal Income Tax: The Personal Income Tax (PIT) system becomes more progressive. Individuals earning ₦800,000 or less annually are fully exempt. Rates increase for higher earners, with a top rate of 25%. The tax-free threshold for compensation for loss of employment or injury has risen to ₦50 million.
- Clearer Rules for Tax Residence: The law now provides a precise definition of a tax resident individual, based on substantial economic or family ties to Nigeria. This clarifies that residents are taxed on their worldwide income, while non-residents are taxed only on Nigerian-sourced income.
- Creation of a Tax Ombudsman: A new, independent Tax Ombuds office will be established to help taxpayers resolve disputes and complaints with tax authorities, serving as a neutral intermediary.
- Expanded VAT Recovery: The VAT rate remains at 7.5%, but the rules for claiming back input VAT have been modernised. Businesses can now recover VAT on all purchases, including services and fixed assets, provided they are linked to taxable supplies.
- Zero-Rated VAT on Essentials: A wider range of essential goods and services is now zero-rated for VAT, including basic food items, medical products, educational materials, and electricity services. Businesses selling these items can now recover their input VAT, reducing their costs.
- Mandatory E-Invoicing & Fiscalisation: Nigeria is formally adopting electronic invoicing (e-invoicing) and VAT fiscalisation systems. Businesses will be required to use approved digital systems for issuing invoices and reporting transactions, enhancing transparency.
- Revised VAT Revenue Sharing: The distribution of VAT revenue among government tiers has been adjusted. The Federal Government's share is reduced to 10%, while States and Local Governments will receive 55% and 35%, respectively. Distribution to states will be based on equality, population, and consumption.
- Stiffer Penalties for Non-Compliance: Penalties for tax violations have increased substantially. For example, failure to file returns now attracts an initial penalty of ₦100,000, plus ₦50,000 for each subsequent month. New penalties include ₦5 million for awarding contracts to unregistered entities.
- Mandatory Disclosure of Tax Schemes: Companies must now proactively inform tax authorities of any transaction or arrangement designed to obtain a "tax advantage." This broad requirement aims to curb aggressive tax avoidance by requiring early disclosure of complex planning.
- Restructured Tax Authorities: The Federal Inland Revenue Service (FIRS) is now the Nigeria Revenue Service (NRS), with a clarified federal mandate. State Internal Revenue Services (SIRS) are granted more operational autonomy, and a framework for joint audits between different levels of government is established.
6 Immediate Steps for Nigerian Individuals and Businesses
- Conduct a Financial Impact Review
Run the numbers to see how changes like the higher Capital Gains Tax, the new Development Levy, and revised personal income brackets will affect your finances or business profits. - Modernize Your Tax Compliance
Prepare for mandatory e-invoicing and updated VAT rules by upgrading your accounting systems. Also, revise internal policies to avoid new, steeper penalties. - Lead a Proactive Transition
Train your team on the new requirements and establish clear communication with tax advisors or the new Tax Ombuds office to resolve questions early.
Nigeria's 2025 Tax Reform Acts mark a pivotal shift towards a more robust, transparent, and growth-oriented fiscal system. While they introduce new responsibilities and costs, they also offer clarifications, incentives, and structures intended to foster a better business environment in the long term. Staying informed, seeking professional guidance, and acting now will be key to successfully navigating this transition and ensuring compliance for a stable financial future.
Sources: Nairametrics, PWC, Taiwo Oyedele/Xapp
