Key changes to Nigeria’s tax laws and how they affect you

The Nigerian Tax Act 2025, which became law last Thursday after several months in the works, consolidated four tax reform bills into a single document for efficiency and ease of reference.

They include the Nigerian Tax Act, the Nigerian Tax Administration Act, the Nigerian Revenue Service Act and the Joint Board Revenue Board Act into a single document for efficiency and ease of reference.

That feat is a major breakthrough for Africa’s largest oil producer, where a prolonged reliance on a colonial tax structure has arrested growth, hindered competitiveness and fuelled an opaque tax system, leaving tax as a share of GDP at one of the lowest levels in the world.

Under the former regime, Nigeria collected more than sixty taxes and levies that didn’t contribute much to the treasury as would have been expected. Downsides like multiple taxation and a cumbersome collection process have often been cited as put-offs for investors.

Tax-to-GDP ratio only recently climbed to 13.5 per cent from roughly 10.8 per cent about three years ago. That compares to South Africa’s 24.5 per cent and an African average of 16 per cent.

“If everything works out , Nigeria should be at a minimum of 18 to 20 per cent of GDP, and that should translate to around N50 trillion in today’s value,” Taiwo Oyedele, chair of the Presidential Fiscal Policy and Tax Reforms Committee, said on Channels TV on Thursday.

The statistics for the tax gap, which indicates the difference between total taxes owed and total taxes collected, are even more sobering. Mr Oyedele estimates Nigeria’s tax gap to be in the region of 70 per cent.

This year’s collection target is 57 per cent.

To drive efficiency, the Nigerian Revenue Service has been established to play a broader role in collection, assessment and revenue accountability, compared to its precursor, the Federal Inland Revenue Service.

“The primary objective of this reform is not to raise more tax revenue because if you set out to do a reform in an economy like this with the objective of raising more revenue, you are placing the cart before the horse,” Mr Oyedele said.

“If you don’t address how to stimulate economic activities but you want to collect more taxes, you are chasing shadows.”

The motivation for the far-reaching reforms, he said, is developing a people-centric, growth-focused and efficiency-driven tax system. Fiscal authorities in Nigeria hope to curtail tax evasion through wide-scale data gathering and digitalisation, while planning to tax affluent Nigerians and big companies more. The government says the implementation of the new law will commence in January 2026.

Here are the key takeaways:

Tax Exemption

Persons earning N800,000 or less annually are exempted from paying tax on their income or gains. Higher earners will be taxed progressively up to 25 per cent of their income.

For Nigerians who have lost their jobs, tax exemption limit has been upped to N50 million from N10 million.

Nigerians earning a monthly income of N108,000 or below as individuals and N250,000 or below as households are now exempted from tax.

Small businesses (companies with an annual turnover of N100 million and below and total fixed assets of N250 million or less) are exempted from all manner of taxes. Previously, the turnover threshold was N25 million.

The tax exemption limit for offloading shares in a Nigerian company was increased to N150 million from N100 million in a year. Eligibility is subject to a maximum of N10 million gains.

A value-added tax (VAT) rate of 7.5 per cent was retained. Nevertheless, food, health, education, accommodation, electricity generation and transmission and transportation, which are all essential consumption, have been added to items excluded from VAT.

The rule allows businesses selling the products to recover their VAT costs on items sold before the adoption of the new law.

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Higher rates

The capital gains tax for companies was increased to 30 from 10 per cent. Companies, except small ones, will pay 4 per cent of their assessable profits (tax profits before accounting for tax depreciation and losses) as development levy, unlike before, when there was no such levy.

VAT distribution

The federal government’s VAT share was axed to 10 per cent from 15 per cent. States’ share was scaled up to 55 per cent from 50, while local governments’ share remains unchanged at 35 per cent.

States’ and local governments’ portion will be distributed according to user parameters, including 50 per cent (to be shared equally), 30 per cent (based on location of consumption) and 20 per cent (based on population).