An Overview Of Nigeria's Tax Reform Acts: Key Changes & Implications For Individuals And Entities

INTRODUCTION

On the 26^th of June 2025, President Bola Ahmed Tinubu signed four (4) landmark Tax Reform Bills into law, namely, the Nigeria Tax Act ("NTA"), the Nigeria Revenue Service Act ("NRSA"), the Nigeria Tax Administration Act ("NTAA") and the Joint Revenue Board Act ("JRBA"), collectively referred to as the Nigeria Tax Reform Acts (the "Acts"). This marked the birth of a new tax regime in Nigeria.

This Article outlines the key provisions of the Acts, highlighting their implications for taxpayers, businesses, and government revenue. The Acts comprehensively overhaul Nigeria's tax administration system by consolidating and modernising the tax framework in alignment with global standards and national development goals, and understanding these changes is crucial to balancing revenue generation with economic growth while evaluating their consequences on individual taxpayers and businesses.

Implementation of the Acts is not expected to begin until 1^st January 2026.

Overview of the Tax Acts

1. Nigeria Tax Act: The NTA constitutes the core of recent tax reforms, consolidating several separate tax laws into a single, comprehensive statute. This legislative measure streamlines tax administration, enhances compliance, and promotes revenue growth. By addressing issues arising from overlapping or conflicting legal provisions, the NTA aims to simplify taxpayer obligations, reduce administrative complexities for tax authorities, and establish uniformity in tax interpretation and enforcement.
2. Nigeria Revenue Service Act: The NRSA reforms the administration of taxation and revenue collection by establishing a comprehensive legal, institutional, and regulatory framework. It repeals the Federal Inland Revenue Service (FIRS) Act and establishes the Nigeria Revenue Service (NRS), thereby enhancing the efficiency and effectiveness of national revenue management.
3. Nigeria Tax Administration Act: The NTAA establishes a comprehensive legal structure for the management of revenue collection, tax assessment, and administration across federal, state, and local government tiers. Additionally, the Act implements enhanced compliance obligations for taxpayers.
4. Joint Revenue Board Act: The JRBA establishes a centralised tax dispute resolution system through the creation of the Joint Revenue Board, the Tax Appeal Tribunal, and the Office of the Tax Ombudsman to coordinate, harmonise, and address disputes related to tax administration.

Major Legal and Policy Innovations in the Acts

1. Increased Exemption Threshold for Small Businesses: Under the extant Companies Income Tax Act (CITA), small companies were defined as those companies with an annual gross turnover of ₦25 million or less per annum. The NTA has now redefined small businesses as companies that earn an annual gross turnover of ₦50 million or less per annum with total fixed assets not exceeding ₦250 million, provided that any business providing professional services shall not be classified as a small company. Small companies are now exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and the newly introduced Development Levy (which will be discussed below).
2. Reform of Personal Income Tax (PIT): The NTA implements a more progressive structure for Personal Income Tax to promote equity, revising both the income brackets and corresponding tax rates. Individuals with annual earnings of up to ₦800,000 are completely exempt from taxation on their income and gains, while incomes above this threshold are taxed progressively, beginning at 15% and increasing to 25% for annual incomes exceeding ₦50 million. Additionally, the Act raises the tax exemption threshold for compensation related to loss of employment or injury from ₦10 million to ₦50 million.
3. Introduction of Rent Relief: The NTA has replaced the Consolidated Relief Allowance (CRA) with a rent relief provision, which allows taxpayers to claim 20% of their annual rent paid, up to a maximum of ₦500,000, whichever is lower. To be eligible for the newly introduced rent relief, individuals must declare the actual amount of rent paid, and the tax authority may request additional supporting information. Notably, those residing in self-owned accommodation are not eligible for this relief. The rationale for discontinuing the CRA has not been provided.
4. General principles for tax deductibility: The NTA allows deductions only for expenses "wholly and exclusively incurred in the production of income." The former additional requirements that expenses be 'reasonable' and 'necessary' have been removed, which should reduce disputes between taxpayers and authorities over whether an expense is reasonable and or necessary.
5. Increased Capital Gains Tax (CGT) Rate and Base: The CGT for companies has been raised from 10% to 30%, resulting in alignment between the CGT and CIT rates. However, disposal of shares remains exempt from CGT if (i) the total disposal proceeds are less than ₦150 million and the chargeable gains are below ₦10 million within a 12-month period, (ii) the transaction qualifies as a regulated securities lending arrangement, or (iii) the proceeds are reinvested in the acquisition of Nigerian shares within the same assessment year, where the proceeds exceed ₦150 million. For individuals, capital gains are subject to taxation at the applicable income tax rate according to the individual's progressive tax band.
6. Chargeable Gains on Share Disposals by Non-Residents: In situations where a non-resident entity, such as an offshore private equity fund or foreign investor, disposes of shares in its possession, CGT applies only if the transaction leads to a change in the ownership structure or group membership of a Nigerian company, or alters the ownership, title, or interest in any asset situated within Nigeria. This restriction on chargeable gains for share disposals by non-residents provides a favourable environment for inter-group share transfers.
7. CGT Exemptions for Venture Capitalists, Angel Investors, Private Equity Funds, Incubators, and Accelerators (VC/AI/PEF/I/A): Where a VC/AI/PEF/I/A disposes of an asset to a Nigerian company that has been granted the "startup" label, any capital gain arising from such disposal shall be exempt from Capital Gains Tax, provided that the disposed assets were held in Nigeria for at least 24 months prior to the transaction.
8. Value Added Tax (VAT) Input Recovery: While the VAT rate remains at 7.5%, the NTA has adopted internationally recognised VAT principles, allowing for the recovery of input VAT on goods, services, and fixed assets—provided that such input VAT is directly incurred for the consumption, use or supply of taxable supplies. As a result, businesses offering services that previously could not recover input VAT can now do so.
9. Zero-rated VAT on Essential Goods & Services: Essential goods and services such as basic food items, educational books and materials, medical and pharmaceutical products, electricity, tuition fees, amongst others which were classified as exempt goods and services are now zero-rated (i.e., 0% VAT). This implies that businesses selling these goods and services can recover any input VAT paid in the production of such goods and services, despite the zero rate.
10. Update to the VAT Sharing Formula: The Acts revise the distribution of VAT revenue among the three tiers of government. The Federal Government's share of VAT has been reduced from 15% to 10%, the State Government's portion has been increased from 50% to 55% while the Local Government Areas retain their 35% VAT share. Additionally, the joint VAT allocations for States and Local Government Areas are distributed according to a formula that incorporates equality (50% allocated equally), population (20%), and consumption levels (30%). This framework is designed to incentivise States to promote local economic activity and enhance the effectiveness of VAT collection.
11. VAT Fiscalisation and E-Invoicing: Businesses in Nigeria are required to implement fiscal tools and systems approved by the tax authority for VAT collection, including electronic invoicing systems and real-time transaction reporting. This measure introduces e-invoicing into Nigeria's tax processes and is designed to enhance VAT compliance, limit fraud, and support revenue transparency.
12. Introduction of Development Levy: The Acts introduce a Development Levy to be paid by all Nigerian companies except small businesses and non-resident companies. The levy is a flat rate of 4% of assessable profits (i.e. profits before deducting depreciation and losses) and replaces/consolidates several industry specific levies such as the Tertiary Education Tax, the Police Trust Fund Levy, Information Technology Levy, and the National Agency for Science and Engineering Infrastructure Levy.
13. Taxation of Non-Residents: The scope of the activities of non-resident companies that are subject to tax in Nigeria has been expanded. The Acts introduce "force of attraction" rules, under which income from certain activities carried out by a non-resident company or its related parties in Nigeria can be taxed, even if those activities were not directly performed through a Nigerian office.

Generally, all non-resident individuals and entities are required to register for tax purposes and obtain a taxpayer identification number in order to file necessary returns and fulfil tax obligations in Nigeria if they earn income from the country. Possession of a tax ID is essential for engaging with Nigerian banks, stockbrokers, insurance companies, or other financial institutions. Nonetheless, non-residents who derive only passive income—such as interest, dividends, and similar earnings—from Nigeria are not obliged to register for or obtain a tax ID; however, the Nigeria Revenue Service (NRS) may request pertinent information from them as necessary.

14. Minimum Effective Tax Rate (ETR): Nigerian companies that are a part of a multinational group and any other company with an aggregate turnover of N20 million and above in the relevant year of assessment will now be subject to a minimum ETR of 15% of their net income. Where a foreign subsidiary pays tax at a rate below this threshold, the Nigerian parent company is required to pay the shortfall as a "top-up tax." This ensures that profits generated in Nigeria or controlled by Nigerian companies are taxed fairly. The minimum ETR, however, does not apply to Free Zone companies on their exports out of Nigeria, provided that such companies are not part of multinational groups.
15. Introduction of Economic Development Incentive (EDI): The Acts replace the pioneer status tax holiday incentive with the EDI and introduce a tax credit of 5% per annum for 5 years on qualifying capital expenditure purchased by eligible companies within 5 years of the start of production. Unused tax credits may be carried forward for another 5 years, after which they will expire.
16. Institutional Restructuring of the FIRS and SIRS and Introduction of the Tax Ombuds Office: The Federal Inland Revenue Service (FIRS) has now been renamed to the Nigeria Revenue Service (NRS) with an enhanced mandate to assess, collect and account for revenue due to the federation. The Acts have also granted operational autonomy to the State Internal Revenue Services (SIRS). Furthermore, to strengthen taxpayer protection, the Acts introduce the Tax Ombuds Office to liaise with tax authorities on behalf of taxpayers and independently review and resolve complaints relating to taxes, levies, duties or similar regulatory charges.
17. Stamp Duty Obligations: The Acts require that the transferee of an interest in real property, the beneficiary of a service for which consideration was paid, or any person obtaining security in a transaction involving an executed instrument, must stamp the related instrument within 30 days of execution and pay the applicable duty. Additionally, company loan capital is now subject to ad valorem tax. The NTA defines loan capital as including debenture stock, other stock, or funded debt by any corporation, company, or body of persons formed or established in Nigeria, but excludes overdrafts and loans with a term not exceeding 12 months.
18. Repeal of the Venture Capital (Incentives) Act: With the VCIA repealed by the NTA, venture capital companies ("VC Companies") will lose previous incentives. Notably, they will no longer receive capital allowances on equity investments beyond what is provided under the NTA. Gains from selling shares in a venture project company will now be taxed or exempted based on NTA rules, replacing the old 15-year CGT exemption structure. Additionally, incentives from the Industrial Development (Income Tax Relief) Act and Export (Incentives and Miscellaneous Provisions) Act will also no longer apply to a venture project company.
19. Enhanced Penalties for Non-Compliance: The Acts establish new, substantially increased penalties for instances of non-compliance. Notable changes include raising the penalty for failure to file returns to ₦100,000 for the first month and ₦50,000 for each subsequent month of default. Additional penalties have been introduced, such as a ₦5 million fine for awarding contracts to individuals or entities not registered for tax purposes, as well as penalties for inducing tax officers, obstructing the deployment of technology, and other related offences.

NEXT STEPS FOR COMPANIES AND BUSINESSES

With the recent updates introduced by the Acts and implementation scheduled for January 2026, businesses and companies should review and understand the potential implications, update their systems accordingly, and adopt appropriate practices to remain compliant. Entities are recommended to:

• Conduct sensitisation workshops for pertinent board committees and executive management to enhance awareness of the implications of the reforms. Additionally, they provide targeted training to staff members to facilitate the effective integration of new tax laws into relevant roles and processes.
• Conduct a wholistic and proactive evaluation of the corporate structure as well as the financial, operational, and compliance impacts resulting from the recent tax legislation.
• Assess, modify, or remove tax functions and processes to improve effectiveness and efficiency, address compliance issues, and establish comprehensive internal controls.
• Utilise advanced technology and regularly enhance compliance procedures.
• Collaborate with stakeholders to facilitate an effective transition and successful adoption process.
• Maintain up-to-date knowledge of tax matters by consistently reviewing official communications, circulars, and regulations issued by government authorities in accordance with the relevant Acts.
• Put to good use the office of the Tax Ombuds for guidance and dispute resolution.

CONCLUSION

The recent enactment of the Nigeria Tax Reform Acts marks a significant development in Nigeria's tax policy and administration. By unifying various laws into a single, coherent statute and bringing the tax system in line with international standards, these Acts create a legal framework that promotes equity, predictability, and sustainable economic development.

Although these reforms offer considerable commercial advantages, non-compliance with tax obligations can result in severe penalties. Consequently, it is essential for businesses to conduct thorough reviews of their tax strategies, operational processes, and compliance frameworks to ensure preparedness and resilience, while also optimising available tax reliefs and incentives.

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.