Nigeria has taken a bold step toward overhauling its tax system, as its President, Bola Tinubu, on Thursday signed into law the tax reform bills, four landmark bills designed to modernise and streamline the country’s outdated revenue framework.
The National Assembly recently passed the Nigeria Tax Bill, the Nigeria Tax Administration Bill, the Nigeria Revenue Service (Establishment) Bill, and the Joint Revenue Board (Establishment) Bill, following months of deliberations and revisions.
The reforms aim to simplify tax collection, reduce the burden on compliant businesses, and reposition the country as a more attractive investment hub, all while boosting revenue through a wider and fairer tax net.
With sweeping changes that affect corporate taxes, personal income, VAT, and revenue administration, the move signals a significant shift in Nigeria’s fiscal trajectory.
Set to take effect from January 2026, the new tax regime is being framed as pro-growth and business-friendly.
So, what exactly has changed—and what does it mean for employees, companies and investors? Here are five key takeaways.
Zero tax for businesses earning below $32k annually
Small businesses are among the biggest winners of the Nigeria Tax Bill – now Act 2024.
The law raises the corporate income tax (CIT) exemption threshold from $16.2k (at the current exchange rate of ₦1,542/$1) to $32.4k in annual turnover.
This means that companies below this threshold will no longer pay CIT, whereas previously, firms earning above $16.2k but below $64.8k were subject to a rate of 20%.
The reforms also exempt these businesses from withholding tax (WHT) deductions on transactions of $1.3k or less, provided the supplier has a valid Tax Identification Number (TIN). This could improve cash flow and reduce compliance headaches.
Additionally, the law bans cash tax payments and abolishes physical collection points—often used by unions and informal actors to extract levies—addressing one of the layers of multiple taxation in the West African nation.
Together, these provisions aim to formalise Nigeria’s largely informal Small and Medium-sized Enterprise sector, streamline operations, and create a more equitable and simplified tax administration for small business owners.
A 5% CIT cut and unified development levy for big businesses
Large companies with annual turnover exceeding $64.8k are also poised to benefit from the tax reform.
From January 2026, the corporate income tax rate will drop from 30% to 25%, with a transitional rate of 27.5% in 2025. This aligns Nigeria more closely with regional peers such as Ghana (25%) and enhances its attractiveness to foreign direct investors.
Section 53 (1) of the Tax Act also replaces three separate taxes—the 3% Tertiary Education Tax, the 0.25% NASENI Levy, and the 1% IT Tax—with a single Development Levy on assessable profits.
This unified levy will begin at 4% in 2025 and taper down to 2% by 2030, simplifying compliance and reducing the reporting burden. The clearer structure is expected to improve transparency and boost Nigeria’s competitiveness in global ease-of-doing-business rankings.
Low-income earners are exempted from PIT
To create a fairer tax system, the new Tax Act introduces a progressive personal income tax (PIT) regime that adjusts tax obligations to match earning capacity.
According to the Nigerian Financial Services Market Report 2022, only 10% of Nigerians earn above $65 monthly. This suggests the majority of workers will benefit from reduced annual tax obligations under the new system:
- $0 – $518.3: 0%
- $520 – $2,000: 15%
- $2,000 – $8,000: 18%
- $8,000 – $16,000: 21%
- $16,000 – $32,000: 23%
- Above $32,000: 25%
This bracketed system eliminates tax on the lowest earners while progressively taxing higher incomes. The reform aligns Nigeria’s PIT structure more closely with international standards, potentially widening the formal tax base through greater inclusion.
Zero-rated VAT on essentials eases cost burden for SMEs
The new provisions for Value Added Tax retain the standard 7.5% rate, rejecting earlier proposals to raise it to 10% or more in the next three years.
However, a significant shift is the zero-rating of essential goods and services—basic food items, rent, education, healthcare, public transport, and exports. Unlike exemptions, zero-rated items allow businesses to reclaim input VAT, easing tax burdens across supply chains.
SMEs stand to gain the most, as they can now claim input VAT on not just goods but also services and capital assets, lowering their overall cost of doing business.
The law also updates the VAT revenue-sharing formula. States now receive 55% of VAT revenue (up from 50%), local governments retain 35%, and the federal government’s share is cut to 10% (from 15%).
This increases remittances to subnational governments, meaning businesses will remit a larger share of VAT to state authorities, potentially raising compliance pressure at that level.
To improve enforcement and reduce fraud, all businesses must now issue digital receipts using government-approved systems that track VAT in real-time.
A new tax structure to simplify and enhance compliance
The reform also reshapes Nigeria’s tax administration.
The Federal Inland Revenue Service (FIRS) – Nigeria’s official tax revenue collecting agency —has been scrapped and replaced by the newly formed Nigeria Revenue Service (NRS), which inherits all powers, obligations, and rights from the FIRS and will now also collect non-tax revenues.
On its part, the Nigerian Tax Act merges six major tax laws—Companies Income Tax, Personal Income Tax, VAT, Petroleum Profits Tax, Stamp Duties, and Capital Gains Tax—into a single, streamlined framework.
To support this new structure, the new rule has established the Joint Revenue Board to harmonise collection across federal, state, and local levels. It also introduces the Tax Appeal Tribunal and the Office of the Tax Ombudsman to resolve disputes fairly and protect taxpayer rights.
A promising path—but execution will be key
If properly implemented, experts say these reforms could accelerate business formalisation, restore investor confidence, and redirect critical revenues to key sectors like education, technology, and infrastructure.
But the success of this sweeping overhaul hinges on rigorous enforcement, transparency, and timely coordination across agencies. Poor implementation, bureaucratic inertia, or widespread tax evasion could quickly erode gains and weaken Nigeria’s fiscal credibility.
Handled right, this reform could position Nigeria as a model for tax modernisation in Africa.
This is a developing story.
