Point AI

Powered by AI and perfected by seasoned editors. Every story blends AI speed with human judgment.

Nigeria cuts 3 taxes for small businesses but triples CGT for corporates

New tax Acts scrap three taxes for small businesses

Author

  • Bunmi Bailey

    Bunmi holds a degree in Economics from the University of Lagos and has over seven years of experience in content writing.

    Her career includes roles as a financial and business journalist at BusinessDay Media and TechCabal, as well as leading the research team at SBM Intelligenceโ€”an Africa-focused market intelligence and strategic consulting firm.

    She currently serves as Editor at Finance in Africa, a subsidiary of BusinessFront, publishers of Techpoint Africa, Energy in Africa. Catch up with her on Linkedin Bunmi Bailey.

Subject(s): ,

Psstโ€ฆ youโ€™re reading Techpoint Digest

Every day, we handpick the biggest stories, skip the noise, and bring you a fun digest you can trust.

Nigeria has introduced tax reforms that scrap three key taxes for small businesses but tripled the capital gains tax (CGT) rate for corporations, signalling a significant shift in the countryโ€™s fiscal policy.

Under the new tax laws signed by President Bola Tinubu last week, companies with annual turnovers of โ‚ฆ100 million ($64,994) and below are now exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and the newly introduced National Development Levy, according to PwC Nigeriaโ€™s analysis of the Nigerian Tax Reform Acts.

This move is aimed at reducing the tax burden on small businesses and encouraging formalisation within Nigeriaโ€™s economy. While small businesses benefit from tax exemptions, larger corporations are set to face higher costs on capital gains. The CGT has been raised from 10% to 30% for companies.

The exemption marks a notable expansion from the previous threshold, which applied to businesses earning โ‚ฆ25 million ($16,248.5) and below. Companies also qualify as small if their total fixed assets do not exceed โ‚ฆ250 million ($162,485.4) according to an analysis by PwC Nigeria.

โ€œThese reforms represent one of the most significant overhauls of Nigeriaโ€™s tax landscape in decades,โ€ PwC said in its report titled โ€œThe Nigerian Tax Reform Acts: Top 20 Changes to Know and Top 6 Things to Do.โ€ The report urges businesses to reassess their tax compliance strategies ahead of the implementation date of January 1, 2026.

Other key changes at a glance

Chart: Three sectors accounted for a combined 59% of the total VAT collected in the first half of 2024
Find more insights at Intelpoint.

Value Added Tax (VAT) retained at 7.5%, with global best practices

Nigeria retains its 7.5% VAT rate but adopts globally accepted VAT principles. Businesses can now claim input VAT on all purchases, including services and fixed assets, provided these are linked to VATable supplies.

Personal income tax relief

Individuals earning โ‚ฆ800,000 ($519.9) or less per year are now exempt from Personal Income Tax (PIT). Higher-income earners will face progressive tax rates of up to 25%.

Additionally, tax exemption thresholds for compensation due to loss of employment or injury have been increased from โ‚ฆ10 million ($6,499.4) to โ‚ฆ50 million ($32,497.1)

New VAT sharing formula

The Acts reduce the Federal Governmentโ€™s share of VAT from 15% to 10%, while increasing the allocations of states and Local Government Areas to 55% and 35%, respectively. The VAT revenue assigned to states and local governments is further allocated as follows: 50% divided equally, 20% based on population, and 30% based on place of consumption.

Under the current VAT revenue distribution structure, revenue is allocated to the states and local governments utilising equality โ€“ 50%, population size โ€“ 30%, and derivation-20%

Heavier penalties for tax defaulters

The reforms introduce significantly tougher penalties for tax defaults. Failure to file tax returns now attracts a fine of โ‚ฆ100,000 ($65) in the first month and โ‚ฆ50,000 ($32.4) for every subsequent month of default.

In addition, businesses risk a โ‚ฆ5 million ($3,249.7) penalty for awarding contracts to individuals or companies not registered for tax. Other penalties include sanctions for refusing access to tax technology systems or attempting to improperly influence tax officials.

Chart: Nigeria relies significantly on corporate income tax for its tax revenue compared to Africa and OECD countries
Find more insights at Intelpoint.

Public sentiment

Before the passage of the bills, a survey by SBM Intelligence across eight states โ€” Abuja, Anambra, Bauchi, Cross River, Kano, Lagos, Oyo, and Rivers โ€” revealed general support for the reforms, particularly the relief measures for small businesses.

But there were concerns about the plan to raise VAT from 7.5% to 15% by 2027, which many fear could fuel inflation.

โ€œI believe the bills can stimulate the economy if properly implemented,โ€ said Yakubu Samaila, a trader in Bauchi. โ€œBut raising VAT without fixing the economy will only worsen hardship for struggling Nigerians.โ€

But under the new tax bills, Nigeria retained VAT at 7.5%.

PwCโ€™s recommendations for businesses

Given the changes introduced by the Acts, PwC companies and businesses need to proactively assess the corporate structure, operational, financial, and compliance implications arising from the tax laws.

โ€œOrganise sensitisation workshops for relevant board committees and executive management on the impact of the reforms on your business,โ€ it said.ย 

The tax advisory firm also added that companies should empower their staff by training and upskilling staff to ensure seamless adoption of new tax laws in specific roles and processes that are impacted.

Exchange rate used: $1 = โ‚ฆ1,538.6 as of June 27, 2025

Follow Techpoint Africa on WhatsApp!

Never miss a beat on tech, startups, and business news from across Africa with the best of journalism.

Follow

Read next