The Nigerian Tax Act 2025, signed into law last Thursday after months of deliberation, marks a watershed moment in Nigeria’s journey toward a more efficient, inclusive, and growth-oriented tax system.
By consolidating four critical tax reform bills—the Nigerian Tax Act, Nigerian Tax Administration Act, Nigerian Revenue Service Act, and Joint Revenue Board Act—into a single, comprehensive legal framework, the government aims to simplify administration and enhance clarity for taxpayers and institutions alike.
This development represents a major shift for Africa’s largest oil producer, whose overreliance on an outdated colonial-era tax structure has hindered competitiveness, fostered inefficiency, and contributed to persistent fiscal opacity. Despite having one of the lowest tax-to-GDP ratios globally, Nigeria is finally taking steps to reverse this trend.
Context and Challenges
Previously, Nigeria imposed over 60 different taxes and levies, many of which contributed little to public revenue but created significant obstacles for businesses and investors due to multiple taxation and a convoluted collection process.
Although the country’s tax-to-GDP ratio has improved—rising from 10.8% to 13.5%—it still lags behind the African average of 16% and South Africa’s 24.5%. The new reforms aim to close this gap with a more equitable, digitised, and streamlined system.
“If everything works out, Nigeria should be at a minimum of 18 to 20 per cent of GDP, translating to around N50 trillion in today’s value,”
— Taiwo Oyedele, Chair, Presidential Fiscal Policy and Tax Reforms Committee (Channels TV)
Yet, Nigeria’s tax gap—estimated at 70%—underscores the scale of the challenge. The FIRS has set a 2025 collection target of 57%, making enforcement and compliance a top priority.
Key Institutional Changes
One of the landmark features of the new framework is the establishment of the Nigerian Revenue Service (NRS), which replaces the Federal Inland Revenue Service (FIRS). Unlike its predecessor, the NRS has a broader mandate, encompassing not just tax collection, but also assessment and revenue accountability across the federation.
According to Oyedele, the reform’s primary objective is not merely to raise more revenue, but to build a people-centric, growth-driven, and efficient tax system.
“If you don’t address how to stimulate economic activities but want to collect more taxes, you’re chasing shadows.”
Highlights of the Nigerian Tax Act 2025
✅ Tax Exemptions
- Income Tax Relief: Individuals earning ₦800,000 or less annually are now exempt from paying income tax.
- Unemployment Relief: For those who have lost their jobs, the tax exemption limit has been raised to ₦50 million, up from ₦10 million.
- Low-Income Protection: Individuals earning ₦108,000 or less per month, and households earning ₦250,000 or less, are fully exempt.
- SME Relief: Companies with annual turnover of ₦100 million or less and total fixed assets under ₦250 million are exempt from all forms of taxation. Previously, the threshold was ₦25 million.
- Capital Gains on Shares: Exemptions apply for gains up to ₦150 million per year, subject to a ₦10 million cap on eligible gains.
✅ Essential Goods VAT Exemption
The 7.5% VAT rate is maintained, but essential goods and services—food, education, healthcare, housing, electricity, and transportation—are now exempt from VAT. Businesses can also recover VAT on inputs used before the new law’s implementation.
🔺 Tax Increases
- Capital Gains Tax (Companies): Raised from 10% to 30%.
- Development Levy: All companies (excluding SMEs) must now pay 4% of their assessable profits as a development levy.
💰 VAT Revenue Allocation
- Federal Government: Reduced from 15% to 10%
- States: Increased from 50% to 55%
- Local Governments: Remain at 35%
State and local government allocations will be based on:
- 50% equally among all
- 30% based on location of consumption
- 20% based on population
Looking Ahead: Implementation in 2026
Implementation of the Nigerian Tax Act 2025 will begin in January 2026, with a strong emphasis on digitalisation, data integration, and compliance monitoring. Authorities also plan to shift greater tax responsibility toward high-net-worth individuals and large corporations, while protecting vulnerable populations and SMEs.
Conclusion
The Nigerian Tax Act 2025 is more than a fiscal document—it’s a blueprint for rebuilding trust in the social contract between the state and its citizens. If effectively implemented, it could catalyse inclusive economic growth, improve public services, and position Nigeria for long-term fiscal sustainability.
But as always, execution is everything. The true test lies in translating this reform from legislation into real-world benefits—especially for the working class, small businesses, and underserved communities.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.
