A REVIEW OF THE NIGERIAN TAX REFORM ACT 2025 AND THEIR IMPLICATIONS FROM JANUARY 2026
In a significant move aimed at strengthening Nigeria’s fiscal framework and improving its investment climate, the Federal Government enacted four landmark tax laws on 26 June 2025. These include the Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board (Establishment) Act. Collectively referred to as the Nigerian Tax Reform Acts, these laws became fully operational on 1 January 2026. Despite public debate surrounding their enactment, the reforms are fundamentally designed to simplify tax administration, reduce the burden on compliant taxpayers, broaden the tax base, and reposition Nigeria as a more competitive destination for local and foreign investment.
UNDERSTANDING TAX REFORM IN NIGERIA
Tax reform involves comprehensive changes to a country’s tax system, covering both how taxes are imposed and how they are administered. Prior to these reforms, Nigeria’s tax framework was largely fragmented,
governed by multiple overlapping statutes. The new regime introduces a consolidated, transparent, and more equitable system intended to support sustainable national development and improve the ease of doing business. Under the reforms, taxable persons are broadly defined to include individuals and entities that earn income or carry out economic activities within Nigeria, reinforcing the government’s objective of expanding compliance while reducing arbitrariness.
INSTITUTIONAL FRAMEWORK AND ADMINISTRATION
The Federal Government retains primary responsibility for tax policy formulation and legislation. However, the operational role is now vested in the Nigerian Revenue Service (NRS), which replaces the former Federal Inland Revenue Service (FIRS). The NRS is charged with the assessment, collection, enforcement, and administration of federal taxes and related revenues under the new framework.
KEY HIGHLIGHTS OF THE NIGERIAN TAX REFORM ACTS
• Expanded tax relief for small companies: Small companies now benefit from significantly higher exemption thresholds. Businesses with annual turnover not exceeding ₦100 million and fixed assets of ₦250 million or less are exempt from Companies Income Tax, Capital Gains Tax, and the newly introduced Development Levy. This represents a major increase from the former ₦25 million threshold and is intended to stimulate small business growth.
• Introduction of a unified Development Levy: Companies that do not qualify as small companies are now subject to a Development Levy of 4% on assessable profits. This single levy consolidates several existing charges, including the Tertiary Education Tax, IT Levy, NASENI Levy, and Police Trust Fund Levy, simplifying compliance and administration.
• Increase in Capital Gains Tax
Capital Gains Tax for companies has been increased from 10% to 30%, aligning it with the Companies Income Tax rate and addressing previous opportunities for tax arbitrage. For individuals, capital gains are now taxed in line with applicable personal income tax bands.
• Taxation of indirect share transfers
The reforms introduce Capital Gains Tax on indirect transfers of shares in Nigerian companies carried out through offshore entities, subject to applicable tax treaty reliefs. In addition, the exemption threshold for share disposals has been increased to ₦150 million within a 12-month period, provided gains do not exceed ₦10 million.
• More progressive personal income tax regime
Individuals earning ₦800,000 or less annually are now exempt from personal income tax, while higher earners are taxed progressively at rates of up to 25%. Compensation for loss of employment or injury is also exempt up to ₦50 million, an increase from the previous ₦10 million cap.
• Minimum Effective Tax Rate for large companies
Multinational groups with global turnover of €750 million or more, or Nigerian companies earning ₦50 billion or above annually, are now subject to a minimum effective tax rate of 15%. Where subsidiaries pay tax below this threshold, a top-up tax may apply, subject to defined exemptions.
• Clearer residency rules
The reforms provide a clearer definition of tax residence for individuals, focusing on economic interests and family ties. This clarification reduces uncertainty and broadens the personal income tax base while addressing
prior inconsistencies.
• Zero-rated VAT on essential goods and services
The scope of zero-rated VAT has been expanded to cover essential goods and services, including basic food items, healthcare, pharmaceuticals, educational materials, electricity services, tuition fees, and most exports.
Businesses in these sectors may now reclaim input VAT, a significant shift from the previous regime.
• Introduction of a Tax Ombuds Office
An independent Tax Ombuds Office has been established to handle taxpayer complaints and resolve disputes relating to taxes and levies, strengthening accountability and taxpayer protection.
• Adoption of VAT focalization and e-invoicing
Nigeria has formally adopted VAT focalization and compulsory electronic invoicing, requiring businesses to use approved systems for VAT reporting and remittance. This move enhances transparency and aligns Nigeria with global digital tax practices.
CONCLUSION
The Nigerian Tax Reform Acts represent a bold attempt to create a fairer, more efficient, and investment-friendly tax system. By supporting small businesses, protecting low-income earners, and ensuring that larger and multinational companies contribute equitably, the reforms are expected to improve compliance, reduce disputes, and strengthen public revenue.
WHAT WE DO AT AMADI, IKEJIANI & CO.
Our firm continues to advise individuals and businesses on navigating the practical and compliance implications of Nigeria’s evolving tax regime. For tailored guidance on how these reforms may affect your operations, please contact our Tax and Corporate Advisory team.
