Transforming Nigeria’s Tax Landscape: Key Updates from the 2025 Tax Reform Bill

On June 26, 2025, Nigeria took a significant step forward in modernizing its tax framework with the enactment of the Tax Reform Bill. Set to be implemented from January 1, 2026, this comprehensive overhaul consolidates multiple outdated tax statutes into a streamlined, contemporary system that impacts individuals, entrepreneurs, corporations, and investors alike.

Revamped Corporate Tax Structure: Empowering Small Businesses and Ensuring Fairness

A cornerstone of the reform is the redefinition of corporate tax obligations, particularly benefiting small enterprises. Companies with annual revenues up to ₦50 million and fixed assets valued at ₦250 million or less are now exempt from Companies Income Tax, Capital Gains Tax, and the Development Levy. This initiative aims to alleviate financial burdens on small businesses, encouraging formalization and growth.

For larger corporations, capital gains are now taxed uniformly with regular business income at a rate of 30%, eliminating previous incentives to dispose of assets solely for tax advantages. Additionally, the legislation addresses indirect share transfers by foreign entities, enabling Nigeria to tax profits derived from Nigerian assets, thereby closing previous loopholes exploited through offshore arrangements.

Multiple legacy levies, including education and IT taxes, have been consolidated into a single 4% Development Levy, simplifying compliance. Furthermore, very large companies are subject to a minimum effective tax rate of 15%, ensuring that entities with substantial revenues contribute fairly even if their reported tax payments are low.

Personal Income Tax Adjustments: Supporting Low Earners and Enhancing Equity

The reform introduces a more progressive personal income tax regime. Individuals earning ₦800,000 or less annually, after applicable reliefs, are now fully exempt from personal income tax, providing significant relief aligned with Nigeria’s minimum wage standards.

Conversely, high-income earners with annual incomes exceeding ₦50 million are placed in a higher tax bracket with rates reaching up to 25%, reinforcing the principle of tax equity. Compensation received for job loss or personal injury enjoys enhanced protection, with the tax-exempt threshold raised from ₦10 million to ₦50 million, offering greater financial security during challenging periods.

The law also clarifies tax residency criteria, defining residents as those spending at least 183 days in Nigeria or maintaining permanent homes or substantial economic and familial connections. This clarity benefits cross-border workers and expatriates by reducing ambiguity in tax obligations.

Enhanced VAT Regulations and Digital Compliance Measures

While the Value Added Tax (VAT) rate remains steady at 7.5%, the administration of VAT has undergone significant refinement. Businesses can now reclaim input VAT on a broader range of expenses, including services and capital assets, not just goods for resale or production. This change supports companies investing in equipment and professional services.

Essential goods such as staple foods, medical supplies, educational materials, electricity transmission, and non-oil exports have been expanded under the zero-rated VAT category, easing costs for consumers and exporters.

VAT-registered entities are mandated to adopt government-approved electronic invoicing systems that transmit transaction data in real time to tax authorities, enhancing transparency and curbing evasion. Tax filing and payments are transitioning to fully digital platforms, with stricter penalties for non-compliance or outdated record-keeping.

Incentivizing Investment and Economic Growth Through Targeted Tax Benefits

The traditional tax holiday model has been replaced by a results-driven Economic Development Incentive. Companies investing in qualifying capital assets receive a 5% annual tax credit for up to five years, contingent on actual investment rather than mere eligibility.

Unused tax credits can be carried forward but expire after a set period, motivating timely and genuine capital deployment. Additionally, tax deductions are no longer permitted for assets or services that circumvent VAT or import duties, discouraging informal transactions and promoting supply chain integrity.

While Free Zone and Export Processing Zone companies retain export-related tax advantages, stricter regulations now govern their sales within Nigeria’s domestic market to ensure compliance and fair competition.

Strengthening Tax Administration and Resolving Disputes Efficiently

The reforms establish the Nigeria Revenue Service (NRS), replacing the previous tax authority with a more autonomous body focused on leveraging technology for efficient federal tax collection. This shift aims to enhance service delivery and enforcement.

Moreover, the creation of the Joint Revenue Board fosters collaboration among federal, state, and local tax agencies, facilitating data sharing and harmonizing tax policies to minimize multiple taxation and administrative conflicts.

Implications for Individuals and Businesses: Navigating the New Tax Environment

Whether you are an employee, entrepreneur, or investor, these tax reforms will influence your tax liabilities, filing procedures, and dispute resolution processes. The updated system is designed to reduce complexity, protect vulnerable earners, stimulate authentic investment, and promote transparency in tax administration.

Proactively understanding and adapting to these changes will help you remain compliant, avoid penalties, and leverage available tax reliefs under Nigeria’s revitalized tax regime.