Nigeria's Tax Reform Acts: Major Changes and Effects on Individuals and Businesses

This article details the main provisions of the Acts, emphasizing their impact on taxpayers, businesses, and government revenue. The Acts thoroughly reform Nigeria's tax administration by unifying and updating the tax framework to align with global standards and national development goals. Understanding these changes is essential for balancing revenue generation with economic growth while assessing their effects on individual taxpayers and businesses.

The Acts are set to be implemented starting January 1, 2026.

Overview of the Tax Acts

1. Nigeria Tax Act: The NTA serves as the foundation of recent tax reforms, unifying various tax laws into one comprehensive statute. This legislative action simplifies tax administration, boosts compliance, and fosters revenue growth. By resolving issues from overlapping or conflicting legal provisions, the NTA seeks to simplify taxpayer obligations, reduce administrative complexities for tax authorities, and ensure consistency in tax interpretation and enforcement.
   
2. Nigeria Revenue Service Act: The NRSA transforms tax administration and revenue collection by creating a thorough legal, institutional, and regulatory structure. It replaces the Federal Inland Revenue Service (FIRS) Act and establishes the Nigeria Revenue Service (NRS), improving the efficiency and effectiveness of national revenue management.
   
3. Nigeria Tax Administration Act: The NTAA provides a detailed legal framework for managing revenue collection, tax assessment, and administration at federal, state, and local government levels. It also introduces stricter compliance requirements for taxpayers.
   
4. Joint Revenue Board Act: The JRBA creates a unified tax dispute resolution framework by establishing the Joint Revenue Board, the Tax Appeal Tribunal, and the Office of the Tax Ombudsman to coordinate, harmonize, and resolve tax administration disputes.
   

Major Legal and Policy Innovations in the Acts

1. Raised Exemption Threshold for Small Businesses: Previously, under the Companies Income Tax Act (CITA), small companies were those with an annual gross turnover of ₦25 million or less. The NTA has redefined small businesses as companies with an annual gross turnover of ₦100 million or less and total fixed assets not exceeding ₦250 million, excluding businesses offering professional services from this classification. Small companies are now exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and the newly introduced Development Levy (detailed below).
   
2. Reform of Personal Income Tax (PIT): The NTA introduces a more progressive Personal Income Tax structure to enhance equity, adjusting income brackets and tax rates. Individuals earning up to ₦800,000 annually are fully exempt from tax on their income and gains. Earnings above this amount are taxed progressively, starting at 15% and rising to 25% for annual incomes over ₦50 million. Furthermore, the Act increases the tax exemption threshold for compensation due to loss of employment or injury from ₦10 million to ₦50 million.
   
3. Rent Relief Introduction: The NTA has substituted the Consolidated Relief Allowance (CRA) with a rent relief option, enabling taxpayers to claim 20% of their annual rent, capped at ₦500,000, whichever is less. To qualify for this new rent relief, individuals must declare the actual rent paid, and the tax authority may ask for further supporting details. Importantly, individuals living in self-owned homes are not eligible for this relief. The reason for discontinuing the CRA has not been given.
   
4. Basic rules for tax deductions: The NTA permits deductions solely for expenses "wholly and exclusively incurred in the production of income." The previous requirements for expenses to be 'reasonable' and 'necessary' have been eliminated, likely decreasing conflicts between taxpayers and authorities regarding the reasonableness or necessity of an expense.
   
5. The Capital Gains Tax (CGT) for companies has increased from 10% to 30%, aligning it with the Corporate Income Tax (CIT) rate. However, share disposals are exempt from CGT if (i) total disposal proceeds are under ₦150 million and chargeable gains are below ₦10 million within a year, (ii) the transaction is a regulated securities lending arrangement, or (iii) proceeds are reinvested in Nigerian shares within the same year if proceeds exceed ₦150 million. For individuals, capital gains are taxed at the applicable income tax rate based on the individual's tax band.
   
6. Taxable Gains on Share Sales by Non-Residents: When a non-resident entity, like an offshore private equity fund or foreign investor, sells shares it holds, capital gains tax is applicable only if the sale results in a change in the ownership structure or group membership of a Nigerian company, or modifies the ownership, title, or interest in any asset located in Nigeria. This limitation on taxable gains for share sales by non-residents creates a favorable environment for inter-group share transfers.
   
7. Capital Gains Tax Exemptions for Venture Capitalists, Angel Investors, Private Equity Funds, Incubators, and Accelerators (VC/AI/PEF/I/A): When a VC/AI/PEF/I/A sells an asset to a Nigerian company with the "startup" label, any capital gain from the sale will be exempt from Capital Gains Tax, as long as the assets were held in Nigeria for at least 24 months before the transaction.
   
8. Input VAT Recovery: With the VAT rate still at 7.5%, the NTA has embraced global VAT standards, enabling the recovery of input VAT on goods, services, and fixed assets, as long as the input VAT is directly related to the consumption, use, or supply of taxable supplies. Consequently, businesses providing services that were previously unable to recover input VAT can now benefit from this provision.
   
9. Zero-rated VAT on Essential Goods & Services: Basic food items, educational books and materials, medical and pharmaceutical products, electricity, and tuition fees, among others, previously classified as exempt, are now zero-rated (0% VAT). This means businesses selling these goods and services can reclaim any input VAT paid during production, despite the zero rate.
   
10. VAT Sharing Formula Update: The Acts modify the distribution of VAT revenue among the three government tiers. The Federal Government's share has decreased from 15% to 10%, the State Government's portion has increased from 50% to 55%, and Local Government Areas maintain their 35% share. Additionally, the joint VAT allocations for States and Local Government Areas are distributed based on a formula incorporating equality (50% allocated equally), population (20%), and consumption levels (30%). This framework is intended to encourage States to boost local economic activity and improve VAT collection efficiency.
    
11. VAT Fiscalisation and E-Invoicing: In Nigeria, businesses must use tax authority-approved fiscal tools and systems for VAT collection, such as electronic invoicing systems and real-time transaction reporting. This initiative incorporates e-invoicing into Nigeria's tax framework, aiming to improve VAT compliance, reduce fraud, and promote revenue transparency.
    
12. Introduction of Development Levy: The Acts establish a Development Levy for all Nigerian companies, excluding small businesses and non-resident companies. This levy is set at a flat rate of 4% of assessable profits (profits before depreciation and losses) and consolidates several industry-specific levies, including the Tertiary Education Tax, Police Trust Fund Levy, Information Technology Levy, and National Agency for Science and Engineering Infrastructure Levy.
    
13. Taxation of Non-Residents: The range of activities by non-resident companies subject to tax in Nigeria has been broadened. The Acts implement "force of attraction" rules, allowing income from specific activities conducted by a non-resident company or its affiliates in Nigeria to be taxed, even if these activities were not directly executed through a Nigerian office.
    

In general, all non-resident individuals and entities must register for tax purposes and obtain a taxpayer identification number to file necessary returns and meet tax obligations in Nigeria if they earn income from the country. Having a tax ID is crucial for interacting with Nigerian banks, stockbrokers, insurance companies, or other financial institutions. However, non-residents who only derive passive income—such as interest, dividends, and similar earnings—from Nigeria are not required to register for or obtain a tax ID; nevertheless, the Nigeria Revenue Service (NRS) may request relevant information from them as needed.

1. Minimum Effective Tax Rate (ETR): Nigerian companies within a multinational group and any company with a total turnover of N20 million or more in the relevant assessment year must adhere to a minimum ETR of 15% of their net income. If a foreign subsidiary's tax rate is below this threshold, the Nigerian parent company must cover the difference as a "top-up tax." This measure ensures equitable taxation of profits generated in Nigeria or managed by Nigerian companies. However, the minimum ETR does not apply to Free Zone companies on their exports from Nigeria, provided these companies are not part of multinational groups.
   
2. Introduction of Economic Development Incentive (EDI): The Acts replace the pioneer status tax holiday incentive with the EDI, offering a 5% annual tax credit for 5 years on qualifying capital expenditures by eligible companies within 5 years of commencing production. Unused tax credits can be carried forward for an additional 5 years before expiration.
   
3. Restructuring of the FIRS and SIRS and Establishment of the Tax Ombuds Office: The Federal Inland Revenue Service (FIRS) has been renamed the Nigeria Revenue Service (NRS) with an expanded role to evaluate, collect, and manage revenue for the federation. The legislation also provides operational independence to the State Internal Revenue Services (SIRS). Additionally, to enhance taxpayer protection, the Acts establish the Tax Ombuds Office to engage with tax authorities on behalf of taxpayers and independently address and resolve issues related to taxes, levies, duties, or similar regulatory charges.
   
4. Stamp Duty Obligations: The Acts mandate that anyone receiving an interest in real property, benefiting from a paid service, or securing a transaction with an executed instrument must stamp the relevant document within 30 days of execution and pay the required duty. Additionally, company loan capital is now subject to ad valorem tax. The NTA defines loan capital to include debenture stock, other stock, or funded debt by any corporation, company, or organization established in Nigeria, excluding overdrafts and loans with a term not exceeding 12 months.
   
5. The Venture Capital (Incentives) Act has been repealed by the NTA, leading to significant changes for venture capital companies. These companies will no longer enjoy the previous incentives, particularly the capital allowances on equity investments, which are now limited to what the NTA provides. The gains from selling shares in a venture project company will be subject to taxation or exemption according to NTA rules, replacing the former 15-year CGT exemption structure. Furthermore, incentives from the Industrial Development (Income Tax Relief) Act and the Export (Incentives and Miscellaneous Provisions) Act will no longer be applicable to a venture project company.
   
6. Stricter Penalties for Non-Compliance: The Acts implement substantially increased penalties for non-compliance. Notable changes involve raising the penalty for not filing returns to ₦100,000 for the first month and ₦50,000 for each subsequent month of default. Additional penalties include a ₦5 million fine for awarding contracts to unregistered individuals or entities, along with penalties for influencing tax officers, obstructing technology deployment, and other related offenses.
   

Next Steps For Companies and Businesses

With the recent updates introduced by the Acts and implementation scheduled for January 2026, businesses should review and understand the potential implications, update their systems accordingly, and adopt appropriate practices to remain compliant. Entities are recommended to:

• Conduct workshops for board committees and executive management to enhance awareness of the reforms. Additionally, provide targeted training to staff to facilitate the integration of new tax laws into roles and processes. 
• Conduct a proactive evaluation of the corporate structure and the financial, operational, and compliance impacts resulting from the recent tax legislation. 
• Assess, modify, or remove tax functions and processes to improve effectiveness, address compliance issues, and establish internal controls. 
• Utilise advanced technology and enhance compliance procedures. 
• Collaborate with stakeholders to facilitate an effective transition and adoption process. 
• Maintain up-to-date knowledge of tax matters by reviewing official communications, circulars, and regulations issued by authorities in accordance with the relevant Acts. 
• Utilise the office of the Tax Ombuds for guidance and dispute resolution.

Conclusion

The recent implementation of the Nigeria Tax Reform Acts represents a major advancement in the country's tax policy and administration. By consolidating various laws into a unified statute and aligning the tax system with international standards, these Acts establish a legal framework that fosters equity, predictability, and sustainable economic growth.

While these reforms provide significant commercial benefits, failure to comply with tax obligations can lead to severe penalties. Therefore, it is crucial for businesses to thoroughly review their tax strategies, operational processes, and compliance frameworks to ensure readiness and resilience, while also optimizing available tax opportunities.