From factories to boardrooms: Nigeria’s 4% development levy sparks unease across key industries

In factories where machines hum and diesel fumes spread, in pharmaceutical boardrooms recalibrating compliance software, and in airline offices bracing for thinner margins, Nigeria’s new 4% development levy is already rewriting the math of survival.

It is a single provision buried in a sweeping tax reform. Yet, across industries, it has emerged as a quiet disruptor — stoking a ‘silent wish’ among stakeholders and forcing manufacturers to rethink production schedules and overhaul tax systems.

Many business leaders have conceded that the levy could help fund desperately needed infrastructure. But they warned that without clarity and demonstrable impact, the new charge risks deepening the strain on firms already stretched thin by inflation, high energy costs, and chronic operational inefficiencies.

ECHOES FROM THE PLANTS

Industrialists like Kikelomo Adeniji, chief executive officer (CEO) of Haus of Ice (formerly IcePlace Millennial), said the levy will tighten margins, at least in the short term.

Adeniji — popularly known as Ice Queen — runs an ice production plant tucked deeply away in Funsho Street in Yaba, one of Lagos’ busiest commercial hubs.

Like most manufacturing ventures, the business runs on rising electricity tariffs, high diesel consumption and logistics expenses — cost pressures compounded by multiple regulatory charges.

“We remit several statutory taxes and regulatory fees that directly affect our operations,” she told TheCable.

Her list includes pay-as-you-earn (PAYE) for staff, local government levies, business premises charges, and waste management fees.

“Adding another compulsory levy directly increases overhead,” she said.

“Ice is a low-margin, high-volume product. Even small levies erode profit quickly. For most factories, the impact will show up in reduced monthly net income until pricing adjustments catch up.”

Operationally, Adeniji said the development levy means tighter cost controls, broader optimisation, and “smarter production scheduling”.

Adeniji said while the tax law will “inevitably” affect pricing, upward adjustments will be “modest”.

“We will manage the transition carefully to protect customer loyalty and business viability, relying on efficiency gains to remain competitive,” the manufacturer added.

Lekan Alabi, chief financial officer (CFO) of Reals Pharmaceuticals, a local medicine producer, shared similar concerns, warning that cost control in the industrial sector may become “very aggressive” as inflation remains elevated.

He also cautioned that the levy would push companies to adjust pricing structures, particularly in the pharmaceuticals industry, where price sensitivity is high.

“The 4 percent levy has a broader effect. It raises the cost of doing business across the board,” Alabi said.

“The pharmaceutical industry, for instance, will simply pay more tax.”

THE ROAD TO A NEW TAX REGIME

President Bola Tinubu’s appointment of Taiwo Oyedele — a tax and fiscal policy expert — as chairman of the presidential committee on fiscal policy and tax reforms in 2023 marked a decisive push to reset Nigeria’s tax architecture.

The federal government said the reforms were designed to address long-standing weaknesses in the system, such as multiple taxation, fragmented revenue agencies, low tax morale, poor coordination between fiscal and economic policy, and weak accountability in the use of tax revenue.

But the overarching objective was explicit.

Dele Alake, then special adviser to the president on special duties, said the reforms aim to “achieve a minimum of 18% Tax-to-GDP ratio within three years without stifling investment or economic growth”.

After months of resistance and debate, the national assembly passed the four tax bills introduced by the committee at the behest of the president.

In June 2025, Tinubu signed them into law — now known as the Nigeria Tax Act (NTA) 2025, the Nigeria Tax Administration Act (NTAA) 2025, the Nigeria Revenue Service (Establishment) Act (NRSA) 2025, and the Joint Revenue Board (Establishment) Act (JRBA) 2025.

AN OFFSPRING OF THREE TAXES — AND ITS DISTRIBUTION

The 4 percent development levy, one of the new provisions in the NTA, replaces three existing charges: the education tax, the National Information Technology Development Agency (NITDA) levy, and the National Agency for Science and Engineering Infrastructure (NASENI) levy.

Under the current system, companies pay education tax at 3 percent, alongside NITDA and NASENI levies of 1 percent and 0.25 percent, respectively.

Introduced in 1993, the education tax was designed to address decaying infrastructure in Nigeria’s education sector, while the NITDA and NASENI levies were created to support the development of Nigeria’s telecommunications and information and communication technology (ICT) sectors.

From January 2026, when the new system takes effect, all three will be scrapped and folded into the development levy.

“A development levy of 4 percent is imposed on the assessable profits of all companies chargeable to tax under Chapters Two and Three of this Act, other than small companies and non-resident companies,” Section 59(1) of the NTA states.

The law mandates the Federal Inland Revenue Service (FIRS) — to be renamed the Nigeria Revenue Service (NRS) — to collect the levy and pay it into a dedicated account.

SOMETHING TO BE HAPPY ABOUT

Under the NTA, 50 percent of revenue from the levy will go to the tertiary education trust fund; 15 percent to the Nigerian education loan fund; and 8 percent to the NITD fund.

NASENI will receive 8 percent; the national board for technological incubation, 4 percent; the defence and security infrastructure fund, 10 percent; and the national cybersecurity fund, 5 percent.

The levy does not apply to assessable profits computed for hydrocarbon tax, according to the NTA.

The law also requires beneficiary agencies and funds to submit income and expenditure statements to the national assembly for appropriation.

Speaking with TheCable, Oyedele said the levy will apply only to large companies with annual turnover above N100 million.

“It is not applicable to enterprises,” he said, adding that the law harmonises the education tax, NASENI levy, NITDA levy, and police levy.

This consolidation is one element that many executives interviewed welcome, with expectations that it would improve the ease of doing business in Nigeria.

The view across the board is also that if the levy is transparently managed and produces visible infrastructure outcomes, industries will be happy to fully comply.

“The essence of the levy is to fund national priorities like tertiary education, student loans, science, and technology,” Alabi said.

“Taxpayers will be happy seeing the levy judiciously used for its intended purpose.”

A TAX RELIEF — THE SILENT WISH AMID A SEARCH FOR CLARITY

Still, the policy has drawn criticism.

Specifically, aviation stakeholders are concerned about the “lack” of clarity on the number of taxes and levies covered by the levy.

Charles Grant, chief financial officer of Aero Contractors, said the NTA does not explicitly list all taxes and levies to be subsumed.

“This ambiguity may result in subjective interpretations that increase the tax burden beyond the intention of the act,” he said.

While Grant acknowledged that a single levy reduces administrative burden and simplifies compliance, he said it would still squeeze airline margins and constrain reinvestment in operations and training.

He called for “tax relief under the levy”, arguing that training — much of it mandatory and conducted offshore — is one of aviation’s highest cost outlays.

TheCable understands aviation rules require that pilots must go on periodic routine, recurrent training for six months, or 12 in some cases.

“Our engineers, safety and quality staff also go on recurring trainings,” Grant said.

“It takes a significant chunk of airline revenue. So, the appeal is not to exempt airlines.

“The appeal is that there should be some form of relief in recognition of the extent to which companies or the industries invest in training and capacity development.”

Also backing the request for relief, Adeniji called for an outright reduction of the levy.

While the new tax laws contain about 50 exemptions and reliefs, only small companies are exempted from the development levy. No reliefs are explicitly provided.

Oyedele’s response to questions on the matter did not suggest that the federal government is inclined to adjust the policy anytime soon.

HOW COMPANIES ARE PREPARING FOR COMPLIANCE

With relief uncertain, firms are already recalibrating. Manufacturers are re-evaluating overheads and exploring solar-hybrid power systems to reduce generator hours.

Alabi said Reals Pharmaceuticals is stepping up its compliance readiness.

“We are responding by conducting tax risk assessments, strengthening tax planning, training staff, and upgrading ERP systems to facilitate compliance,” he said.

Wence Nwoga, a tax and compliance expert at DataPro Limited, said the levy underscores the need for rigorous budgeting, forecasting, and cash-flow management. The expert advised organisations to adjust administrative and compliance processes for computing, paying, and managing the development levy.

“Companies will have to ensure appropriate calculation of ‘assessable profit’ and ascertain if their companies fall under the appellation of a ‘small company’ or ‘non-resident company’, which are exempted from the payment of the 4% development levy,” he said.

As things stand, despite its allure of harmonisation and easing the burden of firms, the levy bears the weight of unanswered questions and an uncertainty that only the much-heralded implementation may address.