Harmonisation, simplification, relief and progression: Unpacking Nigeria’s new tax regime

BY ABDULLAHI ADAM USMAN

Few policies in recent Nigerian history have sparked as much debate and scrutiny as the new tax reforms introduced by the Presidential Committee on Fiscal Policy and Tax Reforms, chaired by Taiwo Oyedele. The committee’s extensive work culminated in the passage of four landmark laws: The Nigeria Tax Act (NTA), The Nigeria Tax Administration Act (NTAA), The Nigeria Revenue Service Act (NRSA), and the Joint Revenue Board Act (JRBA).

From their initial introduction, these bills triggered widespread uproar and misinformation, particularly within the Northern region. This reaction was fueled by a heated political climate, the government’s historical struggle to justify tax collection through service delivery, and the sheer sensitivity of fiscal policies to the daily lives of citizens. Many who initially ignored the drafting process relied on hearsay, leading to uninformed criticism. However, following engagement with the National Assembly and various stakeholders, the fog began to clear. To understand the true impact of these laws, we must look past the noise and examine the four pillars defining this regime: Harmonisation, Simplification, Relief, and Progression.

To address the elephant in the room, we must first clarify the misconceptions surrounding the horizontal revenue sharing formula, specifically regarding Value Added Tax (VAT). Much of the controversy stemmed from the proposal to increase the derivation-based sharing of revenue among states to 60%, a sharp rise from the previous 20%. Critics argued this was designed to disadvantage the North and favor states like Lagos. However, this perspective ignores a critical legal reality.

VAT was introduced via a military decree in 1994. When the 1999 Constitution was formulated, it replicated the 1979 Constitution—which predated VAT—and thus did not explicitly include it. Consequently, VAT is technically a residual item falling under the exclusive power of the states. This legal loophole emboldened Lagos and Rivers States to seek judicial backing to collect their own VAT. While the Appeal Court set aside a lower court ruling favoring the states, the matter remains precarious at the Supreme Court. If the Supreme Court rules in favor of the states, they would retain 100% of their VAT based on production. This would catastrophically disadvantage states with fewer corporate headquarters.

Therefore, the new tax laws were not an attempt to cheat certain regions, but a strategic move to stabilise the sharing ratio. By proposing a 60% derivation based on consumption rather than production, the law ensures that states are rewarded for the goods and services consumed within their borders, rather than simply rewarding the state where the factory is located. Ultimately, the final laws assented to by the President settled on a 30% consumption-based ratio, balancing equity with fiscal federalism.

Moving beyond the politics, the core of these reforms is the “Harmonisation” of a chaotic system. The new laws have eliminated over 50 nuisance taxes that previously burdened the economy. Furthermore, the chaotic practice of “pre-distribution deductions” for funding agencies has been abolished. Previously, newly established agencies were funded by deducting a percentage of national revenue before it was even shared, a practice that threatened to deplete the federation account. Under the new regime, all agencies will be funded strictly through the appropriation budget. This eliminates confusion and ensures transparency.

This harmonisation extends to the practical costs of doing business. The new laws have cleaned up the chaos of multiple taxation on the same income. Levies such as the tertiary education tax, technology tax, police trust fund levy, and NASENI levy have been consolidated into a single, lower rate or abolished entirely. Companies and individuals will no longer bleed from a thousand small regulatory cuts.

For Small and Medium Enterprises (SMEs), these laws offer “Relief” and “Simplification.” In the past, small business owners faced harassment from dozens of agencies demanding various levies. The Federal Government has now yielded the Electronic Money Transfer Levy—previously collected 100% by the centre—to the States, on the condition that they cease these predatory taxations.

Additionally, the laws introduce significant exemptions. Small businesses with an annual turnover of ₦50 million or less are now exempt from Withholding Tax, VAT, and enjoy a 0% Corporate Income Tax rate. This shift means the government is no longer taxing capital, startups, or investment; it is strictly taxing profit. Even if this relief leads to just a 5% increase in business survival rates, Nigeria could see over 180,000 additional registered SMEs in three years, eventually widening the tax base. In alignment with this, SMEDAN and the CAC have initiated free registration for 250,000 selected SMEs, proving that the government wants these businesses to thrive, not just survive.

For the individual taxpayer, the reforms represent a massive leap toward “Progression.” The old regime was deeply regressive; a low-wage cleaner often fell into the same final tax bracket as a billionaire once their income crossed just ₦3.2 million annually, with every extra naira taxed at a flat 24%. The new regime corrects this injustice. The first ₦800,000 of income (after deductions and up to ₦500,000 rent relief) is completely tax-free.

Let us look at a striking example of this difference. Consider a person with a taxable income of ₦800,000 annually. Under the old law, this earner was punished for their hard work: subjected to 7% tax on the first ₦300,000, 11% on the next ₦300,000, and 15% on the final ₦200,000. The result was a crushing tax bill of ₦84,000 just for earning a modest living. With the new Nigeria Tax Act, the story changes completely. That same ₦800,000 now carries a 0% tax rate.

Furthermore, even if you earn slightly more, the new Rent Relief allowance (deductible up to ₦500,000) can shield that extra income, keeping you effectively tax-free. No more penalties for basic survival. The next bracket is taxed at a modest 15%. Crucially, minimum-wage earners now pay nothing at all. For those in low-income brackets, this translates to a 67% decrease in their tax burden.

Further relieving the burden on the poor is the adjustment to Stamp Duty. On transfers of ₦10,000 and above, the ₦50 charge is now borne by the sender, not the receiver. This subtle but powerful change ensures that students, artisans, widows, and pensioners are not taxed simply for receiving financial help.

Perhaps the most humane aspect of the new law is the expansive list of exemptions on essential goods. The items that constitute the largest expenditures for low-income households—basic food items, education services, medical services, pharmaceutical products, and energy sources like diesel, petrol, and solar equipment—are now VAT-exempt. The law also prioritises the vulnerable; disability aids such as wheelchairs, hearing aids, and Braille materials are VAT-free, as are sanitary hygiene products. Furthermore, humanitarian and philanthropic activities are now exempt from taxation, ensuring that no one is penalised for helping the needy.

Agriculture, the bedrock of our society, receives special attention to boost food security. The laws introduce a tax holiday for the first five years for agricultural businesses, including crop production and livestock. There is also a permanent VAT exemption on agricultural inputs—fertilisers, seeds, feeds, and equipment. By ensuring that food production is not frustrated by taxation, the government is tackling inflation at the source.

Finally, the administration of these taxes has been overhauled. The Federal Inland Revenue Service (FIRS) transitions to the Nigeria Revenue Service (NRS), signalling a shift from a federal-focused body to a national service. The system moves from “drums, barricades, and nails” to a fully automated, digital filing process. This digitisation introduces a Mandatory Taxpayer Identification Number (TIN) and unified procedures, drastically reducing leakages, tax evasion, and the burden of compliance. Additionally, the creation of the Office of the Tax Ombudsman provides an independent body to protect taxpayer rights and resolve disputes without unending litigation.

These reforms may not be perfect, and their success will depend heavily on implementation rather than the fine print. However, for the first time in decades, Nigeria has a tax system designed to protect the poor, incubate small businesses, boost agriculture, and ensure the wealthy contribute their fair share. The era of taxing poverty is over. Harmonisation, Simplification, Relief, and Progression—these are not just buzzwords; they are the foundation of a fairer Nigeria.

Abdullahi is a student of international studies at Ahmadu Bello University, Zaria, and can be reached via [email protected]