The Nigerian Tax Reform Act of 2025

BY OLUWAFOLAJIMI JAIYESIMI

Introduction: In 2025, Nigeria introduced a major tax reform aimed at fixing long-standing issues in the country’s tax system. For many years, taxes in Nigeria were difficult to understand and unevenly applied, which made things hard for both citizens and businesses. The government responded to these problems by creating the Nigerian Tax Reform Act of 2025, which goes into effect on January 1, 2026. This act includes four new laws that are meant to make tax collection more fair, efficient, and supportive of economic growth. These laws are the Nigeria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service Act (NRSA), and the Joint Revenue Board Act (JRBA). Together, they aim to reduce confusion, raise more money for public services, and help the country rely less on oil income.

Simplifying Tax Laws

Before the reform, Nigeria had over 20 separate tax laws. This made it difficult for people to understand their tax responsibilities, often leading to mistakes and penalties. Now, all the laws have been combined into one main document under the Nigeria Tax Act. This change makes it easier for everyone to know what they owe, avoid costly errors, and trust that the system is clear and fair. It also means citizens and businesses can spend less time dealing with paperwork and more time focusing on their work or goals.

Supporting Small Businesses

Small and medium-sized enterprises, also known as SMEs, are a major part of Nigeria’s economy. They create jobs and help lift people out of poverty. The new tax laws are designed to support these businesses. If a business earns less than ₦100 million per year and has assets under ₦250 million, it will not have to pay company tax, capital gains tax, or the development levy. This support allows small business owners to reinvest in their operations, hire more workers, register their companies officially, and compete more fairly with larger corporations.

New Tax Rates

One of the biggest parts of the reform is the adjustment of tax rates. For example, capital gains tax for companies has increased from 10% to 30%, and a new 4% development levy will be applied to the profits of large businesses. The reform also changes personal income tax. People who earn less than ₦800,000 per year will pay no tax at all, while those who earn more will pay a higher rate of up to 25%. These changes are meant to protect low- income earners while ensuring that wealthier individuals and large companies contribute more to the country’s development. The goal is to make the tax system fairer and give the government more resources for things like roads, schools, and healthcare.

Taxing Big International Companies

Many large international companies operate in Nigeria and make huge profits, but they have been paying very little tax. The new law requires that any company earning ₦50 billion or more must pay at least 15% in taxes. This follows a global rule that many countries are now using. It will help Nigeria prevent tax cheating and ensure that companies in industries like digital services and mining pay their fair share. As a result, Nigeria will be able to collect more money from these companies and use it to support national development.

Changes to VAT and Use of Technology

Even though the value-added tax (VAT) rate remains at 7.5%, the way it is collected has changed. More services, such as streaming platforms and online ads, will now be taxed. At the same time, basic items like food, medicine, books, and electricity will remain tax-free. Businesses must now use electronic invoices that automatically send information to the government and install devices that record VAT on every sale. These digital tools will help stop tax fraud, improve the accuracy of tax records, and help the government plan how to spend money more effectively.

New Tax Authority

Another important change is the replacement of the Federal Inland Revenue Service (FIRS) with a new agency called the Nigeria Revenue Service (NRS). The NRS will be more independent and will use modern tools and data to track taxes more effectively. A new office called the Tax Ombudsman has also been created to help solve disputes between taxpayers and officials. In addition, everyone will now use a single Tax Identification Number (TIN) for all tax types. This makes the entire system easier to use and more reliable.

Encouraging Key Industries

To grow important parts of the economy, the government is offering special tax benefits.

Businesses involved in farming, green energy, and local manufacturing will receive a 5% tax credit for five years. Farming companies will not pay company tax for five years, and businesses in Free Trade Zones will stay tax-free as long as they follow the rules. These policies are designed to create more jobs, support local production, and encourage environmentally friendly projects.

What Should You Do Now?

The new laws will start on January 1, 2026, so it is important for people and companies to get ready. First, everyone should learn the new rules or talk to a tax expert. Businesses should train their workers and update their accounting systems to use electronic invoices. People should also look at how the changes affect their income and make any necessary adjustments. Staying informed by following updates from tax offices and the government is also important.

Conclusion

The Nigerian Tax Reform Act of 2025 is one of the most significant changes to the country’s tax system in years. By simplifying laws, supporting small businesses, adjusting rates fairly, and using technology, the government is building a stronger and more modern economy. If everyone understands and follows these new laws, Nigeria can become more developed and offer better services to all its citizens.

Jaiyesimi is an 18-year-old graduate of Father Michael McGivney Catholic Academy in Ontario, Canada. He will be a freshman studying Business Administration with a major in Accounting and Finance in the fall of 2025. With a strong interest in how money functions in both business and government, he chose to explore the 2025 Nigerian Tax Reform Act. Oluwafolajimi believes it is important for young people to stay informed about developments in Nigeria. Through his research, he hopes to help educate Nigerian youth and small business owners on how tax laws impact the economy and their future. He can be reached via [email protected] | www.linkedin.com/in/jimijaiyesimi