In an attempt to modernize and unify the legal and institutional framework of taxation in Nigeria and address the several inefficiencies within the system, President Bola Ahmed Tinubu assented to the enactment of the following Acts; the Nigeria Tax Act, the Nigeria Tax Administration Act, the Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board of Nigeria (Establishment) Act, (together “the Tax Reform Acts”) which are to take effect from 1st January 2026.
Historically, Nigeria’s tax landscape has been complex and fragmented with significant challenges for taxpayers and investors alike, ranging from multiple taxation to prolonged disputes and regulatory uncertainty. The Tax Reform Acts seeks to address these issues by harmonising tax administration, enhancing taxpayer protections, and encouraging compliance through clarity and predictability.
At the heart of the reform is the Nigeria Tax Act (NTA), a comprehensive piece of legislation that contains robust provisions governing taxation for both individuals and businesses. The NTA introduces a range of fiscal incentives aimed at boosting economic productivity while simultaneously easing the financial burden on everyday Nigerians. A key amendment by the NTA is the removal of value-added tax (VAT) on a number of essential goods and services. Basic food items, educational books, and school tuition at the nursery, primary and secondary levels are now zero-rated VAT while shared road transport services is now exempt from VAT, translating into lower commuting and essential commodity costs for Nigerians.
- To further support low-income households, the NTA exempts annual incomes as high as ₦800,000.00 (Eight Hundred Thousand Naira) from VAT, thereby increasing disposable income among the most vulnerable.
- Rent relief has also been introduced for individuals, allowing the deduction of 20 percent annual rent, up to a maximum of ₦500,000.00 (Five Hundred Thousand Naira) when computing chargeable income. These provisions, taken together, are expected to reduce the cost of living and encourage savings and investment among ordinary citizens.
The Nigeria Tax Administration Act complements the substantive reforms by standardizing tax procedures across board.
A significant institutional innovation under the new framework is the establishment of the Office of the Tax Ombud through the Joint Revenue Board of Nigeria (Establishment) Act. The Tax Ombud’s Office is empowered to receive and investigate complaints against tax authorities, act as an impartial arbiter in disputes related to6, and promote awareness about taxpayer rights and obligations. It also has the authority to make recommendations to tax and governmental authorities and, in some cases, initiate legal proceedings on behalf of taxpayers. This represents a groundbreaking step toward accountability and public trust in Nigeria’s revenue system.
Notably, the Nigeria Revenue Service (Establishment) Act replaces the Federal Inland Revenue Service (FIRS) with the newly created Nigeria Revenue Service (NRS), which now has broader powers to oversee and enforce revenue collection. The NRS is tasked with the crucial role of streamlining operations and improving efficiency in tax administration.
For businesses, the new tax landscape offers various opportunities and obligations. The qualifying threshold for small companies has been raised from ₦25 Million to ₦50 Million annual turnover with fixed assets not exceeding ₦250 Million. This will allow more enterprises to benefit from tax exemptions. Small companies are now fully exempt from Company Income Tax (CIT), while medium and large companies remain subject to a 30 percent rate on their declared profits as reported in their audited financial statements.
A levy known as Development Levy has now been introduced to replace the several levies which were previously paid by various categories of companies, the levy is payable by all companies except small and non-resident companies.
Economic Development Tax Incentive
A key point to note for businesses is the introduction of the Economic Development Tax Incentive, which replaces Pioneer Status Incentive. While the latter provides tax holidays for three to five years, the new regime extends this benefit for periods as long as twenty years for businesses in qualifying sectors.
Agri-business boost
Similarly, new companies engaged in agricultural business are exempt from income tax for the first five years of operation, a move which will likely stimulate investment in agribusiness and enhance food security in the long term.
Exporting activities
Export-oriented businesses also stand to benefit, as profits derived from goods exported from Nigeria are exempt from income tax, provided the proceeds are repatriated through official channels. However, this tax exemption does not extend to companies in the upstream, midstream, and downstream oil and gas sectors.
Specific reforms in the Energy Sector
For companies operating in the oil and gas industry, the reforms carry both new responsibilities and potential benefits. Interestingly, only expenses that are wholly and exclusively incurred in operations during the relevant period are deductible for tax purposes. This marks a clear departure from previous interpretations, under which expenses considered reasonable and necessary could be deducted. The NTA also allows the deductions for interest on capital employed for petroleum operations, development levy payments, and contributions to approved decommissioning and abandonment funds. These changes are expected to have significant effects on companies income taxes payable by oil and gas companies.
In conclusion, Nigeria’s new tax regime marks a significant turning point in fiscal governance. It simplifies compliance, strengthens taxpayer protections, and introduces targeted incentives that could reshape the economic landscape. For households, the relief is immediate and tangible. For businesses, the rules are clearer, albeit with greater scrutiny. And for the country at large, the reforms present a renewed opportunity to build a fairer, more sustainable economy.
