Nigeria has embarked on its most ambitious tax reform in decades, marking a pivotal shift in the nation’s fiscal landscape. On June 26, 2025, President Bola Tinubu signed into law four landmark bills designed to streamline tax administration, broaden the tax base, and provide relief for low-income earners and small businesses. This article breaks down the key elements of the overhaul, its motivations, and its anticipated impact on Africa’s most populous country.
Background: Why Reform Was Needed
Nigeria’s tax system has long been criticized for its complexity, inefficiency, and inequity. With a tax-to-GDP ratio of just 13.5%—well below the African average—the government faced mounting pressure to boost revenue without overburdening citizens already grappling with inflation and economic hardship. The old framework was a patchwork of overlapping taxes, redundant levies, and burdensome compliance requirements that stifled business growth and discouraged voluntary compliance.
President Tinubu’s administration, seeking to modernize Nigeria’s fiscal architecture, set a target to raise the tax-to-GDP ratio to 18% by 2026, aiming for a system that is fairer, more transparent, and better aligned with the nation’s development goals.
The Four New Laws: What Has Changed?
The overhaul comprises four key pieces of legislation:
- Nigeria Tax Act: Consolidates various tax regulations into a single, coherent code, abolishing over 50 minor and redundant taxes. This move is expected to ease the compliance burden on businesses and individuals, reduce double taxation, and create a more predictable fiscal environment.
- Tax Administration Act: Establishes uniform guidelines for tax collection across federal, state, and local governments, addressing longstanding issues of fragmentation and inefficiency.
- Nigeria Revenue Service Act: Replaces the former Inland Revenue Service with a new autonomous Nigeria Revenue Service (NRS), tasked with improving transparency, efficiency, and coordination in revenue collection.
- Joint Revenue Board Act: Enhances cooperation among different levels of government and introduces a Tax Ombudsman and Tax Appeal mechanism to resolve disputes and protect taxpayer rights.
Key Provisions and Who Benefits
The reforms are designed to be pro-people and pro-business, with targeted measures to support vulnerable groups and stimulate economic activity:
- Relief for Low-Income Earners: Individuals earning less than one million naira (about $650) annually are now exempt from personal income tax, a significant expansion from previous thresholds. Additionally, a conditional rebate of 20% on annual rent further reduces the taxable income for low-wage earners.
- VAT Exemptions: Essential goods and services—including food, healthcare, education, housing, electricity, and baby items—are now exempt from Value Added Tax (VAT), directly lowering living costs for ordinary Nigerians.
- Support for Small Businesses: Enterprises with annual revenues below 50 million naira (about $32,400) are exempt from corporate income tax and can file simpler tax returns without audited financial statements. This is expected to encourage informal vendors to formalize their businesses and improve overall compliance.
- Lower Corporate Tax Rates: Large businesses will see the corporate tax rate drop from 30% to 27.5% in 2025, and further to 25% in subsequent years. These firms can also claim tax credits for VAT paid on inputs, and new incentives are available for non-profit organizations, cooperatives, educational institutions, and religious groups—provided their income is not from commercial activities.
- Anti-Avoidance Measures: The reforms introduce rules aligned with international standards to curb profit shifting and tax evasion, enhancing revenue transparency and fairness.
Economic and Social Impact
The government argues that the new system will protect low-income families, boost disposable incomes, and stimulate domestic consumption by making essentials more affordable. Small businesses, often the backbone of Nigeria’s economy, are expected to benefit from reduced red tape and tax relief, potentially spurring job creation and innovation.
For investors, the overhaul signals a more stable and predictable fiscal environment, which could attract both domestic and foreign capital. By broadening the tax base and improving collection efficiency, the government hopes to generate more revenue for critical public services such as healthcare and education, reducing reliance on debt.
Challenges and Concerns
Despite the positive outlook, some stakeholders worry that the reforms could eventually lead to higher taxes on luxury goods and capital gains, impacting wealthier Nigerians. There are also concerns about the capacity of the new Nigeria Revenue Service to implement the changes effectively and the need for continued stakeholder engagement to ensure smooth rollout.
Conclusion
Nigeria’s tax overhaul represents a bold attempt to modernize the country’s fiscal system, making it fairer, simpler, and more growth-oriented. While challenges remain, the reforms lay the groundwork for a more inclusive and sustainable economic future, with the potential to unlock new opportunities for millions of Nigerians.