Capital Gains Tax Adjustments
The Capital Gains Tax (CGT) rate for companies has been increased from 10% to 30%, aligning it with the Companies Income Tax (CIT) rate to prevent arbitrage. Share disposals remain exempt from CGT under the following conditions:
The sale proceeds are less than ₦150 million, and the gain is below ₦10 million within a 12-month period.
The transaction constitutes a regulated securities lending arrangement.
The proceeds are reinvested in Nigerian shares within the same year.
Development Levy and Stamp Duties
The Nigeria Tax Act (NTA) introduces a Development Levy, a flat rate of 4% on assessable profits, payable by companies excluding small companies and non-residents. This levy supersedes various industry-specific levies, such as the Tertiary Education Tax and the Police Trust Fund Levy.
Stamp duty obligations have been clarified. For instance, long-term loans, defined as those exceeding 12 months, are now subject to ad valorem stamp duty. The responsibility for stamping instruments rests with the recipient or transferee.
Taxation of Free Trade Zones (FTZs)
Companies operating within Export Processing Zones or Free Zones will continue to benefit from tax exemptions on income derived from export-related activities or supplies made to oil and gas operators. However, effective from 1 January 2028, any sales conducted within Nigeria’s customs territory, irrespective of the volume, will render the entire profits of the entity taxable. This policy aligns with the global principle of taxing income where value is created and goods are consumed.
Tax Incentives and Employment-Based Relief
To foster employment growth and support the informal economy:
Companies that increase the salaries of low-income workers, defined as those earning ₦100,000 or less per annum, may claim an additional deduction of 50% of the wage increase.
Similar incentives are available to employers who hire new staff, contingent upon the net employment growth being sustained for a minimum period of three years.
Agricultural businesses will benefit from a five-year tax holiday commencing from their operational start date. Concurrently, companies engaged in research and development (R&D) may now deduct up to 5% of their turnover, a revision from the previous law which allowed a deduction of 10% of profits. However, any proceeds arising from the sale or transfer of R&D outcomes will be subject to taxation.
Introduction of the Economic Development Incentive (EDI)
The Economic Development Incentive (EDI) replaces the Pioneer Status Incentive and offers an annual tax credit of 5% for five years on qualifying capital expenditure incurred within five years from the commencement of production. Unused tax credits can be carried forward for an additional five years before expiring.
VAT Modernisation and Input Recovery
The Value Added Tax (VAT) rate remains unchanged at 7.5%. However, the NTA now permits the recovery of input VAT on goods, services, and fixed assets, provided these are utilised in making taxable supplies. This measure significantly enhances VAT neutrality and aligns with international best practices.
Essential goods and services, including food, pharmaceuticals, medical equipment, educational materials, and electricity, are now zero-rated. This provision allows suppliers of these items to reclaim input VAT, even though they do not charge VAT on the final products.
VAT Fiscalisation and E-Invoicing
Businesses are now mandated to implement fiscal devices approved by the tax authority. This includes electronic invoicing systems and real-time transaction reporting capabilities. The objective of this requirement is to improve VAT compliance, mitigate fraud, and enhance revenue transparency.
New VAT Revenue Sharing Formula
The NTA has revised the distribution mechanism for VAT revenue among the different tiers of government:
The Federal Government’s allocation has been reduced from 15% to 10%.
State Governments will now receive 55%, an increase from the previous 50%.
Local Government Areas will continue to receive their 35% share.
Furthermore, the combined share allocated to states and Local Government Areas will be distributed based on a formula that considers equality (50% shared equally), population (20%), and consumption levels (30%). This revised allocation aims to incentivise states to promote local commerce and improve the efficiency of VAT collection.
Penalties and Disclosure Requirements
The NTA introduces substantially increased penalties for non-compliance. These include:
A penalty of ₦100,000 for failure to file tax returns within the first month of the due date.
A penalty of ₦50,000 for each subsequent month of default.
Additionally, a penalty of ₦5 million is imposed for awarding contracts to businesses that are not registered for tax purposes. Obstruction of technology deployment or inducement of tax officials similarly attracts penalties.
In accordance with OECD guidance, specifically the BEPS Action 12 principle of transparency, companies are now required to disclose tax planning arrangements that confer a “tax advantage.” This includes arrangements involving deferred tax, exemptions, or restructured transactions intended to reduce tax liability.
Institutional Restructuring and the Tax Ombuds Office
The Federal Inland Revenue Service (FIRS) has been rebranded as the Nigeria Revenue Service (NRS) and is endowed with an expanded mandate. State Internal Revenue Services (SIRS) have been granted operational autonomy. To further bolster taxpayer protection, a Tax Ombuds Office has been established to provide independent mediation for complaints and to review instances of unfair treatment or administrative errors.
Conclusion
The Nigeria Tax Act represents a significant transformation in tax policy and administration. By consolidating numerous statutes into a single, accessible act and aligning the tax system with international standards, the Act provides the legal framework for a more equitable, predictable, and development-oriented fiscal environment.
As the implementation date approaches, businesses and professionals are strongly advised to proactively understand the implications of these changes, update their systems accordingly, and adopt best practices to ensure compliance. This reform signifies not merely an amendment to tax legislation, but a fundamental redefinition of Nigeria’s fiscal architecture for the future.
Dr. Austin Ejaife
Tax Consultant | Auditor | Financial Reporting Specialist