By Dr. Austin Ejaife, Tax Consultant, Auditor & Financial Reporting Specialist.
Introduction
Nigeria’s fiscal environment has entered a new era with the Nigeria Tax Act, 2025 (NTA 2025), effective from 1 January 2026. The Act represents a landmark consolidation of Nigeria’s fragmented tax laws into a unified legal framework, aimed at simplifying compliance, widening the tax base, and digitising administration.
For Small and Medium Enterprises (SMEs), the reforms introduce a mix of significant tax reliefs and heightened compliance obligations. Understanding these changes is critical for avoiding penalties and optimising tax positions in 2026 and beyond.
1. Legal Framework of the Nigeria Tax Act 2025
The NTA 2025 repeals and consolidates several legacy statutes into a single framework.
Key Legislative Consolidations
- Companies Income Tax provisions → now under Part III, NTA 2025
- Personal Income Tax → Part IV
- Capital Gains Tax → integrated into business profits taxation (Part III)
- VAT administration → Part V
📌 Legal Reference:
- Section 1 NTA 2025 – Establishes the unified tax regime
- Section 3 NTA 2025 – Scope and applicability of taxation
2. SME Classification Under the New Law
The definition of a small company has been revised upward:
- Turnover ≤ ₦100 million
- Net assets ≤ ₦250 million
📌 Legal Reference:
- Section 22 NTA 2025 – Definition of small companies
3. Company Income Tax (CIT) Relief for SMEs
One of the most impactful reforms is the complete exemption from Company Income Tax for qualifying small companies.
📌 Legal Reference:
- Section 24(1) NTA 2025 – Imposition of Company Income Tax
- Section 24(3) NTA 2025 – Exemption for small companies
Practical Example
A logistics company with:
- Turnover: ₦75 million
- Net Profit: ₦15 million
➡️ CIT Payable = ₦0 (by virtue of SME exemption)
However, such a company must still comply with:
- VAT obligations
- PAYE remittances
- Withholding tax (where applicable)
4. Introduction of the Development Levy
The NTA replaces multiple legacy levies with a single Development Levy.
- Rate: 4% of assessable profits
📌 Legal Reference:
- Section 45 NTA 2025 – Imposition of Development Levy
Key Insight
This levy replaces:
- Education Tax
- NASENI Levy
- IT Levy
Practical Example
A medium-sized company with:
- Assessable Profit: ₦50 million
➡️ Development Levy = ₦2 million (4%)
5. Elimination of Minimum Tax
The reform abolishes the controversial minimum tax regime.
📌 Legal Reference:
- Section 29 NTA 2025 – Computation of total profits (absence of minimum tax provision)
Implication
- Loss-making SMEs are no longer forced to pay tax
- Improves cash flow and business sustainability
6. Capital Gains Tax Reform
Capital Gains Tax is now integrated into general business income.
📌 Legal Reference:
- Section 30 NTA 2025 – Inclusion of gains in taxable profits
Key Change
- CGT effectively aligns with CIT rate (up to 30%)
Practical Example
Sale of land:
- Gain: ₦10 million
➡️ Taxed as part of business income, not separately at 10%
7. Mandatory E-Invoicing and Digital Compliance
The NTA introduces a technology-driven compliance regime, especially for VAT.
📌 Legal Reference:
- Section 52 NTA 2025 – VAT registration and invoicing requirements
- Section 55 NTA 2025 – Record-keeping obligations
Key Requirements
- Electronic invoicing for VATable transactions
- Digital storage of financial records
- Possible integration with tax authority systems
Practical Example
A consulting firm must:
- Issue verifiable e-invoices
- Maintain digital transaction logs
Failure may lead to:
- Disallowed expenses
- VAT penalties
8. PAYE and Employment Tax Changes
The Act revises employment taxation rules.
📌 Legal Reference:
- Section 70 NTA 2025 – Taxation of employment income
Highlights
- Progressive tax bands (0% – 25%)
- Expanded taxable benefits
- Increased employer compliance responsibilities
9. Practical SME Compliance Guide (2026)
Step 1: Determine Your Tax Status
Confirm whether your business qualifies as a small company under Section 22 NTA 2025.
Step 2: Maintain Accurate Financial Records
Required under Section 55 NTA 2025:
- Sales records
- Expense documentation
- Bank reconciliations
Step 3: Implement E-Invoicing Systems
Ensure compliance with Section 52 NTA 2025.
Step 4: Monitor the ₦100 Million Threshold
Crossing this threshold triggers:
- CIT liability (Section 24)
- Development Levy (Section 45)
Step 5: Plan for Asset Disposal
Include capital gains in taxable income under Section 30 NTA 2025.
Step 6: Strengthen Internal Controls
Adopt:
- Accounting software
- Monthly closing procedures
- Compliance calendars
10. Key Challenges Facing SMEs in 2026
1. Digital Compliance Burden
Many SMEs lack:
- Accounting systems
- E-invoicing capabilities
2. Documentation Requirements
Strict record-keeping rules under Section 55 create compliance pressure.
3. Threshold “Cliff Effect”
Crossing ₦100 million results in:
- Immediate tax exposure
- Increased compliance costs
4. Increased Enforcement
With digital access:
- Tax authorities can track transactions
- Non-compliance risks higher penalties
📌 Legal Reference:
- Section 90 NTA 2025 – Penalties for non-compliance
5. Cost of Compliance
SMEs must now invest in:
- Technology
- Professional advisory
- Staff training
11. Strategic Recommendations for SMEs
Adopt Digital Accounting Early
To comply with Sections 52 & 55, SMEs should automate bookkeeping.
Engage Tax Professionals
Helps interpret provisions such as:
- Section 24 (CIT exemption)
- Section 45 (Development Levy)
Plan Business Growth Strategically
Avoid sudden tax shocks when exceeding ₦100 million turnover.
Ensure Audit-Ready Records
Maintain documentation aligned with legal requirements.
Conclusion
The Nigeria Tax Act 2025 marks a decisive shift toward a simplified, transparent, and technology-driven tax system.
For SMEs, the reforms provide:
- 0% Company Income Tax benefits
- Elimination of minimum tax
- Streamlined levies
However, these advantages come with:
- Stricter compliance obligations
- Mandatory digital systems
- Greater regulatory scrutiny
SMEs that proactively adapt will not only remain compliant but will position themselves for sustainable growth in Nigeria’s evolving tax ecosystem.