Introduction
On 26 June 2025, President Bola Ahmed Tinubu signed into law four landmark tax reform Acts: the Nigeria Tax Act (NTA), Nigeria Tax Administration Act (NTAA), Nigeria Revenue Service Act (NRSA), and the Joint Revenue Board Act (JRBA). Collectively referred to as “the Acts,” these legislations consolidate and modernize Nigeria’s tax framework in alignment with global standards and national development goals.
The NTA serves as the centerpiece of this reform, replacing multiple standalone tax laws with a single, streamlined statute aimed at simplifying tax administration, improving compliance, and fostering revenue growth. Although the effective date is yet to be confirmed, implementation is not expected before 1 January 2026.
Purpose of the Nigeria Tax Act
The NTA was introduced to consolidate Nigeria’s tax provisions into one accessible and coherent law, thereby eliminating the confusion and inefficiencies caused by overlapping or conflicting statutes. The Act aims to simplify compliance for taxpayers, reduce administrative burdens for tax authorities, and ensure consistency in tax interpretation and enforcement.
It also seeks to phase out low-yielding and duplicative levies, focusing instead on high-impact, broad-based taxes that are more equitable and efficient to administer. The Act’s emphasis on harmonization is intended to institutionalize a sustainable tax structure capable of functioning effectively at federal, state, and local government levels.
Major Legal and Policy Innovations
Clarity on Taxable Income and New Sources
The NTA clearly identifies income sources liable to tax, including digital assets, grants, prizes, honoraria, and other unconventional income streams. Notably, while profits derived from digital assets are taxable, losses incurred from such transactions can only be utilized to offset gains from similar digital asset activities. This provision is designed to address the evolving digital finance sectors while simultaneously safeguarding revenue.
Broadened Definitions
The Act redefines key concepts to close long-standing loopholes:
Interest now encompasses not only standard loan interest but also penal interest, foreign exchange fluctuations tied to securities, and returns from derivative instruments.
Dividends now include capital distributions made by liquidating companies, thereby removing prior exemptions.
Royalties are defined comprehensively to include any payment made for the right to use intellectual property or proprietary knowledge, thus extending the tax base to cover licensing and IP-related income.
Tax Relief for Small Businesses
The threshold for defining small companies has been revised upward. Companies with:
Annual turnover not exceeding NGN100 million, and
Total fixed assets not exceeding NGN250 million
are now exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and the newly introduced Development Levy. This alteration aims to reduce the compliance burden on Micro, Small, and Medium-sized Enterprises (MSMEs) and foster formal business growth.
Tackling Base Erosion and Profit Shifting (BEPS)
Controlled Foreign Company (CFC) Rule
Under the new regime, if a Nigerian parent company owns a foreign subsidiary that retains earnings which could reasonably be distributed without adversely affecting its business operations, such earnings will be deemed distributed and subject to Nigerian tax. This measure effectively closes loopholes that allow companies to defer taxation indefinitely by retaining profits offshore.
Minimum Effective Tax Rate (ETR)
In alignment with the Organisation for Economic Co-operation and Development’s (OECD) Pillar Two rules, the NTA introduces a 15% minimum effective tax rate for large companies. This applies to Nigerian companies with annual revenue exceeding ₦50 billion, or to companies that are part of multinational groups with a global turnover of €750 million or more. Where a foreign subsidiary pays tax at a rate below this threshold, the Nigerian parent company is obligated to pay the shortfall as a “top-up tax.” This ensures that profits generated in Nigeria or controlled by Nigerian companies are taxed equitably.
Taxation of Non-Resident Companies
The scope of taxable presence for non-resident entities has been expanded. The law introduces the “force of attraction” principle, which empowers Nigeria to tax all income earned by a foreign company or its related parties within Nigeria, even if those activities were not directly conducted through a Nigerian office.
Furthermore, when a non-resident company’s income is not subject to withholding tax or its profits cannot be accurately determined, a minimum tax of 4% of the gross Nigeria-sourced income will be applicable. This guarantees a baseline tax contribution regardless of the reporting structure.
Deductibility of Expenses
The NTA now permits tax deductions solely for expenses that are “wholly and exclusively” incurred for the purpose of generating taxable income. The prior standards concerning whether an expense was “reasonable” or “necessary” have been removed to mitigate subjectivity and reduce audit disputes.
Foreign currency expenses must be converted at the official exchange rate published by the Central Bank of Nigeria (CBN) on the relevant transaction date. Additionally, any expense associated with Value Added Tax (VAT) or customs duty will not be deductible unless the VAT or duty has been duly paid.
Changes to Capital Allowances
The Act abolishes initial allowances and restricts capital allowance claims exclusively to straight-line depreciation. In instances where tax-exempt income constitutes 10% or more of a company’s total income, capital allowances will be prorated to prevent excessive claims that do not correspond to the company’s taxable activities.
Reform of Personal Income Tax (PIT)
A more progressive PIT structure has been introduced to ensure fairness:
Individuals earning up to ₦800,000 per year are fully exempt from tax.
Those earning above this threshold are taxed in ascending bands, commencing at 15% and increasing to 25% for annual incomes exceeding ₦50 million.
This reform alleviates the tax burden on low-income earners and ensures that high-net-worth individuals contribute proportionately more. In addition, the Consolidated Relief Allowance (CRA) has been replaced by a rent relief, equivalent to 20% of annual rent paid, subject to a cap of ₦500,000. However, this relief is exclusively claimable by tenants, with homeowners excluded. (continue to the concluding part 2 – next post).
Dr. Austin Ejaife
Tax Consultant | Auditor | Financial Reporting Specialist