CLIENT ADVISORY CIRCULAR
DR. AUSTIN EJAIFE & CO. (Auditors, Tax Consultants, Advisory & Financial Reporting Specialists) CLIENT ADVISORY CIRCULAR Nigeria Tax Act 2025 (Effective 1 January 2026): Key Changes, Compliance Requirements & Action Steps for Businesses Date: April 2026 Introduction We wish to formally notify our esteemed clients of the implementation of the Nigeria Tax Act, 2025 (NTA 2025), which took effect from 1 January 2026. This new legislation introduces significant reforms to Nigeria’s tax system, including consolidation of tax laws, revised tax rates, digital compliance requirements, and new levies. This advisory outlines the key changes, implications, and immediate actions required to ensure full compliance and avoid regulatory penalties. Key Highlights of the New Tax Regime 2.1 Redefinition of Small Companies A company now qualifies as a small company where: Annual turnover does not exceed ₦100 million Net assets do not exceed ₦250 million Implication: Eligible companies are exempt from Company Income Tax (CIT). 2.2 Company Income Tax (CIT) Exemption Small companies are subject to 0% CIT Medium and large companies remain taxable under applicable rates Important: This exemption does not remove obligations for: VAT compliance PAYE remittances Withholding tax deductions 2.3 Introduction of Development Levy (4%) A 4% Development Levy on assessable profits has been introduced, replacing: Education Tax NASENI Levy IT Levy Implication: Applies mainly to non-small companies and increases overall tax burden for growing businesses. 2.4 Elimination of Minimum Tax Businesses will no longer be taxed in loss-making years Benefit: Improves liquidity and supports struggling businesses. 2.5 Capital Gains Tax Integration Capital gains are now treated as part of taxable business income Effective tax exposure may rise to 30% 2.6 Mandatory E-Invoicing & Digital Compliance All VAT-registered entities are now required to: Issue electronic invoices Maintain digital financial records Ensure proper audit trails 2.7 Strengthened Enforcement & Penalties Tax authorities now have: Expanded access to financial data Enhanced audit capabilities Non-compliance may result in: Monetary penalties Disallowance of expenses Regulatory sanctions Practical Implications for Clients For Small Businesses (≤ ₦100m Turnover) Benefit from 0% CIT Must maintain proper records to retain eligibility Still subject to VAT and payroll taxes For Growing Businesses Crossing ₦100 million turnover triggers: Full CIT liability Development Levy exposure Key Risk: Sudden increase in tax obligations (“threshold effect”). For All Businesses Increased compliance burden due to: Digital reporting requirements Enhanced documentation standards Immediate Action Steps Required We strongly advise all clients to take the following steps: 4.1 Review Your Company’s Tax Status Confirm whether you qualify as a small company Monitor turnover thresholds regularly 4.2 Upgrade Accounting Systems Implement reliable accounting software Ensure capability for e-invoicing compliance 4.3 Strengthen Record-Keeping Maintain proper documentation for: Revenue transactions Expenses Payroll Asset acquisitions/disposals 4.4 Implement Tax Planning Strategies Plan business growth to manage tax exposure Evaluate restructuring options where necessary 4.5 Conduct a Tax Health Check We recommend a comprehensive tax review to: Identify compliance gaps Assess risk exposure Optimize tax efficiency How We Can Support You At DR. AUSTIN EJAIFE & CO., we are fully equipped to assist you with: Tax compliance and filings under the new regime E-invoicing implementation advisory Tax planning and restructuring Audit and financial reporting support Regulatory liaison and dispute resolution Conclusion The Nigeria Tax Act 2025 represents a major shift toward a more transparent, digital, and structured tax environment. While it provides significant relief for small businesses, it also introduces stricter compliance obligations and enforcement mechanisms. Early preparation and professional guidance are essential to avoid penalties and optimise your tax position. Contact Us For further clarification or professional assistance, please contact: DR. AUSTIN EJAIFE & CO. (Auditors, Tax Consultants, Advisory & Financial Reporting Specialists) 📧 Email: info@daepro.com.ng 📞 Phone: +234 703 166 4488 📍 Office: VGC – Lekki, Lagos Signed: Dr. Austin Ejaife Managing Partner This advisory is for general guidance only and should not be construed as professional advice. Clients are encouraged to seek tailored advisory services based on their specific circumstances.
Nigeria’s New Tax Laws (2026): SME Compliance Guide, Legal Insights & Practical Challenges.
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.