The Dawn of a New Taxation Era in Nigeria: Key Provisions and Implications of the Tax Reform Acts. (Part 2 of 2).
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
The Dawn of a New Taxation Era in Nigeria: Key Provisions and Implications of the Tax Reform Acts. (Part 1 of 2).
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