Nigeria’s 2025 Tax Reforms: Implications for Businesses and Individuals

This article examines Nigeria’s landmark tax reforms enacted in 2025 and set to take effect in 2026. It explores the legal framework, key changes in corporate and personal taxation, modernisation of tax administration, impact on businesses and individuals, compliance challenges, opportunities for investment, and broader economic implications. The analysis draws from official reports, tax authority documentation, expert commentary, and contemporary economic debates.

INTRODUCTION

Tax reform is a strategic fiscal tool used by governments to stimulate growth, broaden the tax base, and improve revenue collection. In Nigeria, decades of overlapping tax laws, administrative inefficiencies, and a narrow tax base have hindered economic growth and fiscal stability. Consequently, the federal government initiated comprehensive tax reforms culminating in the passage of four major tax reform laws in 2025- Nigeria Tax Act 2025; Nigeria Tax Administration Act 2025; Nigeria Revenue Service (Establishment) Act 2025; and Joint Revenue Board (Establishment) Act 2025. These laws are collectively intended to simplify the tax system, reduce compliance burdens, and align Nigeria’s tax regime with global best practices with effect from January 2026.

TAX ADMINISTRATION MODERNISATION

Establishment of the Nigeria Revenue Service (NRS)

The Federal Inland Revenue Service (FIRS) has been rebranded and transformed into the Nigeria Revenue Service (NRS). This new agency has expanded responsibilities, including collection of federal taxes and non‑tax revenues, increased autonomy, and a stronger focus on efficiency and accountability.

Joint Revenue Board and Inter‑Governmental Coordination

The Joint Revenue Board is created to coordinate tax policy across federal, state, and local governments, harmonise tax administration, and manage centralised taxpayer data.

Digitalisation and Compliance Tools

The reforms mandate:

• E‑invoicing and electronic tax filing for all VAT‑registered businesses;
• Digital platforms for registration, filing, and payment;
• Expanded use of Taxpayer Identification Numbers (TINs).
  These measures are designed to enhance transparency, reduce evasion, and cut administrative bottlenecks.

TAX REFORMS

1. Corporate Income Tax (CIT) Changes

One of the headline changes is the reduction of the corporate income tax rate:

• From 30% to 27.5% in 2025, and
• Further to 25% from 2026 onwards.
  This is intended to stimulate business investment by lowering the cost of doing business in Nigeria.

1. Consolidated Development Levy

A 4% Development Levy replaces multiple levies such as the:

• Tertiary Education Tax,
• NASENI Levy,
• IT Levy,
• Police Fund Levy,
  simplifying tax obligations and eliminating overlapping charges.

• Minimum Effective Tax Regime

Large companies and multinationals are subject to a minimum Effective Tax Rate (ETR) of 15%, with top‑up taxes ensuring this floor is met, discouraging profit shifting and tax avoidance.

1. Capital Gains Tax and New Investment Incentives

• CGT has been aligned to the standard corporate rate (30%) with expanded scope.
• Introduction of Economic Development Incentives (EDI); a 5% tax credit on qualifying capital expenditure to encourage industrial investment.

1. VAT and Consumption Taxes

While the VAT rate remains at 7.5%, businesses can now claim full input VAT credits on expenses, including capital assets and services — a major boost for working capital and cost management.

Zero‑Rating Essential Items

Essential goods and services such as food, healthcare, education, and public transport, are zero‑rated, reducing living costs for low‑income households.

Digital and International Services

The reform broadens VAT to include digital platforms like streaming and foreign‑hosted services, aligning Nigeria with global VAT expansion trends.

EXEMPTIONS AND DEDUCTIBLES UNDER NIGERIA’S 2025 TAX REFORMS

One of the most significant features of Nigeria’s 2025 tax reforms is the expansion of tax exemptions and the introduction of deductible items that aim to reduce the tax burden on both individuals and businesses while promoting economic growth. These measures are designed to simplify compliance, encourage investment, and provide relief to low- and middle-income earners.

1. Personal Income Tax Exemptions

Under the new regime, individuals enjoy a wider range of exemptions:

• Income Threshold Exemption: Individuals earning less than ₦800,000 annually are completely exempt from personal income tax (PIT). This provision primarily benefits low-income earners and aligns with Nigeria’s progressive taxation objectives.
• Family Reliefs: Taxpayers may claim allowances for dependents, including children and elderly parents, which reduce taxable income.
• Pension and Retirement Contributions: Contributions to approved pension funds and retirement savings accounts are deductible from gross income, lowering the taxable base.
• Rent Relief: Salaried employees are now allowed to deduct up to ₦200,000 annually in rent payments from taxable income, a provision that alleviates housing cost pressures on households.
• Healthcare and Education Expenses: Certain qualifying expenses related to healthcare and education are partially deductible, promoting social welfare and human capital development.

2. Corporate Tax Exemptions

Businesses also benefit from several key exemptions under the 2025 reforms:

• Small Business Exemption: Enterprises with annual turnover of ₦50–100 million and total assets ≤ ₦250 million are exempt from corporate income tax (CIT), capital gains tax (CGT), and development levies. This measure encourages entrepreneurship and supports small and medium-sized enterprises (SMEs).
• Sector-Specific Incentives: Companies operating in critical sectors, such as agriculture, renewable energy, and technology, may qualify for tax holidays or reduced CIT rates as part of Economic Development Incentives (EDI).
• Capital Allowances: Businesses can deduct capital expenditure on qualifying assets (e.g., machinery, plant, and equipment) from taxable profits, effectively lowering tax liability and promoting reinvestment.
• Research & Development (R&D) Deductions: Expenditure on R&D is deductible, stimulating innovation and competitiveness.

3. Value-Added Tax (VAT) Exemptions

The 2025 reforms also refine VAT obligations:

• Zero-Rated Goods and Services: Essential items such as staple foods, educational services, healthcare, and public transport are zero-rated, effectively exempting low-income consumers from VAT.
• Exported Goods and Services: Exports remain zero-rated to encourage foreign trade and enhance Nigeria’s competitiveness in the global market.

4. Deductibles and Allowances

• Interest Expenses: Interest paid on business loans and mortgages may be deductible, subject to limitations, reducing the effective tax rate.
• Charitable Contributions: Donations to registered charities and approved social programs are deductible from corporate and, in some cases, individual taxable income.
• Employee Benefits and Training: Certain staff welfare expenditures, training, and skill development programs are deductible for businesses, incentivizing investment in human capital.

Policy Implications

By introducing these exemptions and deductibles, the 2025 tax reforms achieve several objectives:

1. Alleviating Tax Burdens: Especially for low- and middle-income earners.
2. Encouraging Investment: SMEs and startups are incentivized to formalize operations.
3. Promoting Social Development: Relief on education, healthcare, and housing expenses aligns taxation with socio-economic priorities.
4. Fostering Compliance: Clear exemptions reduce disputes and improve voluntary tax compliance.

In sum, exemptions and deductibles under the 2025 reforms are not mere concessions; they represent a deliberate strategy to modernize Nigeria’s tax system, stimulate economic activity, and promote social welfare.

PENALTIES FOR NON-COMPLIANCE

Failure to Register or Obtain a Tax Identification Number (TIN)

• Who it applies to: All businesses and individuals required to pay taxes.
• Penalty: A fine of ₦50,000 to ₦200,000 depending on the size and type of taxpayer.
• Purpose: Ensures all taxable entities are in the system.

2. Late Filing of Tax Returns

• Corporate taxpayers:
  • Filing beyond the due date may attract 5% of the tax due per month of delay.
• Individuals:
  • Late filing of personal income tax returns can result in ₦10,000 to ₦50,000 fines, depending on income bracket and duration of default.
• Purpose: Encourages timely compliance and prevents revenue leakage.

3. Late Payment of Taxes

• Corporate Income Tax (CIT), Value-Added Tax (VAT), and Withholding Tax (WHT):
  • Interest of 10% per annum on unpaid tax plus a penalty of 5–10% of the unpaid amount.
• Individuals:
  • Interest may be charged at 5–10% on unpaid PIT.

4. Non-Compliance with E-Invoicing or Digital Reporting

• Who it applies to: VAT-registered businesses and corporate taxpayers.
• Penalty:
  • ₦100,000 to ₦500,000 for first-time default.
  • Repeated default can lead to suspension of registration or business closure.
• Purpose: Enforces the new digital compliance rules and improves transparency.

5. Tax Evasion and Fraud

• Definition: Deliberate underreporting of income, claiming false deductions, or hiding assets.
• Penalty:
  • Fine of up to 3 times the amount of tax evaded, or
  • Imprisonment for up to 3 years, or both, depending on severity.
• Purpose: Strong deterrent against deliberate revenue loss.

6. Non-Payment of Development Levy

Who it applies to: Businesses liable under the new 4% consolidated levy.

• Penalty:
  • Interest at 10% per annum on unpaid levy.
  • Fines may be added at the discretion of the Nigeria Revenue Service (NRS).

IMPACT ON BUSINESSES

Compliance and Administrative Burden

Digital tax filing and e‑invoicing require upfront ERP upgrades and training, potentially straining small enterprises though long‑term compliance costs are expected to decline.

Investment Attraction and Competitiveness

Lower CIT rates and investment incentives are designed to:

• Attract foreign direct investment,
• Encourage capital formation, and
• Support business scaling across sectors.

IMPACT ON INDIVIDUALS

Tax Burden and Disposable Income

Exemptions for low earners and zero‑rated essentials aim to increase disposable income for poorer households, supporting consumption and welfare.

Filing Obligations and Annual Returns

Individuals may now be required to file annual returns, a departure from the previous employer‑based PAYE system – a shift that necessitates public education and compliance support.

Compliance Challenges

For a country with fewer than 10 million active individual taxpayers, expanding this base will be administratively demanding and requires robust taxpayer education.

CONCLUSION

Nigeria’s 2025 tax reforms represent a once‑in‑a‑generation overhaul aimed at modernising the fiscal framework, simplifying tax law, and improving both compliance and competitiveness. While the reforms promise substantial benefits such as reduced tax burdens for low‑income groups and streamlined business taxation, successful implementation hinges on effective administration, taxpayer education, and enforcement.

REFERENCES

PwC Nigeria. Nigeria Tax Reform 2025: Overview and Implications. PwC Nigeria. 2025. Available at: https://www.pwc.com/ng/en/publications/nigeria-tax-reform-2025.html

Baker Tilly Nigeria. Nigeria’s 2025 Tax Reform Acts Explained: Impacts on Businesses and Individuals. 2025. Available at: https://www.bakertilly.ng/insights/nigerias-2025-tax-reform-acts-explained

ThisDay Live. New Tax Act Empowers FIRS to Penalise Companies over Undocumented Transactions and Undisclosed Office Address. July 27, 2025. Available at: https://www.thisdaylive.com/2025/07/27/new-tax-act-empowers-firs-to-penalise-companies-over-undocumented-transactions-undisclosed-office-address/

NIPC. Nigeria Tax Administration Act 2025. Nigerian Investment Promotion Commission. 2025. Available at: https://www.nipc.gov.ng/wp-content/uploads/2025/07/Nigeria-Tax-Administration-Act-2025.pdf

Independent Nigeria. Senate Passes Two Tax Reform Bills, Retains VAT at 7.5%. 2025. Available at: https://independent.ng/senate-passes-two-tax-reform-bills-retains-vat-at-7-5/

https://www.banwo-ighodalo.com/grey-matter/nigerias-new-tax-regime-a-taxpayers-guide-to-compliance-offences-penalties-enforcement-and-dispute-resolution/