How Nigeria’s New Tax Law Affects You: What You Need to Know
In June 2025, President Bola Ahmed Tinubu signed four comprehensive tax reform bills into law, introducing the most significant overhaul of Nigeria’s tax system in decades. These reforms will take effect from January 1, 2026, giving businesses and individuals time to prepare. Here’s a deeper look at what these changes mean for you.
For Individual Taxpayers: Relief for Low-Income Earners
Individuals with taxable income of ₦800,000 or less per year after relief allowances and exemptions are now completely exempt from paying personal income tax. This measure helps align tax obligations with the national minimum wage, providing significant relief for Nigeria’s lowest earners.
Resident individuals are now taxed on their global income, reinforcing Nigeria’s shift to a residency-based tax model. This means if you’re a Nigerian resident with income from abroad, you must now declare and pay tax on that foreign income. However, for non-residents, employment income is only taxable in Nigeria if duties are performed in Nigeria and not taxed in their country of residence.
For Small Business Owners: Major Tax Breaks
Small companies with annual gross turnover of ₦100 million and below (increased from ₦25 million) and total fixed assets not exceeding ₦250 million are now exempt from Companies Income Tax, Capital Gains Tax, and the newly introduced Development Levy. However, this excludes companies offering professional services, who cannot benefit from these small business incentives.
Capital Gains Tax: Significant Increase
The Capital Gains Tax rate has increased from 10% to 30% for companies, aligning it with the Companies Income Tax rate. For individuals, capital gains will be taxed at the applicable income tax rate based on the progressive tax band. This is a substantial increase that affects anyone selling property, stocks, or other chargeable assets.
VAT Changes: Relief for Essential Goods
The VAT rate remains unchanged at 7.5%. However, essential goods and services including food items, medical equipment and services, pharmaceuticals, tuition fees, electricity, and educational materials are now zero-rated. Nigeria now adopts globally recognized VAT principles that allow businesses to claim input VAT on all purchases including services and fixed assets. This is a major change from previous laws that only allowed recovery for goods or materials used for production or resale.
Development Levy Replaces Multiple Taxes
Nigerian companies except small companies will pay a Development Levy at 4% of their assessable profits. This consolidates the Tertiary Education Tax, Information Technology Levy, NASENI levy, and Police Trust Fund levy. This simplification reduces the administrative burden of dealing with multiple agencies.
Technology and Compliance Requirements
Digital compliance is now mandatory. The reforms require e-invoicing, real-time VAT reporting, and electronic recordkeeping. Companies in Nigeria are now mandated to implement the fiscalization system deployed by the tax authority for VAT collection. You’ll need to ensure your accounting systems are ready for these digital requirements.
Tax Penalties Have Increased
The administrative penalty for failing to file tax returns or for filing incomplete returns has increased significantly. Previously set at ₦25,000 for the first month and ₦5,000 for each subsequent month, penalties are now ₦100,000 for the first month and ₦50,000 for each subsequent month.
Agricultural Business Incentives
Income generated by companies engaged in agricultural businesses, including crop production, livestock, aquaculture, forestry, dairy, cocoa processing, and manufacturing of animal feeds will be exempt from income tax for the first five years from commencement of business.
Tax Ombuds Office
The Acts introduce the Tax Ombuds office to liaise with tax authorities on behalf of taxpayers and serve as an independent arbiter to review and resolve complaints relating to taxes, levies, and duties. This provides taxpayers with an avenue to challenge unfair treatment.
What You Must Do Before January 2026
The clock is ticking. Here’s your action plan:
- Review your tax classification– Determine if you qualify as a small company or if the new thresholds affect your tax obligations
- Upgrade your systems– Ensure your accounting software can handle e-invoicing, fiscalization, and digital reporting requirements
- Assess your VAT position– If you sell essential goods now zero-rated, understand how to claim input VAT recovery
- Calculate your Development Levy– Replace your multiple levy calculations with the unified 4% development levy computation
- Train your team– Ensure your finance and accounting staff understand the new requirements
- Consult a tax professional– Get personalized advice on how these reforms specifically impact your situation
- Register properly– Ensure you have the correct Tax Identification Number and registrations with the Nigeria Revenue Service
The 2025 Tax Reform Acts represent a fundamental shift in Nigeria’s tax landscape. While they bring relief to low-income earners and small businesses, they also introduce stricter compliance requirements and higher penalties. Understanding these changes now gives you the advantage of proper preparation before the January 2026 implementation deadline.
