The good, the bad, and the ugly of Nigeria’s new tax laws

On June 26, 2025, Nigeria passed its biggest tax reform since VAT was introduced in 1993. The new laws include the Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service Act, and Joint Revenue Board Act. These laws aim to simplify taxation, increase government revenue, and reduce the country’s dependence on oil.

While these reforms have been celebrated as a major step forward, the real impact of the changes may not match the promises made. As Taiwo Oyedele, the Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, pointed out, there is a sense of satisfaction and optimism about the reforms, but they are still in their early stages.

He likened the current progress to someone putting up the foundation of a house while still being homeless. “We’re not under any illusion that the house is ready. If you’re homeless and you manage to put up a foundation, you are still homeless. But you’ve made very important progress. And therefore, just building on that, here’s the next phase, and we’re excited to embark on this journey together,” he added.

For both businesses and citizens, the new tax laws present a mixed bag of benefits, challenges, and harsh realities.

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The good: simpler taxes, small wins for workers

Supporters of the new tax laws highlight the simplification of the tax structure as a major achievement. The introduction of a flat 4 percent development levy on assessable profits replaces a confusing patchwork of sector-specific taxes such as the TETFund and NASENI levies. This change is expected to make it easier for businesses to calculate their tax obligations, providing much-needed clarity.

Ordinary Nigerians also stand to benefit from some relief. Individuals earning less than ₦800,000 annually are now exempt from personal income tax, a move aimed at lightening the burden on low-income workers. Severance payments have also received expanded relief, offering a slight financial cushion.

“Raising the capital gains tax from 10 percent to 30 percent will increase the cost of managing capital for businesses already navigating narrow margins.”

While these changes may not drastically alter household budgets, they do reflect a recognition of the economic challenges faced by many Nigerians, such as rising food and transport costs. Essential goods like food, medicine, electricity, and education remain zero-rated under VAT rules. With the continued pressure of high living costs, maintaining the tax-free status of these basic necessities provides significant relief to families.

The bad: businesses carrying more weight

While individuals may see some benefit, businesses are facing a heavier burden. The merging of taxes and the increase in rates means businesses now face a corporate tax load approaching 34 percent. In an environment already strained by inflation, power shortages, insecurity, and currency instability, this additional tax burden could severely impact the ability of companies to operate effectively.

Moreover, the scrapping of the Pioneer Status Incentive has raised concerns. The replacement of this incentive with a capped 5 percent Economic Development Incentive may limit its attractiveness, particularly for industries such as renewable energy and agritech.

Raising the capital gains tax from 10 percent to 30 percent will increase the cost of managing capital for businesses already navigating narrow margins. These changes may look favourable on government revenue projections, but they could push businesses to reduce operations, relocate, or even close down, stifling economic growth and job creation.

The ugly: weak systems, strong ambition

Perhaps the most significant risk with the new tax reforms lies not in the tax rates themselves but in the administration of the reforms. While the laws introduce stricter rules such as electronic invoicing, mandatory VAT fiscalisation, and new requirements for non-resident businesses, Nigeria’s technological infrastructure remains inconsistent. Moreover, the coordination between federal and state revenue bodies has often been poor, undermining the effectiveness of tax collection efforts.

This leaves businesses in a precarious position. While some may overpay taxes to comply with the rules, others may exploit gaps in enforcement to avoid paying their fair share. Without robust systems and effective enforcement, achieving fair tax collection will be challenging.

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The timing of these reforms also raises concerns. Nigeria’s economy requires new tax revenue, but it also needs investment, jobs, and business growth. If these tax changes drive investors away or force more businesses into informality, they may undermine the very goals the reforms aim to achieve.

A balancing act still in progress

The ambition behind Nigeria’s new tax laws is commendable. Aligning the tax system with global standards, broadening the tax base, and reducing oil dependence are all worthy objectives. However, for these reforms to be successful, they need to work in real-world conditions, not just on paper.

The true test of these reforms will not be the immediate revenue they generate but whether they create an environment where businesses can thrive, workers can afford basic goods, and more individuals are motivated to enter the formal sector. Anything less would be a missed opportunity for meaningful economic transformation.

 

Oluwatobi Ojabello, senior economic analyst at BusinessDay, holds a BSc and an MSc in Economics as well as a PhD (in view) in Economics (Covenant, Ota).