New tax laws and the challenges ahead

1.     Introduction

Nigeria’s revenue crisis has long been characterised by a narrow tax base, heavy reliance on petroleum income, and a tax-to-gross domestic product ratio that remains among the lowest globally. This structural weakness has constrained public expenditure, increased borrowing, and amplified vulnerability to fluctuations in international oil prices.

Against this background, the 2025 tax reform programme was introduced as a comprehensive recalibration of Nigeria’s fiscal framework. Rather than incremental amendment, the legislature opted for consolidation and institutional redesign. The Companies Income Tax Act, the Personal Income Tax Act, the Capital Gains Tax Act, the Petroleum Profits Tax Act, large portions of the Stamp Duties Act, and other tax-specific statutes were repealed or absorbed into a unified structure.

The reform rests upon stated objectives of equity and fairness, simplification of tax administration, competitiveness in attracting investment, combating tax avoidance and evasion, revenue generation, and economic growth.

While these goals are laudable, the effectiveness of any fiscal reform depends not merely on legislative ambition but on doctrinal coherence, administrative feasibility, and political legitimacy.

This article argues that while the reforms are conceptually progressive and structurally ambitious, their long-term success will depend on legislative refinement, administrative discipline, and infrastructural readiness.

2.     The New Tax Laws

• The Nigeria Tax Act 2025

The Nigeria Tax Act 2025 serves as the substantive charging statute. It consolidates federal taxation into a unified legislative framework and introduces several significant reforms.

First, the Act introduces progressive personal income tax bands and exempts individuals earning up to Eight Hundred Thousand Naira annually from tax liability. This represents a deliberate shift toward vertical equity by shielding low-income earners.

Second, the Act zero-rates value added tax on essential goods and services, including food, education, and healthcare. This reflects a redistributive fiscal approach aimed at protecting vulnerable populations from regressive indirect taxation.

Third, the Act harmonises the taxation of chargeable gains with company income tax rates. Gains realised from the disposal of assets are now taxed at the same rate as corporate income, thereby eliminating the previous distinction under the Capital Gains Tax Act. While this reduces classification disputes between capital and income receipts, it significantly alters investment incentives.

Fourth, multinational enterprises are subject to a minimum effective tax rate of fifteen per cent, aligning Nigeria’s domestic regime with evolving global anti-base erosion standards.

Fifth, a development levy calculated at four per cent of assessable profits replaces several sector-specific levies, including those previously payable to technology, education, and research intervention funds. This measure simplifies compliance but simultaneously increases the effective tax burden for certain companies.

The Act further introduces taxation of indirect transfers of shares where such disposals affect ownership of Nigerian companies or assets. This provision extends Nigeria’s taxing jurisdiction beyond territorial confines and may have significant implications for foreign investment flows.

• The Nigeria Tax Administration Act 2025

The Nigeria Tax Administration Act 2025 governs procedural and compliance matters. It introduces mandatory electronic invoicing, real-time digital reporting, and enhanced data integration systems. These measures aim to reduce evasion and improve transparency.

The Act imposes administrative penalties for failure to file accurate returns, including substantial monthly penalties for default. It also addresses non-resident taxation but contains ambiguity regarding registration requirements where withholding at source constitutes final tax. Such inconsistencies may generate avoidable compliance disputes.

• The Nigeria Revenue Service Establishment Act 2025

This Act dissolves the Federal Inland Revenue Service and establishes the Nigeria Revenue Service as a more autonomous institution. The reform seeks to professionalise tax administration and insulate revenue collection from political interference.

Institutional transition, however, entails risks of temporary disruption, retraining burdens, and bureaucratic overlap.

• The Joint Revenue Board Establishment Act 2025

The Joint Revenue Board Establishment Act 2025 formalises coordination between federal and state tax authorities. It assigns oversight functions relating to revenue allocation, tax harmonisation, and impact analysis.

However, the Board’s composition consists primarily of government officials, raising concerns about its capacity to function as an independent fiscal oversight body.

3.     Differences from the Former Tax Regime

 The former tax system operated through fragmented statutes enacted at different historical periods. The new regime introduces structural consolidation, rate harmonisation, digital compliance mandates, and expanded jurisdictional reach.

Under the repealed Personal Income Tax Act, taxpayers enjoyed consolidated relief allowances calculated as twenty per cent of income plus the higher of Two Hundred Thousand Naira or one per cent of income.

The Nigeria Tax Act replaces this broad relief structure with a narrower list of deductible items and capped rent relief. While progressive bands reduce burden on low-income earners, middle and upper-income taxpayers may experience increased effective liability.

Similarly, the repeal of the Capital Gains Tax Act and the taxation of gains at corporate rates represent a substantial departure from prior policy, potentially affecting investment timing and asset disposition strategies.

4.     Innovations of the New Tax Laws

 The reforms introduce several notable innovations:

1. Digitalisation of Compliance: Mandatory electronic invoicing positions Nigeria within contemporary global best practices. What this means is that companies must adopt digital accounting and invoicing systems, Informal or manual record-keeping will increase exposure to audits, tax authorities now have greater visibility into transactions. However, the key risks included; Monthly penalties for non- compliance, increased likelihood of audits and regulatory scrutiny, operational disruption due to compliance failures. What you should do is conduct a tax compliance audit, upgrade to automated invoicing and reporting systems, train finance and operations teams on new requirements.
2. Potential Increase in Effective Tax Burden: The introduction of a 4% development levy and the restructuring of existing taxes may increase the overall tax burden for certain In addition, the taxation of asset disposals at rates aligned with company income tax changes how gains are treated. What this means: Companies may experience higher effective tax rates also, Investment and asset disposal decisions require more careful planning. Key risk in this would include: Reduced profitability, Inefficient tax planning leading to avoidable liabilities. What you should do in this situation is to review existing tax structures, reassess investment and exit strategies, seek professional advice before major transactions.
3. Minimum Effective Taxation: Alignment with global standards enhances Nigeria’s credibility in international tax The introduction of a minimum effective tax rate of 15% and taxation of indirect share transfers significantly expands Nigeria’s tax reach. What this means is that; Foreign investors may be taxed on offshore transactions affecting Nigerian assets, multinationals must reassess global tax structures. Key risks includes; Unexpected tax liabilities, increased regulatory scrutiny of cross-border transactions. What you should do is review group structures and cross-border arrangements, ensure proper documentation and compliance alignment, conduct periodic international tax reviews.
4. Unified Development Levy: Consolidation reduces multiplicity of levies and administrative complexity. The replacement of the Federal Inland Revenue Service with the Nigeria Revenue Service and the creation of a Joint Revenue Board signals a shift in tax administration. What this means: possible changes in enforcement style and compliance expectations, transitions -related inefficiencies in the short term. Key risks: Delays, inconsistencies, or administrative uncertainty. What you should do: Maintain proper documentation and record and engage proactively with tax authorities where necessary.
5. Indirect Transfer Taxation: Expansion of tax jurisdiction addresses offshore structuring strategies previously used to avoid Nigerian taxation.
6. Institutional Reorganisation: The establishment of the Nigeria Revenue Service signals a shift toward administrative autonomy.

5.     Challenges and Proposed Solutions

• Drafting Errors and Legislative Inconsistencies

Several provisions reveal internal inconsistencies. For example, the definition of “person” includes “community,” yet the charging section omits it. The treatment of controlled foreign company dividends lacks clarity. Conflicts exist between provisions governing collective investment schemes. Free zone taxation schedules contain omissions and incomplete cross-references.

Proposed Solution: Immediate enactment of a corrective amendment statute to address lacunae, harmonise cross-references, and eliminate ambiguities.

• Inflation and Capital Gains Exposure

Taxation of gains based on tax written down value without indexation disregards inflationary realities. In a high-inflation economy, nominal gains may not reflect real profit.

Proposed Solution: Introduce cost indexation allowance based on the Consumer Price Index up to a defined cut-off date.

• Foreign Exchange Deduction Restrictions

Limiting deductions to official exchange rates penalises businesses operating within a volatile foreign exchange market.

Proposed Solution: Permit deductibility at actual transaction rates subject to strict documentation and anti-abuse safeguards.

• Digital Infrastructure Constraints

Electronic compliance presupposes reliable electricity, broadband access, and digital literacy—conditions unevenly distributed across Nigeria.

Proposed Solution: Phased implementation, transitional waivers for small enterprises, and coordinated investment in digital infrastructure.

• Free Zone and Export Ambiguities

Silence regarding service transactions within export processing and free trade zones generates interpretative uncertainty.

Proposed Solution: Provide statutory clarification on place of consumption principles and tax exemption status of intra-zone transactions.

• Institutional Independence Concerns

The Joint Revenue Board lacks structural independence necessary for objective fiscal oversight.

Proposed Solution: Establish an independent fiscal responsibility authority accountable to the National Assembly.

• Revenue and Growth Trade-Off

While exemptions promote equity, Nigeria’s tax-to-gross domestic product ratio remains approximately eight per cent. Excessive burden may discourage investment; insufficient revenue undermines public services.

Proposed Solution: Broaden the tax base gradually through formalisation and compliance rather than rate escalation.

• Changes Affecting Individuals and Workforce Planning:

The new law exempts individuals earning up to ₦800,000 annually from income tax and introduces revised tax bands. What this means is that ; Lower-income employees benefit from reduced tax burden, employers may need to adjust payroll systems. Key risks is that Payroll miscalculations leading to compliance issues.

What you should do:

Update payroll systems and ensure HR and finance teams understand new thresholds.

• Key Areas of Uncertainty Businesses Should Monitor

Despite the reforms, certain areas remain unclear, including:

• Treatment of some cross-border transactions
• Application of rules in free trade and export processing zones
• Interpretation of certain compliance provisions

What this means:

• Potential for disputes and inconsistent enforcement

What you should do:

• Seek clarification before taking positions
• Adopt a conservative compliance approach where necessary

Conclusion

 The 2025 Tax Reform Acts represent a transformative moment in Nigeria’s fiscal evolution. They modernise administration, consolidate fragmented statutes, align domestic law with international standards, and attempt to reconcile equity with competitiveness.

Yet legislation alone cannot secure fiscal sustainability. Successful implementation requires infrastructural readiness, institutional independence, careful amendment of drafting defects, and sustained taxpayer education. Without these, the reforms risk generating uncertainty, litigation, and compliance fatigue.

Nigeria stands at a critical juncture. If implemented deliberately and transparently, the new tax laws may expand revenue, strengthen institutions, and foster economic stability. If poorly executed, they may entrench inefficiency and erode taxpayer confidence. The difference will lie not in legislative text, but in governance practice. The reform marks not the end of fiscal restructuring, but the beginning of a constitutional and economic dialogue on Nigeria’s taxation future

Akinwunmi Balarabe is a Partner at Acuitas Legal Practitioners