These five sectors are likely to pay more taxes

Newly enacted tax reforms are changing how companies pay, report, and plan taxes, with sectors that rely heavily on transaction volumes, thin margins, or regulatory incentives facing the sharpest adjustments.

From telecoms and financial services to oil and gas and fast-moving consumer goods, five sectors stand out as the most exposed to the new tax regime, according to tax advisers, industry analysts and regulatory data reviewed by BusinessDay.

Telecommunications: high transaction volume, complex VAT exposure…

Based on the Nigerian Communications Commission (NCC) performance report for 2024, Nigeria’s telecoms sector generated N7.67 trillion in revenue for the year, which contributed 14.4 percent to GDP.

This sector faces heightened exposure through mandatory VAT fiscalisation, expanded withholding tax obligations, and the new Development Levy on assessable profits.

The 4 percent Development Levy, which consolidates the Tertiary Education Tax, IT Levy, NASENI Levy and Police Trust Fund levy, will apply to all operators except those classified as small companies. The levy is calculated on assessable profits before capital allowances.

“Telecoms companies are high-volume, cash-generating businesses with very visible revenue streams, which makes them an obvious target,” said Omoniyi Animashaun, responding to whether some sectors face greater exposure than others.

Read also: Explainer: Presumptive Tax – How Nigeria plans to tax its informal economy

Financial services: transaction taxes, windfall levies, digital trail…

Banks and fintechs face multiple layers of exposure: VAT on fees and commissions, withholding tax on interest and dividends, the 70 percent windfall tax on foreign exchange gains for 2023-2025, and the new minimum 15 percent effective tax rate for entities with annual turnover exceeding N50 billion.

Ten major Nigerian banks paid N987.40 billion in corporate income tax for 2024, with seven banks incurring N223.27 billion in windfall tax alone, according to audited reports filed with the Nigeria Exchange Limited.

The tax reform acts also require banks and financial institutions to file quarterly returns on all new customers and existing customer transactions exceeding N25 million for individuals and N100 million for corporates.

“The financial services have been more riddled with more compliance requirements to add to their already cumbersome compliance costs,” said Boluwatife Agbato, a transfer pricing expert who explained that the financial services have a more heightened exposure than other sectors.

Oil and Gas: royalties, CIT alignment, downstream VAT…

The petroleum sector, which accounts for approximately 90 percent of Nigeria’s foreign exchange earnings according to an economy report by the Embassy of the Federal Republic of Nigeria, faces comprehensive reforms through the Nigeria Tax Act’s consolidation of the Petroleum Profits Tax Act and alignment with company income tax rules.

According to the Budget Implementation Report for the fourth quarter of 2024, Government oil and gas royalties surged 179.74 percent to N6.99 trillion in 2024 from N2.50 trillion in 2023, driven by improved metering, stricter enforcement by the Nigerian Upstream Petroleum Regulatory Commission, and exchange rate adjustments.

The reforms introduce a 5 percent fossil fuel surcharge on chargeable products, apply VAT and withholding tax to services provided to free zone entities from the customs territory, and tighten rules on decommissioning fund deductibility.

Manufacturing: VAT pass-through pressure, exemption losses…

Manufacturers remained the top contributor to VAT in Q3 2024, accounting for N395.34 billion or 22.21 percent of total collections, despite facing high inflation, foreign exchange volatility and infrastructure constraints, according to the National Bureau of Statistics.

The reforms allow input VAT recovery on all purchases, including services and fixed assets, provided the input VAT relates directly to taxable supplies. However, the Development Levy and stricter documentation requirements will increase compliance costs for manufacturers operating on thin margins.

While the reforms expand input VAT recovery and introduce new incentives, not all manufacturers are positioned to benefit.

“Many manufacturers operate with aging assets and limited reinvested capacity. This makes it harder for them to fully benefit from the new Economic Development Incentive (EDI),” Yvonne Afolabi, a senior tax consultant.

Fast-moving consumer goods: VAT on essentials, margin compression…

FMCG companies face exposure through VAT on consumer products, excise duties on beverages, and the challenge of passing costs to price-sensitive consumers. The reforms retain the 7.5 percent VAT rate but expand zero-rating to certain essential items while removing some exemptions.

Excise duty on non-alcoholic carbonated and sweetened beverages remains at N10 per litre, while beer, spirits and tobacco face 20 percent excise. The sector’s ability to recover margins depends on consumer purchasing power, which has been eroded by 34.8 percent headline inflation as of December 2024.

Tax advisers say companies in the most exposed sectors will need to rethink tax from a back-office function to a core strategic risk, as higher compliance demands, tighter reporting thresholds and reduced room for informal practices begin to affect margins, cash flow and valuations.