.What Nigerians need to know about new tax laws
President Bola Ahmed Tinubu yesterday signed four tax bills into law, in a bid to reform Nigeria’s tax system. The new laws are expected to have far-reaching implications for individuals, businesses, and the economy as a whole. In a nutshell, here are some of the things Nigerians need to know about the tax bills.
The new tax bills include:
. Nigeria Tax Bill (Fair Taxation or Ease of Doing Business) which consolidates Nigeria’s fragmented tax laws into a harmonized statute, reducing multiple taxes and eliminating duplication. It enhances the ease of doing business, reduces taxpayer compliance burdens, and creates a more predictable fiscal environment.
The President also promulgated the Nigeria Tax Administration Bill, which establishes a uniform legal and operational framework for tax administration across federal, state, and local governments.
The Nigeria Revenue Service (Establishment) Bill was also promulgated to repeal the current Federal Inland Revenue Service Act and create a more autonomous and performance-driven national revenue agency, patterned after the United States and Canadian models and called the Nigeria Revenue Service (NRS). The NRS is conceived with an expanded mandate, including non-tax revenue collection, with transparency, accountability, and efficiency mechanisms.
The Joint Revenue Board (Establishment) Bill provides a formal governance structure for cooperation between revenue authorities at all levels of government, introducing oversight mechanisms like the Tax Appeal Tribunal and the Office of the Tax Ombudsman.
These new laws are expected to significantly transform tax administration in Nigeria, leading to increased revenue generation, improved business environment, and a boost in domestic and foreign investments. The effective date for the implementation of the new laws is January 1, 2026.
Here are some key implications of the tax reforms for Nigerians:
. New VAT sharing formula
President Bola Tinubu’s tax bill initially proposed increasing the Value-Added Tax (VAT) from 7.5% to 12.5% between 2026 and 2029, with a further increase to 15% by 2030. However, the Senate rejected this proposal and retained the current VAT rate of 7.5%. They did make a significant shift by allowing VAT input claims on fixed assets, overhead costs, and administrative expenses. This move aims to lower operational expenses for businesses.
Additionally, the Senate approved a new VAT revenue distribution formula as follows:
. Federal Government: 10%
. State Governments: 55% (further divided into)
. Equality: 50%
. Population: 20%
. Place of Consumption*: 30%
From VAT, Local Governments are to get 35%, further divided into:
. Equality: 70%
. Population:30%
The Senate’s decision on VAT revenue distribution increases the share for states while maintaining the rate at 7.5%.
The new tax regime also provides tax relief for small businesses.
The Companies Income Tax (Amendment) Act provides tax relief for small businesses with turnover below N50 million. This move is expected to encourage entrepreneurship and support the growth of small and medium-sized enterprises (SMEs).
The Capital Gains Tax (Amendment) Act exempts gains from the disposal of Nigerian government securities, such as treasury bills and bonds, from capital gains tax. This exemption is expected to stimulate investment in the capital market.
The Stamp Duties (Amendment) Act introduces new charges for certain financial transactions, including electronic transfers. This move is expected to increase revenue generation for the government, but may also lead to additional costs for businesses and individuals.
Under the new tax plan, for people earning up to One Million Naira a year, a rent relief of 200,000 naira will be applied, effectively reducing their taxable income to 800,000 naira. This means they will no longer pay income tax.
Sellers of essential goods and services such as food, healthcare, education, rent, power, and baby products will no longer have to charge a Value Added Tax (VAT), helping families better afford their basic needs.
Small businesses with annual turnover below 50 million naira will no longer pay company income tax. They will also be allowed to file simpler returns, without needing audited accounts.
Large businesses are also expected to benefit from reduced corporate tax rates, dropping from 30% to 27.5% in 2025 and 25% in subsequent years.
They will also now be able to claim tax credits for VAT paid on expenses and assets, meaning they can get back the 7.5% that they paid as VAT.
The new laws also give tax incentives to charitable groups, co-operatives, educational and religious organisations, provided their earnings do not come from commercial activities.