Nigeria’s major tax overhaul explained
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Low-income earners and small businesses like yam seller are set for tax exemptions
Inside Nigeria’s Major Tax Overhaul: Who Gains and What Changes
A New Era for Nigeria’s Tax System
President Bola Tinubu has launched a bold overhaul of Nigeria’s tax landscape by signing four significant finance bills into law. The government says these reforms will simplify tax rules, reduce the burden on low-income earners and small businesses, and make the system more efficient while increasing national revenue.
In a statement marking the second anniversary of his administration, President Tinubu said the reforms are designed to “protect low-income households and support workers by expanding their disposable income.”
Breaking Down the Four New Tax Laws
The four laws forming the core of this reform are:
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Nigeria Tax Act: This merges over 50 small, overlapping taxes into one streamlined code, reducing confusion and improving ease of doing business.
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Tax Administration Act: It standardizes tax collection across all levels of government.
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Nigeria Revenue Service Act: This replaces the Federal Inland Revenue Service with a new, independent body, the Nigeria Revenue Service (NRS).
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Joint Revenue Board Act: This promotes coordination among federal, state, and local tax agencies. It also introduces a Tax Ombudsman and Appeal Tribunal to handle disputes fairly.
Together, these laws aim to create a transparent, unified, and less burdensome tax system.
Relief for Low-Income Earners and Families
One of the most praised aspects of the reform is its impact on low-income earners. People earning up to ₦1 million ($650) annually will receive a rent relief of ₦200,000 ($130), reducing their taxable income. As a result, many will no longer owe income tax.
Additionally, essential goods and services—including food, baby products, healthcare, rent, and electricity—will now be exempt from Value Added Tax (VAT). This means everyday families will spend less on their basic needs.
Boosts for Small Businesses
Small businesses with an annual turnover below ₦50 million ($32,400) will now be exempt from company income tax. They can also file simpler tax returns without needing audited financial statements. This is expected to improve compliance and encourage informal traders to enter the formal tax system.
Benefits for Larger Enterprises
Big businesses won’t be left out. Corporate tax rates will gradually reduce from 30% to 27.5% in 2025, and further to 25% in later years. Companies will now be able to claim tax credits for VAT paid on business expenses and capital assets, improving their cash flow.
Charities, religious institutions, educational bodies, and co-operatives also stand to benefit—provided they do not earn money through commercial ventures.
Who Will Feel the Difference Most?
Low-income households are the clear winners. Families spending heavily on rent, food, and transport will now see reduced prices due to VAT exemptions. Small businesses are also poised to gain from the simplified process and tax breaks.
However, wealthier Nigerians and luxury consumers may face more taxation. Higher VAT rates will apply to luxury goods and premium services, and capital gains tax will be levied on large share sales.
Why These Reforms Were Necessary
Nigeria’s tax system was widely seen as outdated and unfair. With a tax-to-GDP ratio of just over 10%—far below the African average of 16–18%—the government needed to raise more funds without overburdening citizens. The goal is to increase that ratio to 18% by 2026.
By simplifying the tax code and encouraging voluntary compliance, the government hopes to raise funds for public services like health, education, and infrastructure while reducing dependency on foreign loans.
Public Reactions and Concerns
While many Nigerians, especially small business owners, welcome the reforms, there is some skepticism.
“I like that we won’t pay company income tax anymore,” said Chidinma, a Lagos-based entrepreneur. “But I’m worried they’ll introduce other confusing levies instead.”
Economist Emmanuel Idenyi shares similar concerns. “Tax officials have quotas. So even if you file properly, they often reassess and add more. That’s when businesses start to suffer,” he said.
Looking Forward: Trust Will Be Key
Taiwo Oyedele, head of the Presidential Fiscal Policy and Tax Reform Committee, said 90% of Nigerians support the reforms. However, he emphasized that success would depend on public trust and awareness.
Though opposition parties and unions have stayed relatively quiet, the coming months will show whether the reforms deliver real relief—or become just another bureaucratic hurdle.
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