Nigeria’s tax system has always been a reflection of the country’s economic structure, its federal arrangement, and the state’s constant search for sustainable revenue.
For decades, the framework was built around a combination of direct and indirect taxes, anchored by the Federal Inland Revenue Service (FIRS), with state and local governments also exercising powers over personal income and certain levies. That old order provided the bedrock upon which the new reforms signed into law by President Bola Ahmed Tinubu in June 2025 are now being built.
Under the old laws, the Companies Income Tax Act (CITA) stood at the heart of Nigeria’s tax system. It governed the taxation of companies’ profits, covering both domestic and foreign firms operating through permanent establishments. Deductions, capital allowances, and rules for the treatment of dividends were all set out, while incentives for pioneer industries, agricultural ventures, and exporters were embedded as part of efforts to stimulate economic diversification.
Closely tied to this was the Petroleum Profits Tax Act (PPTA), which dealt with upstream oil operators. Given the strategic importance of crude oil revenues, this law carved out a separate regime with ring-fencing, anti-avoidance rules, and allowances to encourage investment in exploration, including deep offshore fields.
For individuals, the Personal Income Tax Act (PITA) created a progressive system. Residents were taxed on worldwide income, non-residents on Nigerian-sourced earnings, while deductions for reliefs, dependents, pensions, and life assurance were permitted. Administration was mostly decentralized, handled by state boards of internal revenue, except for specific categories such as members of the armed forces and foreign service who remained under FIRS.
Nigeria’s main consumption tax emerged under the Value Added Tax (VAT) Act, which replaced sales tax. VAT was charged at a flat rate and businesses were required to remit collections monthly, with limited opportunities for input tax credits. Certain essential goods and services, like medical products, educational materials, and basic food items, were exempt to cushion consumers.
Alongside this sat the Capital Gains Tax Act (CGTA), taxing gains from disposals of chargeable assets at 10 percent, though with exemptions for securities and specific reorganizations. Stamp duties applied to legal instruments, while the Customs and Excise Management Act (CEMA) regulated duties on imports and excisable products such as alcohol, tobacco, and petroleum.
The Education Tax Act, imposing a two percent levy on company profits to fund tertiary education through TETFund, highlighted the use of taxes to pursue social objectives. In general, the administration of all these laws rested with the FIRS under the FIRS Establishment Act, which defined powers of assessment, collection, enforcement, penalties, taxpayer obligations, and dispute resolution through objections, the Federal High Court, and the Tax Appeal Tribunal (TAT). Double taxation treaties also played a role, ensuring Nigerian companies and foreign investors were not taxed twice on the same income streams, while investment incentives such as pioneer status, rural allowances, and export expansion grants were woven into the system.
That old structure has now been comprehensively reworked by four new laws: the Nigeria Tax Act (NTA), Nigeria Tax Administration Act (NTAA), Nigeria Revenue Service Act (NRSA), and the Joint Revenue Board Act (JRBA). Collectively, they mark one of the most sweeping reforms in Nigeria’s fiscal history.
One of the most innovative changes in the new tax regime, is the relief for small companies. The exemption threshold for Companies Income Tax, Capital Gains Tax, and the newly introduced Development Levy has been raised from N25 million to N100 million in annual turnover, alongside a fixed asset ceiling of N250 million. This means thousands of small businesses will no longer carry a federal tax burden, a measure expected to improve the ease of doing business and encourage formalization.
On the other end of the spectrum, the reforms tighten rules for bigger players. The Capital Gains Tax (CGT) rate for companies has been increased sharply from 10 percent to 30 percent, aligning it with the Companies Income Tax rate and removing the arbitrage that once existed between trading income and capital gains. For individuals, gains are now taxed at their applicable progressive rates, making the system more equitable.
The scope of capital gains has also widened, with the introduction of CGT on indirect transfers of Nigerian company shares. This means that offshore holding company transactions that ultimately transfer control of Nigerian entities will trigger tax obligations in Nigeria, subject to treaty protections. In addition, the exemption threshold for share disposals has been raised to N150 million in any twelve-month period, with a cap ensuring gains do not exceed N10 million.
A new feature of the tax landscape is the Development Levy, set at four per cent of assessable profits for all, but small companies. This levy consolidates multiple existing charges — the Tertiary Education Tax, IT levy, NASENI levy, and the Police Trust Fund levy — into a single unified payment, reducing multiplicity and simplifying compliance.
For multinational corporations, the laws introduce a minimum effective tax rate (ETR) of 15 per cent of net income for groups with global turnover of €750 million or more, or Nigerian companies with turnover above N50 billion. This measure ensures large firms cannot exploit loopholes to pay little or no tax. Nigerian parent companies of multinationals will also be required to pay a top-up tax where subsidiaries abroad fall short of the 15 per cent benchmark.
The rules around non-residents have been tightened considerably. The “force of attraction” principle now applies, allowing Nigeria to tax, not just activities conducted through a permanent establishment, but also related transactions. Profits from Engineering, Procurement, and Construction contracts are now taxable even when structured through multiple contracts or offshore elements. Minimum tax rules for non-residents also guarantee that their tax liabilities cannot fall below withholding tax, or four per cent of Nigerian earnings.
Free Zone companies retain their exemptions on exports and supplies to oil and gas firms, but a transition period has been set. By January 2028, any sales into the domestic economy will subject them to full taxation, eliminating what was once a permanent tax holiday.
Incentives have been recast. The long-standing pioneer status incentive has been abolished and replaced with the Economic Development Incentive (EDI), which grants a five per cent tax credit on qualifying capital expenditure for five years, extendable where unused credits remain. This shift signals a move toward measurable, investment-linked benefits rather than open-ended holidays.
Personal Income Tax has been modernized. A clearer definition of residency, incorporating economic and family ties, expands the tax net, while exemptions for low-income earners have been raised to cover those earning N800,000 or less annually. Higher earners face steeper rates of up to 25 per cent. The threshold for tax-free severance or injury compensation has also risen from N10 million to N50 million.
Administrative reforms are equally striking. A Tax Ombuds Office has been created to provide an independent forum for taxpayers’ complaints, while the NTAA now mandates disclosure of tax planning arrangements that confer tax advantages, marking a decisive step against aggressive avoidance schemes. Penalties for non-compliance have been significantly increased: late filing attracts N100,000 in the first month and N50,000 for each subsequent month, while contracts awarded to unregistered entities can draw fines of up to N5 million.
Value Added Tax remains at 7.5 per cent, but its mechanics have changed. Nigeria has adopted global principles allowing recovery of input VAT on all purchases, including services and fixed assets, and expanded the zero-rated list to include food, medicines, education, electricity services, and tuition. The combination of zero rating and input recovery provides real relief for both consumers and businesses. VAT administration has also been digitalized, with fiscalisation rules and mandatory e-invoicing now in force.
Perhaps most politically significant is the update to the VAT sharing formula. The federal government’s share has been cut from 15 per cent to 10 per cent, with states now receiving 55 per cent and local governments 35 per cent. Within these tiers, allocations will be based on equality, population, and consumption, creating a stronger link between economic activity and fiscal benefits at the subnational level.
Finally, in recognition of the need for stronger coordination, the FIRS has been reconstituted as the Nigeria Revenue Service (NRS), with State Internal Revenue Services given full autonomy. A framework for joint audits has also been established, and the NRS may now assist states and local governments in revenue collection upon request.
Taken together, the reforms reflect both continuity and change. From the old laws, Nigeria retains the broad architecture of corporate, personal, and indirect taxation, along with incentives for investment and social levies. But the new laws move the country decisively toward a modern, globally aligned tax eco-system: simplifying compliance, broadening the tax base, reducing distortions, strengthening enforcement, and ensuring a fairer balance of revenue across tiers of government.
For Nigeria’s economy, the implications are far-reaching. Small businesses are set to benefit from reduced burdens, while larger corporations and multinationals will face stricter obligations under global minimum tax and anti-avoidance rules. Consumers will gain relief through expanded VAT zero-rating, while subnational governments stand to enjoy higher revenues under the revised sharing formula. At the same time, the consolidation of levies and the introduction of digital VAT administration promise to ease compliance and close leakages.
The trajectory is clear: Nigeria is shifting toward a tax system that mirrors international best practices, while remaining sensitive to domestic needs. If effectively implemented, these reforms could broaden the revenue base, strengthen subnational fiscal capacity, attract investment, and ultimately stabilize public finances. However, their success will depend on administrative capacity, transparency, and the willingness of both businesses and citizens to embrace compliance in exchange for visible public benefits.
In this sense, Nigeria’s new tax regime is more than a fiscal adjustment. It is a bid to reposition the economy on a path where taxation is not just a tool for revenue extraction, but a foundation for sustainable growth, equity, and accountability in governance.
