Introduction
On 26 June 2025, President Bola Ahmed Tinubu signed four major tax reform bills into law, marking one of the most significant overhauls of Nigeria’s tax framework in decades. These enactments; the Nigeria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service Act (NRSA), and the Joint Revenue Board Act (JRBA), are collectively referred to as the 2025 Tax Reform Acts.
With an expected commencement date in January 2026, the material reforms introduced by the Acts are a vital consideration for all business organisations, particularly SMEs and startups. Understanding how these Acts interact and what they require, is therefore essential for any organisation operating in Nigeria ahead of January 2026. The section that follows highlights the key changes under the consolidated framework that are most relevant to businesses operating in Nigeria.
What Exactly Changed?
- Tax Rates & Exemptions
One of the most significant changes under the 2025 Tax Reform Acts is the expanded exemption threshold for small companies. Prior to the 2025 reforms, under the Companies Income Tax Act, as amended by the Finance Act 2019, only companies with annual turnover not exceeding ₦25 million were exempted from companies’ income tax.
Under Section 56 of the NTA, small companies are now defined as businesses with an annual turnover of NGN100 million or less and total fixed assets not exceeding NGN250 million. These companies are largely exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and the newly introduced development levy, providing greater relief for SMEs.
Conversely, large companies with a turnover above NGN100 million or assets exceeding NGN250 million, remain fully liable for corporate taxes. In addition, Section 57 introduces a minimum Effective Tax Rate (ETR) of 15% on the net income of large companies. This provision primarily applies to companies with turnover exceeding ₦50 billion or companies that are part of a multinational enterprise group with an aggregate turnover of at least €750 million or its equivalent.
- VAT & E-Invoicing
The Value Added Tax (VAT) rate in Nigeria remains at 7.5%, but the Nigeria Tax Act (NTA) has broadened the scope of input VAT that businesses can claim, now including fixed assets. This expansion helps reduce operational costs and supports smoother cash flow management for businesses. VAT is a consumption tax applied at each stage of production or distribution, but certain goods and services are exempt or zero-rated to ease the tax burden on essential items and priority sectors. Exempt goods typically include basic foods, medical supplies, educational services, and financial services, while zero-rated supplies primarily cover exports of goods and services. These provisions are set out under Sections 185–187 of the NTA, which define the full scope of VAT-exempt and zero-rated supplies.
Input VAT refers to the VAT a business pays on goods or services it purchases. Businesses can offset this against the VAT collected on their sales, ensuring tax is applied only to the value added. For example, a restaurant buying flour, vegetables, and cooking oil pays input VAT on these items, which can be offset against VAT charged to customers on meals, provided these purchases are used for taxable supplies.
The expansion of VAT exemptions has practical implications for various stakeholders. Restaurants serving meals may experience reduced input VAT burdens, small-scale farmers and agro-preneurs supplying local markets can benefit from lower operating costs, and non-profits involved in food distribution or educational catering may find compliance less costly.
The NTA also mandates digital invoicing and electronic fiscal systems (EFS) under Section 157, requiring taxable persons to adopt electronic devices or software for invoicing and reporting. This involves issuing invoices in a structured electronic format, which enables automated tracking of VAT transactions and enhances auditability. Examples include integrated Enterprise Resource Planning (ERP) systems for medium and large businesses, which automatically generate VAT-compliant invoices, and mobile Point-of-Sale (POS) systems for small businesses, which digitally record each transaction.
- Incentives & Credits
The NTA introduces several tax incentives designed to encourage investment, job creation, and economic growth. Companies engaged in agricultural businesses, including crop production, livestock, aquaculture, forestry, dairy, cocoa processing, and manufacturing of animal feeds, are exempt from income tax for the first five years from commencement of business under Section 60 of the NTA.
To promote meaningful job creation, employers that increase wages, award salary bonuses, or provide transport support to low-income workers whose gross earnings does not exceed N100,000, may claim an additional 50% tax deduction on these qualifying costs, known as compensation relief. Businesses are also entitled to a separate 50% deduction on the salaries of new employees who are retained for at least three years. In addition, agricultural businesses involved in crop farming, livestock, and dairy production benefit from a five-year tax holiday. The framework further encourages investment by exempting gains from tax where investors fund approved startups through venture capital funds, accelerators, or incubators.
Section 61 of the Nigeria Tax Act (NTA) provides that salaries paid to newly hired employees qualify for an additional deduction where such employment results in a net increase in the company’s workforce, measured against the average net employment over the preceding three years. To retain eligibility, the affected employees must not be involuntarily disengaged within three years of engagement.
Other notable incentives include enhanced deductions for research and development. Under Section 164 of the NTA, companies can claim a deduction of 5% of turnover on R&D activities, replacing the previous CITA provision that allowed a 10% deduction of total profits.
The NTA also replaces the Pioneer Status Incentive with the Economic Development Incentive (EDI) under Part II, Chapter 8 of the NTA. This targeted incentive aims to stimulate capital investment in priority sectors, requiring companies to incur Qualifying Capital Expenditure on or before production day to qualify.
- Compliance & Penalties
The NTA emphasizes strict compliance with tax obligations and prescribes penalties for non-adherence to ensure proper enforcement. Companies and taxable persons are required to maintain accurate records, file returns on time, and remit taxes due accordingly. Failure to comply may attract administrative penalties, interest, or prosecution under the law.
For example, Section 201 of the NTA mandates timely filing of tax returns. Non-filing or late filing of returns attracts penalties, which can include a fixed sum for each day of default or a percentage of the tax payable. Similarly, Section 202 imposes interest on outstanding tax liabilities, calculated from the due date until the tax is fully settled, encouraging prompt payment and discouraging deferral.
The NTA also prescribes penalties for inaccurate reporting of tax liabilities. Section 203 allows the tax authority to impose sanctions on a taxpayer who under-declares income, inflates expenses, or otherwise manipulates financial records. Repeated or severe violations may result in criminal prosecution under Section 204, which can include fines and imprisonment for responsible officers, emphasizing the importance of ethical financial reporting.
In addition, the Act encourages voluntary compliance by allowing taxpayers to correct errors or omissions through self-assessment and voluntary disclosure. Penalties may be reduced if taxpayers proactively report discrepancies, as outlined in Section 205.
- Administration & Oversight
The Federal Inland Revenue Service (FIRS) has been renamed the Nigeria Revenue Service (NRS), reflecting its expanded responsibilities in managing and enforcing tax laws across the country. State tax authorities now enjoy greater autonomy, though coordination with the NRS remains essential to ensure uniform smooth administration across all levels of government.
While penalties for non-compliance have increased, the rules are now clearer and more structured, making it easier for businesses to fulfil their obligations. The reforms also introduce the Tax Ombuds Office, a dedicated channel for handling complaints, mediating disputes, and providing recourse for businesses, ensuring fair and timely resolution of tax-related issues.
Practical Steps for Your Business
- Start by assessing how the reforms affect your business, from cash flow to pricing and expansion plans.Â
- Update your accounting systems and ERP to track obligations accurately and make the most of available incentives. Communicate with stakeholders, employees, suppliers, and regulators, so everyone knows what to expect and can adapt quickly.
- Finally, keep monitoring developments. Staying informed on updates from the Nigeria Revenue Service ensures your business stays ready to seize new opportunities.
Conclusion
The 2025 Tax Reform Acts are not just a set of laws, they are a roadmap for business growth, compliance, and strategic advantage. Understanding the full scope, adapting quickly, and leveraging available incentives can make all the difference. Do not wait, read, prepare, and act today to secure your business’s success in the new tax landscape.
At Rephic Legal, we help businesses decode complex tax laws, implement compliant systems, and optimize tax strategies, ensuring your organization does not just survive, but thrives under the new regime.
