Analysing provisions, impacts, and implementation of Nigerian Tax Act, 2025

By Fatiha Kuti

Tax is a compulsory levy introduced by the government to generate revenue for prosperity and

economic development. Before the introduction of the new Act, there were several Acts in relation to tax, such as: Company Income Tax(CIT), Value Added Tax(V AT), Capital Gains Tax(CGT), Excise Duties, Stamp Duties.

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The new Act was introduced to consolidate all the above listed repealed Acts into a single legislation.

The Act is known as the Nigerian Tax Act (which will subsequently be known as NTA). The NTA aims at reducing the number of different taxes paid by citizens and ensure that stakeholders comply with responsibilities placed on them.

This article seeks to analyze the provisions and impacts of the Act when it commences operation.

Provisions of The Nigerian Tax Act

Some of the salient provisions of the new Act when it commences on the 1st of January, 2026 are:

Rates of Individual’s tax: The new tax rates for individuals range from 0%-25% and also chargeable other than on an individual earning the minimum wage. A tax-exempt threshold is introduced for 800,000 and provided for in Section 58 and the Fourth Schedule.

Introduction of Rent Relief: The Consolidated Relief Allowance has been eliminated by this Act and a rent relief has been introduced. Declaration and other relevant information must be made to the appropriate tax authority regarding the actual rent paid before it can be claimed.

Section 30(vi) provides the rent relief to be 20% of the actual rent paid, subject to a maximum of 500,000, whichever is lower.

This relief is a form of eligible deductions.

Increment in the Capital Gains Tax Rate: The Act considers chargeable gains in the computation of total income for both individuals and companies. Section 27 and 28 provides that it will be treated as part of taxable income for the purposes of income tax assessment.

The applicable rates will be:0-25% for individuals depending on income brackets and 30% for companies depending on their turnover, this is to align with the corporate tax rate.

Introduction of Economic Development Incentive (EDI): This is a substitute for the pioneer status granted to foreign countries called the “Tax Holiday Incentive”. With this incentive, the eligible company is granted 5% tax concession per annum for 5 years on the capital expenditure purchase within 5 years from the date of production. When a company has unused tax credits, it can be rolled over for another 5 years only, which expires if it remains unused.

This incentive is offered to businesses operating in designated priority sector like renewable energy, mining of coal and lithium, and aquaculture.Restriction on the Tax Exemption Status of Free-zone Entities: Companies carrying business on an export processing or free zone are exempted but face tighter scrutiny.

The conditions for maintain the exemption status is provided for in the Second Schedule of the Act.

Introduction of Development Levy: Small companies and non-resident companies are exempted from payment of this levy but other Nigerian companies will be mandated to pay 4% of the accessible profits of the company.

This levy is not imposed on accessable profits calculated for hydrocarbon tax purposes. Section 59 consolidates other taxes or levies currently paid by companies (such as Nigerian Education Loan Fund, Tertiary Education Trust Fund, Defence and Security Infrastructure Fund, and other funds).

Update of the V AT sharing formula and fiscalisation rules: The Act reduces the Federal Government’s V AT share from 15% to 10% and increased the States and Local Government allocations to 55% and 35% respectively. The V AT revenue allocated to states and local governments is further allocated as: 50% divide equally, 20% based on population, and 30% based on place of consumption.

The Act also codified V AT fiscalisation rules and mandatory e-invoicing in Africa. Companies have been mandated to implement the fiscalisation system deployed by the tax authority for the collection of V AT. This is contained in Section 158.

Minimum Tax for Non-resident Companies: Non-resident companies who have a taxable presence will be subjected to minimum tax-based on the percentage of their earnings before interest and tax to the total income generated from Nigeria. The tax payable cannot be less than the withholding tax rate applicable to the income or 4% of the income. This is contained in Section 17.

Definition of Resident and Non-Resident Individuals: There had been varied interpretations of residence before the Act, but it has now been extended to individuals with substantial economic and immediate family ties in a year of assessment. Employment income will now be taxed in Nigeria if the individual is a resident in Nigeria or performs duties in Nigeria without paying tax in their country of residence. The definition of these individuals can be deduced from the general interpretation section in the Act which is Section 202.

Stamp duty on loan capital: Loan capital is any debenture stock, other stock or funded debt by whatever name known or debt raised by any corporation or body of persons formed or established in Nigeria. The loan capital of a company exceeding the duration of 12 months will now be liable to stamp duty or ad valorem duty, by virtue of Section 137.

Imposition of surcharge: A 5% surcharge has been imposed on chargeable fossil fuel products provided or produced in Nigeria and collected at the time a chargeable transaction occurs. The surcharge will not apply to renewable products, household kerosene, and compressed natural gas.

This provision is provided in Section 159 and 162.

Chargeable gains and assets: Chargeable gains are gains accruing to any person in a year of assessment chargeable to tax while chargeable assets include all forms of property and any form of shares, options, rights, debts, digital assets, intangible property, and foreign currencies by virtue of Section 33 and 34.

Though, gains from the sales of shares in Nigerian companies are not taxable provided that:

● the sale proceeds are less than 150 million and the chargeable gain does not exceed 10 million within 12 consecutive months.

● The shares are transferred between approved parties in a regulated Securities Lending Transaction.

● the proceeds from disposal are reinvested within the same assessment year in shares of Nigerian companies.

IMPACTS OF THE IMPLEMENTATION

Progressive Personal Income Tax regime: It makes PIT more progressive by reducing the burden placed on lowest earners and aligning tax obligations with the national minimum wage, which position the tax system to be more realistic.

Those earning #800,000 or less annually are completely exempted while those high-income individuals have an increased marginal tax rate.

Exemption Threshold for Small Companies: The Act exempted businesses with gross turnover not exceeding 100million and total fixed assets not exceeding 250 million from CIT, CGT, and Development Levy. This exemption supports MSMEs by easing their compliance burden and raising the threshold for small company classification.

Introduction of the Tax Ombudsman Office: It is a mechanism for taxpayers to lay their complaints about levies, surcharges, and other tax-related issues. Introduction of this office will serve as a quasi-judicial body to resolve disputes raised by complainants, reducing the responsibilities of the conventional courts.

Zero rate of Value Added Tax on Essential Goods and Services: The impact of this rate is that businesses selling the goods and providing services can recover the V AT costs, despite the zero rate which was not in the repealed laws. The essential goods and services are basic food items, medical and pharmaceutical products, educational books, tuition fees, electricity generation and transmission services, and medical equipment and services.

With these changes, it is important that companies and individuals do the following: 1. 2. 3. 4. Become aware of the law, because ignorance of law is not an excuse.

Reframe the tax strategy in a manner that will align with goals of the businesses.

Updating their compliance processes in line with the Act.

Assessing the corporate structure and compliance implications arising from the Act.5. Workshops sensitizing board committees and executive management on the impact of the

Act’s provisions should be organized.

The Act is an important framework to ensure simplification of taxes paid, increasing tax base,

and improving economic growth of the country. If the provisions are successfully implemented,

it will improve the citizens’ welfare to a good point. The provisions are commendable, but the duty lies on the stakeholders on the implementation phase.