For many Nigerians, religious and charitable organizations are more than institutions, they are pillars of community life. They provide education, healthcare, welfare and moral guidance. They often fill gaps where the state falls short, and rely on the goodwill of donors and the dedication of volunteers for support. But even organizations dedicated to higher purposes are not entirely beyond the reach of the taxman. The new Nigeria’s Tax Act 2025 makes clear which parts of a charity’s or church’s income are exempt and which are taxable.
This distinction is vital because exemption is neither automatic nor absolute. If you help manage a church, mosque, foundation, NGO, or any other not-for-profit body, understanding these is essential to sustaining your mission.
What Income Is Tax-Exempt for Registered Charities?
The principle is simple but strict: income of a properly registered religious or charitable organization, when applied exclusively to its approved objectives, is exempt from taxation. The relevant section of the Tax Act, 2025, under the Companies Income Tax (Exemption of Charitable Institutions) Regulations, 2025, reinforces this position.
The following are typically exempt when used strictly for mission-related purposes:
- Tithes, offerings, zakat and donations given for religious or charitable purposes.
- Grants and gifts from international agencies, philanthropists, or corporate donors.
- Service fees that are incidental to the organization’s mission (e.g., a nominal school fee charged by a mission-owned school).
The law requires dual compliance:
- Registration Requirement: The organization must be registered as a non-profit under Part F of the Companies and Allied Matters Act (CAMA) and recognized by the National Revenue Service (which replaces the Federal Inland Revenue Service, under the Act) as a tax-exempt body.
- Purpose Requirement: The organization must apply all income to its approved objectives. Any diversion for personal enrichment or unrelated ventures triggers tax liability.
The moment an organization’s funds begin to serve personal gain or purely commercial interest, it jeopardizes its tax-exempt status, which can be revoked under Section 23(1)(c) of the Companies Income Tax Act (CITA).
When Religious Organizations Become Taxable
The law draws a clear distinction between religious service and commerce. Once an organization begins to run a business arm, say, a bakery, printing press, guesthouse, or rental property, the profits from those ventures are taxable at the standard corporate rate of 30% under CITA Section 9(1). This is called the Commercial Activity Test. Its intent is fairness: a church bakery selling bread competes with private bakeries in the market; therefore it cannot claim an unfair advantage through total exemption.
However, the Act introduces an important nuance: the Integration Exception. If a business activity is wholly integrated into the charity’s mission, such as a vocational training workshop where students sell the items they produce, the income may still qualify as exempt.
The test asks the question: Is the activity an instrument of mission, or a profit-making venture cloaked in faith?
Organizations are thus, encouraged to maintain separate accounting records for business activities and to file returns for any taxable profit. Proper separation allows the core mission to remain protected under the umbrella of exemption.
Asset Disposals and Capital Gains
The new tax law also clarifies the Capital Gains Tax (CGT) obligations of religious and charitable institutions. Under Section 26 of the Capital Gains Tax (Amendment) Act, 2025, any gain arising from the disposal of a capital asset by a registered charity is exempt from CGT (10%) if the disposal is made in furtherance of its approved objectives.
Examples include selling a plot of land to fund a school expansion or clinic construction is exempt or selling real estate purely for speculative profit or unrelated investment is taxable. Documentation is key. To preserve exemption, the organization must demonstrate that the sale proceeds were reinvested in its charitable mission within 12 months of the disposal. If not, the 10% CGT applies.
For Donors
The 2025 Tax Act strengthens incentives for philanthropy. Under Schedule 2 of CITA, donations to approved charities are deductible from taxable income. Thus, individuals can deduct up to 10% of their total taxable income. On the other hand, companies can deduct up to 15% of assessable profits when donating to approved public-benefit organizations listed or certified by the National Revenue Service. Donations to unregistered or informal bodies, for instance, a personal appeal fund or an unregistered community group, do not qualify for deduction.
This approach balances public generosity with fiscal prudence: the tax base is protected, but legitimate giving is encouraged.
Proving Your Exemption
Perhaps the most important lesson for religious and charitable bodies in the new tax era is that exemption is not assumed, it must be demonstrated. Exemption must now be proven, not presumed. The tax authority has the right to review your accounts and request proof that your income and expenditures align with your stated mission.
The NRS retains authority to audit religious and charitable institutions to verify compliance. This is not an attack on faith, instead it is an affirmation of accountability. To stay compliant, organizations must maintain:
- A valid certificate of incorporation and exemption.
- Annual financial statements showing sources and applications of income.
- Clear separation between charitable and business funds.
- Proper documentation of all donations, including receipts and donor registers.
- Records of board meetings, annual reports, and audit submissions where required.
Failure to produce these may lead to revocation of exemption and assessment for unpaid taxes, penalties and interest.
Practical Compliance for Religious and Charitable Bodies
For religious institutions, compliance begins with clarity: separate church or mosque income from commercial activities, and maintain distinct bank accounts. Also, keep transparent records of tithes, donations and their disbursements.
For charities and foundations, conduct annual mission reviews to ensure all activities align with approved objectives. If you operate income-generating arms, such as schools, farms or hostels, treat them as taxable entities unless you can demonstrate full integration with your charitable purpose.
Charities should also track their donor receipts carefully. Offering your donors verifiable receipts increases their confidence and ensures their gifts qualify for legitimate tax deductions.
How Taxpal Helps Religious and Charitable Organizations Stay Compliant
Managing tax compliance for religious and charitable organizations requires specialized knowledge of exemption rules, business income taxation, and proper documentation requirements. Taxpal offers comprehensive support for not-for-profit organizations, including:
- Exemption status verification and registration assistance
- Income classification to distinguish exempt from taxable revenue
- Business activity tax compliance for commercial ventures
- Record-keeping systems designed for charitable organizations
- Donor receipt management and deduction verification
- Annual compliance reviews to maintain exemption status
Whether you’re managing a small community church or a large charitable foundation, our platform provides the tools and expertise to ensure your organization maintains its tax-exempt status while fulfilling its mission. To get started, visit our website and choose the consultation option that best fits your organization’s needs. Let us help you navigate the complexities of tax compliance so you can focus on serving your community.
