On Thursday, June 26, 2025, President Bola Ahmed Tinubu signed into law, the Tax Administration Act (2025). These four new laws represent the most comprehensive overhaul of the country’s tax system in decades. They consolidate multiple tax laws into a unified and modern framework designed to drive economic growth and improve compliance.
We give a breakdown of the most important changes introduced by the laws.
The Four New Tax Laws
1. Nigeria Tax Act (NTA) consolidates nine previously separate tax laws into a single, comprehensive statute. This master law now governs personal income tax, companies income tax, value-added tax, capital gains tax, stamp duties, petroleum profits tax and several other tax categories that were previously scattered across different legislation.
2. Nigeria Tax Administration Act (NTAA) establishes uniform rules for tax collection across federal, state, and local governments. This law ensures consistency in tax administration and reduces conflicts between different levels of government and creates a more predictable environment for taxpayers.
3. Nigeria Revenue Service Act (NRSA) replaces the Federal Inland Revenue Service with the newly established Nigeria Revenue Service (NRS) and grants it greater autonomy and efficiency in tax administration. The law also makes State Internal Revenue Services autonomous in managing their affairs.
4. Joint Revenue Board Act (JRBA) enhances coordination between different government levels and introduces important taxpayer protection mechanisms, including a Tax Ombudsman and Tax Appeal Tribunal to handle tax disputes fairly and independently.
Why These Reforms Were Necessary
Nigeria’s previous tax system was a patchwork of laws with some dating back to the 1960s. They created confusion, duplication and numerous loopholes. With Nigeria’s tax-to-GDP ratio at just 10%, a figure that is well below the African average of 16-18% and the OECD average of 40%, the country needed a more efficient system to fund critical infrastructure, healthcare and education without over-relying on oil revenues or incessant borrowing.
The rise of the digital economy, cryptocurrencies and changing global tax trends also necessitated modern legislation that could capture these new forms of economic activity while maintaining fairness and transparency.
Major Changes for Individuals
1. Income Tax Relief for Low Earners The most significant change for individual taxpayers is the dramatic expansion of tax exemptions. Individuals that earn ₦800,000 or less annually are now completely exempt from income tax, up from much lower thresholds previously. This change is expected to directly benefit millions of Nigerians, particularly those in lower-income brackets.
Additionally, individuals can now claim a ₦200,000 rent relief, which reduces their taxable income. For someone earning exactly ₦1 million annually, this relief brings their taxable income down to ₦800,000, effectively exempting them from income tax entirely.
2. Progressive Tax Structure For higher earners, the new law introduces a more progressive tax structure with rates reaching up to 25% for the highest income brackets. This ensures that those with greater ability to pay contribute more to national development.
3. Expanded Tax Base The law introduces clearer definitions of tax residency that potentially affects Nigerians living abroad. Individuals with substantial economic and family ties to Nigeria may now be subject to tax on their worldwide income, though employment income is only taxed if the person is resident in Nigeria or performs duties there without paying tax in their country of residence.
Transformative Changes for Businesses
4. Small Business Relief Small companies with annual gross turnovers of ₦100 million or below (increased from ₦25 million) and total fixed assets not exceeding ₦250 million are now exempt from Companies Income Tax, Capital Gains Tax and the newly introduced Development Levy. This change provides significant relief to small businesses and encourages informal enterprises to formalize.
5. Corporate Tax Rate Reduction For larger businesses, corporate tax rates decrease from 30% to 27.5% in 2025 and further to 25% thereafter. This reduction is expected to make Nigeria more competitive and attractive regionally and internationally for business investments.
6. Development Levy Introduction The new Development Levy consolidates several existing levies, including the Tertiary Education Tax, Information Technology Levy, NASENI levy and Police Trust Fund levy into a single 4% charge on assessable profits for companies whose annual gross turnover exceed the small business threshold of ₦100 million.
7. Minimum Tax for Multinationals Large multinational companies with group turnovers exceeding €750 million or annual turnovers above ₦50 billion must now maintain a minimum effective tax rate of 15%. This aligns with global standards and prevent profit-shifting to low-tax jurisdictions.
Revolutionary VAT Changes
8. Expanded Input VAT Recovery Perhaps the most business-friendly change that comes with the laws is the adoption of global VAT principles that allows businesses to recover input VAT on all purchases, including services and fixed assets. Previously, many businesses could not recover VAT on certain expenditures.
9. Zero-Rating Essential Items The Act expands zero-rated items, that is items not subject to tax, to include essential goods and services such as basic food items, medical and pharmaceutical products, educational materials, electricity generation, medical equipment, tuition fees and most exports. This goal of this change is to help combat inflation while allowing businesses selling these items to recover their VAT costs.
10. Digital Economy Coverage According to the Act, VAT now applies to digital services provided by non-resident companies to Nigerian customers. For instance, X, Facebook, etc. The goal is to ensure that international digital service providers contribute to Nigeria’s tax revenue while maintaining competitive neutrality with local providers.
Capital Gains Tax Modernization
11. Increased Rates and Expanded Scope Capital gains tax rates increase significantly from 10% to 30% for companies, while individuals face capital gains tax at their applicable income tax rate. The scope now includes digital assets like cryptocurrencies, foreign shares and income from property sales.
12. Exemption Threshold Adjustment The exemption threshold for share sales increases to ₦150 million (from ₦100 million) in any 12-month period, provided those gains don’t exceed ₦10 million.
Enhanced Taxpayer Protections
13. Tax Ombudsman Office The establishment of a Tax Ombudsman provides taxpayers with an independent advocate to review and resolve complaints about taxes, levies and regulatory charges. This office serves as a crucial check on potential tax authority overreach.
14. Improved Dispute Resolution The new Tax Appeal Tribunal offers a more structured approach to resolving tax disputes and provides taxpayers with clearer pathways for challenging tax assessments they believe are incorrect.
Technology and Compliance
15. E-Invoicing and Fiscalization: Nigeria becomes an early adopter of mandatory e-invoicing in Africa, with businesses now required to implement fiscalization systems that will be deployed by tax authorities for VAT collection. This technological approach is aimed at enhancing transparency and reducing opportunities for tax evasion.
16. Stricter Penalties The penalties for non-compliance have been increased substantially, with failure to file returns now attracting ₦100,000 in the first month and ₦50,000 for each subsequent month. New penalties include ₦5 million for awarding contracts to unregistered entities.
Revenue Sharing Transformation
17. Revised VAT Allocation The federal government’s share of VAT reduces from 15% to 10 %, while states and local governments receive increased allocations of 55% and 35% respectively.
18. Consumption-Based Distribution Significantly, 30 percent of VAT revenue to states is now allocated based on consumption rather than contribution, potentially benefiting states with large consumer populations even if they don’t host major VAT-generating businesses.
Looking Forward
The Nigerian Tax Administration Act (2025) enters into effect on January 1, 2026. The goal of post-dating the implementation is to give the government six months to adequately sensitise all Nigerians. For businesses and individuals alike, these changes necessitate that they carefully review their current tax strategies and compliance procedures ahead of January 1, 2026.
Read: How Nigeria’s New Tax Laws Could Help Strengthen Its Democracy
The stated aims of the new Tax Administration Act (2025) are to simplify a multi-layered tax structure, boost compliance and generate sustainable revenue for national development. The underlying issue with taxes in Nigeria, however, is more philosophical than technical. Nigeria needs a new social contract that can lead to increased public participation in governance. The question is: can this new tax regime lead to such a new contract?
