The stated aims of Nigeria’s new tax laws 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?
Eliminating the Rentier State
For decades, Nigeria has operated as what economists call a “rentier state“, or a state whose government funds itself not through citizen taxes, but by extracting rent from natural resources. With over 70% of government revenue coming from oil, Nigerian politicians have been freed from the pressure to serve taxpayers. The consequences have been devastating: despite earning over $831 billion from oil reserves between 1999 and 2023, Nigeria’s roads, schools and hospitals remain among the world’s worst. And Nigeria’s reputation around the world remains that of an immensely corrupt and inefficient society.
A rentier state funds itself not through taxes or productivity, but by extracting “rent” from natural resources. In Nigeria’s case, as in the case of oil-wealthy countries like Qatar, UAE, Venezuela, Saudi Arabia, etc., it is the rents on oil that fund the state. According to The Guardian, low taxes and the erratic collection of them are common features of life in most oil-wealthy nations. In such states, the government is essentially a middleman who sells crude oil to global markets to fund its objectives, without requiring or seeking the participation of its citizens.
This oil dependency has created a fundamental disconnect between a ruling elite and the citizenry. The reason is that when people don’t fund their government through taxation, they don’t demand hold them accountable. Taking a philosophical view, Nigeria’s new tax laws can only be seen as an ambitious attempt to reverse this dynamic and create a government funded by the people. Otherwise, it will not achieve much if not anything.
It Represents a New Economic Vision for Nigeria
The architect of Nigeria’s new tax laws, President Tinubu framed them in transformational terms at Thursday’s signing ceremony: “What we did a few minutes ago is the way forward for our country’s prosperity. Leadership must help people take off, lead the way, and navigate every turn and twist.”
The president emphasized that these changes represent more than technical adjustments: “We are in transit; we have changed the roads, we have changed some of the misgivings, we have opened the doors to a new economy, business opportunities. We have shown the world that Nigeria is ready and open for business.”
Acknowledging the political difficulty of the process, Tinubu noted: “It was initially difficult, but not all roads will be easy in nation-building. What you have provided is leadership and courage in the face of mounting disputes. Nowhere in the world would tax reforms be easy.”
Key Highlights of the Reform
The four new laws create a comprehensive overhaul of Nigeria’s tax system:
Immediate Relief for the Poor and Small Businesses:
- Citizens earning less than ₦250,000 monthly (₦3 million annually) are completely exempt from income tax
- Essential goods like food, healthcare, education, and electricity are now VAT-exempt
- Small businesses with annual turnover below ₦50 million no longer pay corporate income tax
- A rent relief of ₦200,000 is applied to low-income earners
Streamlined Tax Structure:
- The Nigeria Tax Act consolidates multiple overlapping taxes into a single code and eliminates over 50 small taxes
- The Federal Inland Revenue Service becomes the Nigeria Revenue Service with expanded mandate
- Corporate tax rates will drop from 30% to 27.5% in 2025 and 25% thereafter
- VAT remains at 7.5% with no increase
Enhanced Accountability Mechanisms:
- Creation of a Tax Ombudsman and Tax Appeal Tribunal
- Improved coordination between federal, state, and local tax authorities
- Digital infrastructure requirements for transparency
The Deeper Game Is to Build a Tax Culture
The numbers game is to boost non-oil taxes to 50% of revenue by 2030. But this isn’t, or cannot, just about numbers, it’s about fundamentally changing the relationship between citizen and state. The new tax laws can only work if they represent Nigeria’s most ambitious effort yet to redefine the relationship between the citizen and the state. What is at stake is not merely revenue generation, but the birth of a new civic compact where taxation becomes a cornerstone of public participation, state accountability and democratic legitimacy.
Nigeria’s tax-to-GDP ratio, hovering around 10–11%, far below the African average of 16–18% and pales in comparison to OECD nations like Denmark or Germany, where taxes fund over 40% of government activity. This disparity reflects a broader philosophical gap. In countries where citizens fund the state, they feel empowered to demand transparency, quality infrastructure, and political responsiveness. In Nigeria, where oil rents rather than taxes have historically funded governance, the public has been rendered passive bystanders to decisions made in their name but not with their money.
The broader goal of Nigeria’s new tax laws is to disrupt this pattern. By exempting low-income earners and small businesses from income and corporate taxes and by eliminating VAT on essentials such as food, electricity and healthcare, the system introduces progressive fairness. At the same time, merging 50+ overlapping taxes into a streamlined code and creating a Tax Ombudsman and Appeal Tribunal signals a turn toward simplicity, justice and transparency. These are part of cultural overtures that can foster tax morale and trust.
The Effects Are to Be Seen
Implementation of these new tax laws begins on January 1, 2026. The goal of post-dating the implementation is to give the government six months to prepare adequate sensitization of all Nigerians. The real test will come not in the legislation’s technical provisions, but in whether it can achieve its deeper objective: transforming Nigeria from a nation of bystanders into a country of engaged citizens.
The success of these new tax laws will hinge on the credibility of the institutions that will enforce them. Without real improvements in public service delivery, reductions in corruption and demonstrable accountability, citizens may continue to see taxation as extortion rather than contribution. This places the greater responsibility on the government.
Ultimately, this reform is a philosophical pivot. It seeks to convert Nigeria from a rentier state into a participatory democracy, where paying tax is not a burden, but a badge of ownership in the national project. If implemented with integrity, the reforms could redefine citizenship in Nigeria, not just as a legal status, but as an economic and moral partnership in the making of the state.
