Nigeria’s new tax laws have officially arrived, and they’re changing everything for small business owners. The SME sector represents over 80% of employment and nearly half of national GDP. Yet, for years, these businesses operated under outdated, fragmented tax rules that were often ambiguous or burdensome.
The Nigeria Tax Act, 2025 provides a single, comprehensive legal framework that applies not only to multinational corporations but also to local tailors, shop owners, food vendors, consultants and start-ups. If you run a business, whether registered or unregistered, solo or with partners, this new law matters deeply to you. Here’s a breakdown of those to apply to business owners.
What Counts as a Business Now?
Under the new regime, “business” is defined by activity, not by licensing or legal status. Whether you’re running a salon, selling goods online, offering repair services, or weaving baskets in the market, your enterprise is now visible on the tax map. Registration with Corporate Affairs Commission (CAC) is no longer a shield or a requirement to enter the tax net. If money changes hands in your name through economic activity, you’re in.
This means that digital businesses including online sellers, influencers and freelancers. Also included in this new definition of business are service providers such as consultants, tutors, and repair technicians, artisans and craftspeople like tailors, carpenters, and food vendors as well as informal traders including market sellers and street vendors.
What Income Do You Pay Tax On?
The core principle holds: tax is charged on profits, not gross sales. For example, if you sell ₦500,000 worth of textiles but spent ₦300,000 acquiring or producing them, your taxable base is the ₦200,000 profit.
The law is generous in allowing deductions, provided they are “wholly and exclusively” for the business. Valid deductions include staff salaries, rent, cost of goods sold, marketing, repairs, delivery costs, professional fees, R&D and employee welfare contributions like pension or health insurance.
Certain expenses, however, remain non-deductible: personal family costs, fines and penalties, personal vehicle use not aligned with business, and depreciation in personal assets (though business equipment can get capital allowances).
How Are Your Profits Calculated?
The tax year is January to December. So profits you make in 2024 will be taxed in 2025. When the law takes effect on January 1, 2026, new businesses compute profit from their start date to December, while closing businesses must compute up to their last day and pay within six months. If you change your accounting year, you must notify the tax authority and rebase your returns accordingly.
If you keep no records or cannot substantiate your business costs, the law introduces presumptive taxation. This means the authority can estimate your income based on factors like your business location, the nature of your trade and how busy your establishment appears. In other words: poor documentation means you lose your right to detailed deductions.
Partnerships According to the New Law
Partnerships, whether formal or informal, must now register with the tax authority. The profits of the partnership are divided and taxed at the individual partners’ levels, not as a single entity. If the partnership runs at a loss, each partner can carry their share of loss forward. If you fail to register or properly declare, the tax authority may impute all profits to a single person it deems responsible, otherwise, the designated partner.
How Much Tax Will You Pay?
Under the new law, small businesses have been given meaningful relief.
- Businesses with annual turnover up to ₦50 million may enjoy a 0% company income tax (CIT) rate.
- Above that threshold, full CIT and a 4% Development Levy on assessable profits come into play.
- Previously, many overlapping sector levies (Tertiary Education Tax, IT Levy, etc.) are consolidated into that 4% development levy.
- The headline corporate rate remains 30% for larger entities, though in practice some reductions may occur depending on future presidential orders.
For sole proprietors and partners, business profits merge into personal income and are taxed under individual income tax brackets (progressive). The law also retains allowances for rent which is capped at a certain limit, pension contributions, health insurance, and allowable reliefs to soften the burden.
Real-Life Examples
Tunde runs a tailoring shop in Lagos. He sells ₦2 million worth of garments in a year but spends ₦800,000 on supplies, ₦300,000 on rent, and ₦200,000 in other operating costs. His net profit is ₦700,000, which becomes part of his taxable base under personal income rules.
Amaka runs an online bag store. She makes ₦5 million in sales, purchases goods for ₦2 million, spends ₦500,000 on ads, and ₦300,000 on logistics. Her profit: ₦2.2 million.
Emeka runs a food stand with no books. Under presumptive taxation, the authority may estimate his income based on how many people see the stand, location, and prevailing food stall benchmarks. The more visible and busier his stall, the higher his assessed tax.
Common Questions and Answers
Q: What if my business makes very little money?
A: Microenterprises earning below ₦25 million annually, you pay zero corporate tax. You also don’t pay capital gains tax or the new development levy.
Q: Do I need to register my business formally?
A: No, you don’t need CAC registration to be taxable, but you do need to report your income to the tax authority.
Q: What if I sometimes make losses?
A: You can carry losses forward and deduct them from future profits, but you need records to prove the losses.
Q: What about cash businesses?
A: All businesses, including cash-only operations, are expected to report income and pay tax on profits.
How Taxpal Can Help Your Small Business
Taxpal is a comprehensive tax management platform designed to simplify tax processes for small businesses like yours. Whether you’re just starting out or have been operating informally, Taxpal provides:
- Automated tax calculations tailored to your business type
- Expert guidance on compliance requirements
- Record-keeping tools to track income and expenses
- Personalized support to help you navigate the new laws
Visit their website to choose between paid consultations or portal access, and start your journey to hassle-free tax management. Let them help you turn compliance from a burden into a competitive advantage.
