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 Yet, for years, these businesses operated under outdated, fragmented tax rules that were often ambiguous or burdensome.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—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?
If you make money from any activity, the government now considers you a business. This includes traditional businesses like shops, restaurants, salons and workshops. Digital businesses including online sellers, influencers and freelancers. Service providers such as consultants, tutors, and repair technicians. Artisans and craftspeople like tailors, carpenters, and food vendors. Informal traders including market sellers and street vendors.
The key point? Your business doesn’t need to be registered with the Corporate Affairs Commission to be taxable. If you’re making money, the new tax law recognizes you as being in the tax net.
What Income Do You Pay Tax On?
You pay tax on your profits, not your total sales. Think of it this way: if you sell clothes worth ₦500,000 but spent ₦300,000 buying them, your profit is ₦200,000. That’s what gets taxed.
What You Can Deduct (Good News!)
The law is generous with business expenses. You can deduct costs that are “wholly and exclusively” for your business:
- Staff salaries and wages
- Rent for your shop or office
- Cost of goods you buy to resell
- Marketing costs including advertising and promotions
- Equipment repairs and maintenance
- Transportation for business deliveries
- Professional services like accounting or legal help
- Research and development expenses
- Pension and health contributions for employees
What You Cannot Deduct
- Personal expenses like your family’s food or clothing
- Capital purchases like buying a car for personal use
- Penalties and fines from any source
- Personal depreciation (though you can claim capital allowances for business equipment)
How Are Your Profits Calculated?
Your tax year runs from January to December. Generally, if you made profits in 2024, you’ll be assessed for tax in 2025. The law enters into effect on January 1, 2026.
For new businesses: Your first year’s profits are calculated from when you started until the end of that year. For closing businesses: You calculate profits up to the day you stop operations and must settle taxes within six months. If you change your accounting year: You must notify the tax authority and recalculate based on the new timeline.
Don’t Keep Records? Here’s What Happens
This is where things get interesting. The new law includes something called “presumptive taxation” – essentially, the government’s way of taxing businesses that don’t keep proper records. If you can’t show your actual income and expenses, the tax authority can estimate your tax based on:
- Your business location
- Type of business you run
- Industry averages
- Observable signs of how well you’re doing
While this might sound unfair, it’s actually used in many countries to include informal businesses in the tax system. The lesson here is that you should keep good records if you want to benefit from deductions and successfully dispute assessments.
Partnership Businesses: Special Rules
If you run your business with partners – whether formally registered or based on a handshake agreement – you now must register with the tax authority. Each partner pays tax individually on their share of the profits, not on the total business income. If your partnership makes a loss, each partner can carry their share forward and deduct it from future profits.
If you don’t register or declare partnership income properly, the tax authority might treat all profits as belonging to one partner based on what they consider reasonable.
How Much Tax Will You Pay?
The amount depends on your business structure and income level:
For companies: The rate is progressive. Microenterprises earning below ₦25 million annually may pay nothing or a reduced rate, while larger companies pay more.
For sole proprietors and partnerships: Your business income is added to your personal income and taxed under individual income tax brackets.
The law provides deductions for rent (up to ₦500,000), pension contributions, housing loans and health insurance premiums, which can significantly reduce your taxable income.
Real-Life Examples
Scenario 1: Tunde’s Tailoring Shop Tunde runs a tailoring business in Lagos. He made ₦2 million in sales but spent ₦800,000 on materials, ₦300,000 on rent, and ₦200,000 on other expenses. His taxable profit is ₦2 million – ₦1.3 million = ₦700,000.
Scenario 2: Amaka’s Online Store Amaka sells bags online. She made ₦5 million in sales, spent ₦2 million buying stock, ₦500,000 on advertising, and ₦300,000 on delivery costs. Her taxable profit is ₦5 million – ₦2.8 million = ₦2.2 million.
Scenario 3: Emeka’s Informal Business Emeka runs a food stand but doesn’t keep records. The tax authority might estimate his income based on his location, type of food sold, and how busy his stand appears. This is why record-keeping matters.
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.
What You Should Do Right Now
- Start keeping records immediately – Track all income and expenses
- Save all receipts – For purchases, rent, supplies, and other business costs
- Separate business and personal expenses – Keep them in different accounts if possible
- Calculate your current profits – Understand what you might owe
- Consider formalizing your business – The government offers incentives for this
- Seek professional help – If you’re unsure about any aspect
The Bottom Line
The Nigeria Tax Act 2025 isn’t designed to kill small businesses, it’s meant to create a fair system where everyone contributes. The government recognizes that SMEs are the backbone of the economy, representing over 80% of employment and nearly half of the GDP.
The new law offers opportunities for businesses that get organized: better deductions, clearer rules and incentives for formalization. But it also means the informal sector can no longer operate without tax obligations.
Think of tax compliance not as punishment, but as a step toward legitimacy and sustainability. Businesses that embrace these changes, keep proper records, and understand their rights will thrive in this new environment. The future belongs to businesses – no matter how small – that treat compliance as a pathway to growth, not an obstacle to overcome.
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.
