Nigeria's major tax overhaul explained

Nigeria's President Bola Tinubu has signed four finance bills into law in a set of major reforms aimed at restructuring the tax system in Africa's most populous nation.

The government says the new laws will simplify revenue collection, reduce the tax burden on some individuals and businesses, while also helping to raise much-needed government income revenue by making collection more efficient.

"The tax reforms will protect low-income households and support workers by expanding their disposable income," said President Tinubu in a statement to mark the second anniversary of his administration last month.

The four new laws are:

• The Nigeria Tax Act, which merges various rules into a single, easier-to-understand code and eliminates more than 50 small, overlapping taxes. The presidency has said that reducing the number of taxes and eliminating duplication, will making doing business easier
• The Tax Administration Act, which sets common rules for how taxes are collected across federal, state, and local governments
• The Nigeria Revenue Service Act, which replaces the Federal Inland Revenue Service (FIRS) with a new, independent agency - the Nigeria Revenue Service (NRS)
• The Joint Revenue Board Act, which improves co-ordination between levels of government and creates a Tax Ombudsman and Tax Appeal Tribunal to resolve disputes

Together, these laws aim to create a fairer and more efficient tax system across the country, the Nigerian government says.

The impact is expected to be significant especially for low-income earners, small businesses and informal traders.

For people earning up to 1m naira ($650; £470) a year, a rent relief of 200,000 naira ($130) will be applied, effectively reducing their taxable income to 800,000 naira ($520). This means they will no longer pay income tax, according to Andersen Nigeria, a tax and business advisory firm.

Sellers of essential goods and services such as food, healthcare, education, rent, power, and baby products will no longer have to charge a Value Added Tax (VAT), helping families better afford their basic needs.

Small businesses with annual turnover below 50m naira ($32,400) will no longer pay company income tax. They will also be allowed to file simpler returns, without needing audited accounts.

Large businesses will benefit from reduced corporate tax rates, dropping from 30% to 27.5% in 2025 and 25% in subsequent years.

They will also now be able to claim tax credits for VAT paid on expenses and assets, meaning they can get back the 7.5% that would have been paid as VAT.

There are also tax incentives for charitable groups, co-operatives, educational and religious organisations, provided their earnings do not come from commercial activities.

Low-income households stand to benefit the most, as many will no longer have to pay income tax while also enjoying price relief on essentials. A typical family spending most of their income on rent, food and transport will see lower costs due to the VAT exemptions.

Small businesses should also see positive changes through more streamlined bureaucracy, which could help boost compliance and encourage informal traders to enter the tax system.

High-income individuals and luxury consumers may feel the pinch slightly, with higher VAT now expected on luxury goods and premium services, and capital gains tax imposed on large share sales.

The government argued that the tax system was outdated, inefficient and unfairly harsh on the poor. Nigeria's tax-to-GDP ratio, a key measure of how much tax the country collects relative to its economy is just over 10%, far below the African average of 16–18%.

Tinubu's administration wants to grow that ratio to 18% by 2026 without raising taxes on basic goods or overburdening struggling citizens.

By simplifying tax rules and encouraging voluntary compliance, officials hope to raise more money for funding infrastructure and public services, such as healthcare and education, as well as reduce the reliance on borrowing money.

Many small business owners welcome the exemption from company income tax but say they remain wary of how it will be enforced in practice.

"I like that we won't have to pay company income tax any more. But honestly, I just hope they don't replace it with another levy we don't understand. Sometimes you pay tax but still get harassed by officials asking for different permits," says Chidinma, a small business owner in Lagos.

For low-income earners, the promise of cheaper essential goods like food, rent and electricity is encouraging, but many are reserving judgment.

While the new tax reforms promise relief for small businesses, economist Emmanuel Idenyi warns that the reality may be different unless enforcement practices change. He says overzealous implementation by tax authorities could undermine the government's good intentions.

"Even tax officials have revenue targets. So when you file, they reassess and add more. That's where businesses start struggling."

Meanwhile, Taiwo Oyedele, who chairs the Presidential Fiscal Policy and Tax Reform Committee, struck a hopeful tone during a recent town-hall meeting.

"Ninety per cent of Nigerians support the tax reform bills," he said, but cautioned that "successful implementation will depend on awareness and trust".

There has been a muted reaction from opposition parties and unions.

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