Nigeria Tax Act 2025: Our Verdict
We have observed with interest the uncontained delight with which the bouquet of tax acts recently signed into law by President Bola Ahmed Tinubu was received by critical stakeholders and the general public.
In the tradition of objective analysts, we have reviewed the new tax laws within the framework of policy contextuality, realism, and pertinence. Our verdict is that Nigeria’s federal administration, led by President Tinubu, has gifted the country a body of legacy fiscal policies with the potential to transform the Nigerian economic space more than any policy deployment in a generation.
Making of Legacy Tax Laws
Based on our evaluation, the four tax acts — the Nigeria Tax (Fair Taxation) Act, the Nigeria Tax Administration Act, the Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board (Establishment) Act — meet all the fiscal conditions required for accelerated and inclusive economic growth.
The background to Nigeria’s history-making tax laws is that tax reforms have historically been a central focus for policymakers seeking to expand the nation’s tax base, reduce overreliance on oil revenue, and improve compliance. These have led to various mediatory and mitigatory outreaches by different administrations, but with limited impact.
Setting up an efficient and fair tax system, as reflected in President Tinubu’s tax laws, is far from simple, particularly for a developing country that desires to integrate into the international economy.
The ideal tax system raises essential revenue without excessive government borrowing. It should also do so without discouraging economic activities or deviating too much from tax systems in other countries.
On this count, we submit that President Tinubu has accomplished multiple fiscal objectives in a single strategic manoeuvre, consolidating and reshaping Nigeria’s fragmented and complex tax architecture and emphasising rebuilding trust in the system.
The new tax regime promotes tax compliance through fairness and positions the country as an attractive destination for domestic and foreign investments. In this light, Nigeria has just now commenced its long-held crystallisation of its economic renaissance.
The President captures this essence succinctly when he noted in his speech, after signing the tax bills into law, that: “These new laws simplify our tax regime and deliver Nigeria’s first major pro-people tax cuts in a generation. They also provide targeted relief for low-income earners, small businesses, and working families nationwide.”
By our reckoning, these tax reforms, as reflected in the substance of the four tax acts, alongside the removal of fuel subsidies and the harmonisation of foreign exchange transactions windows, are at the heart of the coordinated effort to reset the Nigerian economy on a sustainable and inclusive growth path.
Nigeria Tax Act 2025 and Foreign Direct Investment (FDI)
The increased inflow of foreign direct investments into the country is significant to Nigeria’s economic growth. In Nigeria, the hitherto unfavourable tax regime and administration have been cited as one of the factors contributing to the low FDI drive in recent years, when compared to other countries such as Brazil, China, Malaysia, Singapore, Hong Kong, Taiwan, and South Korea, which continue to experience significant FDI inflows. According to the Central Bank of Nigeria’s (CBN) latest Balance of Payments report, FDI inflows declined slightly to US$0.25 billion in Q1 2025, from US$0.31 billion in Q4 2024.
The decline in Q1 2025 reflects a broader slump in capital inflows, with portfolio investments suffering an even sharper reversal. The financial pressure weakened Nigeria’s external position despite an account surplus and positive trade performance.
With the implementation of the Nigerian tax laws starting in January 2026, foreign direct investment inflows into the country are expected to be reinvigorated. A major thrust in this regard is the adoption of the Minimum Effective Tax Rate (ETR) in the Nigerian Tax Act 2025 and other fiscal measures.
NTA 2025 and Company Income Tax (CIT)
Whereas the normal company income tax rate on a large company in Nigeria is 30 percent of the company’s profit, with the adoption of the ETR, Nigerian companies that are members of a multinational group with an aggregate group turnover of 750 million euros and above or have an annual turnover of 50 billion Naira and above will now be subject to a minimum effective tax rate (ETR) of 15% of their “Net Income.”
For clarity, Net Income is defined as profit before tax, excluding franked investment income (income distributed as dividends to a company from earnings on which the distributing company has already paid corporate tax). The goal is to avoid the double taxation of dividends and unrealised gains or losses. This reduction in tax rates and clarity around double taxation for multinational companies will undoubtedly influence the flow of global capital to Nigeria.
This is in addition to introducing the Economic Development Incentive, which replaces the “pioneer” tax holiday incentive. This incentive introduces a 5% tax credit per annum for 5 years on qualifying capital expenditure purchased by eligible companies within 5 years, effective from the production date.
The Act further provides that if a company has unused tax credits or qualifying capital expenses, it can carry them forward for 5 years. The EDI effectively reduces the company’s income tax obligation for a five-year consecutive period if it is part of a multinational group. Another attraction for global entrepreneurial capital is the prospect of establishing a residence in Nigeria.
In addition, the tax exemption threshold for selling company shares in Nigerian companies has been increased to 150 million Naira (from 100 million Naira) in any 12 consecutive months, provided that the gains do not exceed 10 million Naira. This is another ease-of-doing-business policy.
Most global business concerns thrive on research and development and would be attracted to jurisdictions that promise higher deductions from taxable income. The Nigerian Tax Act 2025 now provides that opportunity for large domestic and global businesses.
The deduction allowed under Section 164 of the NTA 2025 has now been adjusted to 5% of a company’s annual turnover. This represents a significant progression away from the provision under the Company and Income Tax Act, which allowed a deduction of 10% of total profits. The implication is that companies now have a broader base of 5% of turnover, as opposed to total profits, from which they can commit funds to research and development activities.
The new tax laws contain more than 10 provisions that can drive higher FDI momentum into Nigeria. While the prospects of higher FDI inflows into the country continue to excite us, we look forward to the profound impact that will lead to a multi-level transformation of the Nigerian economy.
This results from the simplified compliance and reduction in tax burden on businesses, particularly Micro, Small, and Medium Enterprises (MSMEs), as enunciated in the NTA 2025. This will foster a more favourable environment for business expansion and job creation. Besides, lowering business taxes (e.g., Corporate Income Tax), as exemplified in the Act, can encourage investment and capital formation, potentially boosting economic growth.
The overall tax structure, including the progressivity of income taxes, can influence income distribution and aggregate demand, affecting economic growth. This is substantially reflected in the NTA 2025. Section 56 of the Act stipulates that small companies with a gross turnover of 100 million Naira or less per annum and total fixed assets not exceeding 250 million Naira now enjoy zero per cent income tax.
This is an extension of the threshold for benefiting companies from 25 million Naira in turnover under the 2020 Finance Act to 100 million Naira in the NTA 2025. This higher threshold captures more Nigerian companies, especially those considered to be medium-sized, in categorising companies that are no longer required to pay Company Income Tax (CIT).
Consequently, companies with a turnover of 100 million Naira and above are now subject to paying CIT of 30%. However, as outlined in the NTA 2025, the 30% rate for large companies can be reduced to 25%, effective from a date to be determined in an Order issued by the President on the advice of the National Economic Council (NEC).
Additionally, small companies are exempt from Capital Gains Tax (CGT) and the newly introduced 4% development levy. The summation of the possible impact of this section is that lowering taxes on businesses (e.g. corporate income tax) can encourage investment and capital formation, create jobs, and boost economic growth. These inherent possibilities in the NTA 2025 should earn our plaudits.
The zero company income tax provision supports many small and medium companies in the country. At the last count, approximately 43 million such entities are reported to have registered with the government or private companies in some capacity.
The companies endeavour to make a difference in the Nigerian business environment, as they contend with fiscal demands from local government officials, internal revenue-generating consultants of state governments, and the persistent demands of various federal government agencies that pile on additional requirements.
From our standpoint, this will be the first time in Nigeria’s government–corporate relationship that Nigeria’s federal administration will support small and medium companies. We expect companies to seize this opportunity to increase their earnings, reinvest more, expand production, employ more Nigerians, and pass on the benefits of the tax exemptions to consumers through price reductions, ultimately contributing to the growth of the Nigerian economy.
This intervention is better pronounced in reversing the policy of taxing corporate losses. In other jurisdictions, a company’s loss is tax-deductible; however, until the introduction of the NTA 2025, a loss-making company in Nigeria is taxed at 0.5% of its turnover.
The decision to repeal the payment of the so-called minimum tax should be commended for its logical application and developmental underpinnings. The minimum tax provision amounts to double jeopardy for loss-making companies. It is punitive and, in essence, a case of double jeopardy to tax companies that find themselves in a difficult time, thereby adversely affecting their fortunes.
It would therefore be punitive to tax the affected companies in these circumstances, as this would have to be paid from their capital in the absence of profits.
NTA 2025 and Personal Income Tax (PIT)
The most profound provision of the NTA 2025 is the zero tax charge on the personal income of Nigerians earning between 0 and 800,000 Naira annually. Nothing demonstrates the progressive nature of the new tax laws than this.
Lowering taxes on labour income (e.g., payroll taxes) can incentivise work and potentially increase the labour supply. Conversely, higher taxes on labour income discourage work and reduce the labour supply, while changes to taxes on capital gains can affect investment decisions and potentially influence employment levels.
Specifically, the Act increases the tax exemption threshold for compensation for loss of employment or injury from 10 million to 50 million Naira, another disposable income-boosting policy in the NTA 2025.
We submit that this exposition of the progressivity of income taxes, as captured in the NTA 2025, will influence income distribution and aggregate demand, thereby driving economic growth. We can now envision the impact of the disposable income available to the approximately 5,800,000 wage workers in this category.
Ninety per cent of salary earners in this category will stop having 19% deducted from their salary, which is approximately 152,000 naira annually. This translates to retained earnings in workers’ pockets and households, leading to increased spending, particularly on fast-moving consumer goods.
The economic impact of these exemptions is expansion in production by companies involved in manufacturing fast-moving consumer goods, ultimately leading to increased job creation and a key economic terminal point essential to the national economy’s growth.
The zero tax on Personal Income Tax (PIT) does not imply a loss of revenue for the government. However, the progressivism that underlies the tax law ensures that the trade-off of lost revenue from low-income earners is compensated for by the increase from the former 24% to 25% in the personal income tax rate for Nigerians earning 50 million Naira and above.
The 1% increase is sufficient to bridge the revenue loss, fulfilling the purpose of a progressive tax system. This underscores the aim of a progressive tax system, which is to introduce greater tax equity by placing a heavier burden on those with higher incomes and the ability to afford greater contributions to government revenue.
This approach is often based on the principle of ability to pay, as higher-income individuals are more likely to contribute to public service and social welfare.
NTA 2025 and the Agriculture Sector
We observe the tax exemption emphasis that encompasses the entire agriculture sector in the NTA 2025. All subsectors of this sector have been made attractive to investment and production activities with sweeping tax exemptions for crop production, growing perennial and non-perennial crops, all crops, livestock raising, and breeding animals in ranches and farms, including cattle, swine/pigs, sheep, goat, and poultry, including processed eggs.
Also granted exemption are livestock processing, meat and poultry processing, forestry, plantation of rubber and acacia trees, latex and gum Arabic, and the manufacture of dairy products, fresh liquid milk pasteurised, sterilised, homogenised, and/or ultra-heat treated; dried or concentrated milk; cream from fresh milk pasteurised, sterilised, homogenised; milk or cream in solid form; cheese, curd, and lactose. Processing of cocoa, cocoa butter, cocoa fat, cocoa oil, and chocolate, manufacturing of animal feeds, edible oils and by-products, concentrates, grain mill products, and feed supplements are also exempted from taxation. All these factors, taken together, have significant implications for food security and the agenda to enhance the export of agricultural products.
Covenant of Non-Increase in Tax Rates
We also observe that the federal administration has remained faithful to its covenant with Nigerians: it would not increase the tax rate on any aspect of production. Indeed, rather than raising tax rates, we sometimes observe a reduction. This is particularly so in the decrease in crude oil and condensate production volume royalty in the deep offshore (beyond 200m water depth) from 10% to 7.5%.
NTA 2025 and Incentives for Employment
We affirm that tax reforms, which reduce payroll taxes or offer hiring incentives, can make it more affordable for businesses to employ more workers, leading to increased job opportunities.
In this regard, the NTA 2025 incentivises companies to employ more Nigerians. Accordingly, a company will be entitled to an additional deduction of 50% of taxable profit in the relevant years of assessment in respect of costs incurred in any two calendar years from 2023 to 2025 concerning the following:
(1) wage awards, salary increases, transportation allowance or transport subsidy granted to a low-income worker that brings the gross remuneration of such worker to an amount not exceeding ₦100,000. However, any award or salary increase to any worker earning above ₦100,000 shall not qualify.
(2) Salaries of any new employees that constitute a net increase in the average number of new employees hired in 2023 and 2024 calendar years over and above the average net employment in the three (3) preceding years, provided that such new employees are not involuntarily disengaged within 3 years post-employment.
Net employment is defined as the total number of persons employed, minus the total number of persons disengaged during the calendar year, regardless of whether the disengagement is voluntary or involuntary.
NTA 2025 and Plugging Leakages
A new measure for plugging leakages is the introduction of the Controlled Foreign Corporation (CFC) rules, which aim to counter profit shifting. Where a foreign subsidiary of a Nigerian company retains profits that could have been distributed without adversely affecting its operations, those profits will be deemed distributed and taxed in Nigeria. This eliminates the deferral advantage sometimes used in tax planning and strengthens Nigeria’s ability to tax offshore profits that economically belong to Nigerian entities.
The other measure is the anti-base erosion’s top-up tax mechanism through the minimum Effective Tax Rate (ETR): This top-up tax mechanism aligns with the OECD’s BEPS Pillar 2 framework. Domestic tax base erosion and profit shifting (BEPS) refers to tax planning strategies that multinational enterprises use to exploit loopholes in tax rules, artificially shifting profits to low- or no-tax locations to avoid paying tax.
The OECD/G20 BEPS Project equips governments with rules and instruments to address tax avoidance, ensuring that profits are taxed where economic activities generate them and value is created.
The NTA 2025 provides that if a foreign subsidiary of a Nigerian company (or a group member) pays less than the minimum ETR of 15%, the Nigerian parent must pay the shortfall. This provision discourages the use of low-tax jurisdictions for profit shifting and ensures a fairer allocation of taxing rights to Nigeria. These measures enhance sovereign revenue generation.
Conclusion
Our position is that the underlying philosophy of the NTA 2025 encompasses more than just tax exemptions. It is also about generating more revenue without increasing the tax rate by expanding the tax base and plugging tax leaks.
*Omoniyi M. Akinsiju, PhD.
Chairman,
Independent Media and Policy Initiatives (IMPI)
July 2025
