Nigeria’s 2025 Tax Reform Acts Explained: Key Changes, Business Impacts, and Compliance Strategies

The recently passed tax reform bill, which was signed into law on June 26, 2025, has introduced a new era for Nigerian employees and businesses alike.

 The new Tax Reform Bill includes four new Acts, namely:

• The Nigeria Tax Act (NTA)
• The Nigeria Tax Administration Act (NTAA)
• The Nigeria Revenue Service (Establishment) Act (NRSA)
• The Joint Revenue Board (Establishment) Act (JRBA)

Together, these reforms consolidate and repeal more than a dozen outdated tax statutes, setting a unified direction for personal income tax, corporate taxation, VAT, capital gains, and fiscal governance.

Here are the Key Highlights of the Reforms:

While the table above gives you a snapshot of the major changes, the real impact lies in the details. In the sections that follow, we break down each reform area to help you understand exactly how these changes apply to your business or personal situation:

1. Corporate Tax Reforms

The tax reform Acts introduce significant changes to corporate taxation. Here’s how:

Exemption for Small Companies

To support MSMEs and simplify compliance, the Acts raise the threshold for small company classification. Businesses with gross turnover not exceeding ₦100 million and total fixed assets not exceeding ₦250 million are now fully exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and the Development Levy. This expands the formal tax net while easing the compliance burden for small enterprises.

Capital Gains Tax Aligned with CIT

The Capital Gains Tax (CGT) rate for companies increases from 10% to 30%, bringing it in line with the standard corporate income tax rate. This eliminates arbitrage between capital and trading income and discourages artificial asset disposal strategies used to minimize tax.

Taxation of Indirect Share Transfers

The reforms introduce CGT on indirect share transfers, targeting offshore holding structures. Gains arising from the disposal of shares in non-Nigerian entities that derive substantial value from Nigerian assets are now subject to Nigerian CGT, unless shielded by treaty protections.

Consolidated 4% Development Levy

A new Development Levy of 4% on assessable profits replaces several overlapping sector-specific taxes, including the Tertiary Education Tax, NASENI Levy, IT Levy, and Police Trust Fund levy. This unified approach reduces administrative overhead and increases compliance.

Minimum Effective Tax Rate (ETR)

To prevent profit shifting and tax avoidance, large companies with ₦50 billion+ annual turnover or part of multinational groups earning over €750 million globally must pay a minimum ETR of 15%. If their actual tax is below this rate, a top-up tax is triggered to close the gap.

Elimination of Medium-Sized Company Classification

The medium-sized company category has been removed entirely. Taxpayers are now either small (exempt) or standard (fully liable), simplifying the tax classification system and aligning with global best practices.

2. Personal Income Tax & Individual Reforms

The reforms modernize Nigeria’s personal income tax framework to make it more progressive, clarify residency rules, and fortify remittances. The changes include:

Tax Exemption for Low-Income Earners

Individuals with taxable profit of ₦800,000 or less per year after the relief allowance and exemptions are now completely exempt from paying personal income tax. This measure reduces the burden on Nigeria’s lowest earners and helps align tax obligations with the national minimum wage.

Revised PIT Bands and Higher Rates for Top Earners

A more progressive structure now applies, with increased marginal tax rates for high-income individuals. Those earning ₦50 million and above annually now fall into a higher band, taxed at up to 25%, compared to the previous top rate of 24%.

Increased Tax Relief on Compensation for Loss

The exemption threshold for compensation related to loss of employment or personal injury has been raised from ₦10 million to ₦50 million. This ensures better protection for individuals during unexpected life events.

Clarified Residency Rules for Individuals

The Acts introduce a clear definition of tax residency. An individual is considered resident if they spend 183 days or more in Nigeria, maintain a permanent home, or have significant economic or family ties within a tax year. This provides legal certainty, especially for globally mobile taxpayers.

Foreign Employment Income and Source-Based Taxation

For non-residents, employment income is only taxable in Nigeria if duties are performed in Nigeria and not taxed in their country of residence. Resident individuals, however, are now taxed on their global income, reinforcing Nigeria’s shift to a residency-based tax model.

Streamlined PAYE and Withholding Processes

The reforms mandate uniform monthly withholding and remittance of PAYE by employers, standardize documentation of employee benefits, and empower the NRS to enforce consistent compliance nationwide.

3. VAT, E-Invoicing & Digital Tax Compliance

This section of the reform strengthens VAT efficiency and compliance through real-time invoicing, expanded input recovery, and broader use of technology. Here’s how:

VAT Rate Retained at 7.5%

Despite early discussions around a rate hike, the VAT rate remains unchanged at 7.5%. 

Full Input VAT Recovery Allowed

Businesses can now claim input VAT on both services and capital assets (like fixed assets purchases), a major change from the previous laws that only allowed recovery for goods or material used for the production  purposes or resale.

Expansion of Zero-Rated Items

A wide range of essential goods and services are now zero-rated, including food items, medical equipment, educational materials, electricity transmission, and non-oil exports. 

Mandatory E-Invoicing and Fiscalisation

All VAT-registered businesses are now required to adopt FIRS-sanctioned e-invoicing systems. These platforms allow for real-time transaction reporting, significantly improving VAT transparency and reducing evasion.

Broader Digitization of Tax Administration

The reforms mandate digital filing, record-keeping, and payment across all major taxes. Businesses must upgrade ERP systems and ensure full digital compliance, with penalties now heightened for outdated or inaccurate processes.

4. Investment Incentives & Economic Development Measures

The government has replaced legacy tax holidays with a structured, performance-based incentive model. Here are the key changes:

Introduction of the Economic Development Incentive (EDI)

The EDI provides eligible companies a 5% annual tax credit for up to 5 years on qualifying capital expenditure. It replaces the old Pioneer Status tax holiday and ties tax relief to measurable investment in productive assets.

Sunset Period for Unused Tax Credits

If companies are unable to utilize EDI tax credits or qualifying capital expenditures within five years, they are allowed a carry-forward period of another 5 years. Any unused benefits after that will lapse, encouraging the timely execution of investment projects.

Stricter Capital Allowance Compliance

Companies can no longer claim capital allowances or operating deductions for assets or services that evaded VAT or import duty. This measure reinforces procurement compliance and discourages informal trade.

Free Zone and EPZ Reform

Companies operating in Free Zones or Export Processing Zones remain exempt on exports but now face tighter scrutiny when supplying Nigeria’s customs territory. Conditions for maintaining exemption status are now stricter and clearly defined.

5. Governance, Dispute Resolution & Administrative Reforms

These reforms restructure how taxes are administered and disputes resolved. Here’s how:

Establishment of the Nigeria Revenue Service (NRS)

The NRS replaces the FIRS as the central tax authority, now responsible for collecting all federal tax and non-tax revenues. It operates under a more autonomous structure, with a strong emphasis on digital infrastructure and coordinated enforcement.

Launch of the Joint Revenue Board (JRB)

To combat multiple taxation and regulatory overlap, the JRB brings together federal, state, and local revenue authorities. It serves as a forum for data sharing, harmonized policy execution, and conflict resolution across all tiers of government.

Introduction of the Tax Ombud Office

The Tax Ombud is a new, independent body designed to receive and resolve taxpayer complaints. It operates as a neutral channel for mediation, helping individuals and businesses address unfair treatment or administrative errors without litigation.

Reform of the Tax Appeal Tribunal (TAT)

The TAT now has expanded powers and exclusive jurisdiction over all tax-related disputes. It has adopted shorter timelines, digital hearing capabilities, and stronger enforcement mechanisms, ensuring speedier and more effective resolutions.

Codification of Taxpayer Rights

A formal Taxpayer Bill of Rights now guarantees the right to accurate information, timely responses, and appeal processes. It reinforces due process and sets boundaries for tax authority conduct.

Recommendations for Businesses and Tax Professionals: What You Need to Do Now

The 2025 tax reforms demand a strategic response. If you're running a business or managing compliance, here are the key steps you should be taking NOW to stay ahead:

Understand Your Exposure

Start by reviewing how the reforms apply to your specific situation. Consider your company size, turnover, industry, and existing tax structure. Identify any new exemptions you qualify for or new liabilities that now apply.

Update Your Tax Strategy

With the introduction of the Development Levy, CGT changes, and minimum effective tax rates, your existing tax planning may no longer be fit for purpose. Reassess your corporate structure, profit models, and capital investment plans to reflect the new system.

Upgrade Your Systems

Digital compliance is now mandatory. Ensure your ERP and accounting systems are set up for e-invoicing, real-time VAT reporting, and electronic recordkeeping. You’ll need to align your processes with the Nigeria Revenue Service’s new requirements.

Train and Upskill Your Team

Finance, HR, procurement, and compliance teams need to fully understand the new rules, especially around VAT input recovery, payroll tax bands, and reporting deadlines. Consider running internal workshops or bringing in external advisors to fill knowledge gaps.

Track and Manage Tax Risk

Build a Tax Risk Register to identify and monitor tax exposures in real time. Include areas such as intercompany pricing, capital gains, VAT compliance, and employment tax issues. Use this to inform decision-making and reporting.

Engage Stakeholders

The reforms may affect your employees (PAYE changes), customers (e-invoicing protocols), and investors (ETR and cash tax impacts). Develop a communications plan to manage expectations and ensure smooth transitions.

Seek Professional Support

Given the scope and complexity of these changes, don’t try to navigate everything alone. Engage tax consultants or legal advisors to help you interpret sector-specific implications, qualify for incentives, and ensure full compliance from day one. 

For tailored guidance on tax and tax-related matters, you can reach out to our tax team at Baker Tilly Nigeria via btnlag@bakertillynigeria.com.

Final Word

The Nigerian Tax Reform Acts of 2025 represent the most ambitious and far-reaching restructuring of the country’s tax system in decades. 

By realigning tax policy with the realities of a modern economy, the reforms aim to deliver a more efficient, transparent, and equitable fiscal framework that encourages growth, improves compliance, and strengthens government revenue.

Read More

Want to see how these reforms apply to your specific context?

Start with our sector-specific breakdowns, beginning with SMEs and startups:

2025 Tax Reforms: What They Mean for Nigerian SMEs and Startups

More sector-focused information coming soon for:

• Tech & Digital Services
• Manufacturing
• Financial Services
• Oil & Gas
• Agriculture
• Free Zones & EPZs