REVIEW OF THE NIGERIA TAX ACT, 2025

December 5, 2025

REVIEW OF THE NIGERIA TAX ACT, 2025

Introduction

The Nigeria Tax Act 2025(hereinafter referred to as the “Act”) introduces one of the most significant Nigerian tax reforms in the Nigerian fiscal framework in recent years. Enacted to consolidate multiple fiscal statutes into a single, modern framework¹, the Act aims to simplify compliance, attract investment, and support long-term economic growth. The Act repeals existing tax laws and consolidates the legal framework governing taxation in the country into a single legislation for simplicity and improved tax administration²

This reform, led by the Federal Inland Revenue Service (FIRS) in collaboration with the Federal Ministry of Finance, affects all businesses operating in Nigeria, from small and medium enterprises (SMEs) to multinational corporations. It also introduces new measures on digital asset taxation, a move aligning Nigeria with global fiscal policy standards set by the OECD Base Erosion and Profit Shifting (BEPS) Framework.

Prior to the enactment of the Act, several tax-related laws were in force, including the Companies Income Tax Act, Casino Act, Stamp Duties Act, Personal Income Tax Act, Value Added Tax Act, Capital Gains Tax Act, amongst others, all of which have since been repealed³.

Tax administration operated at multiple levels: the Federal Inland Revenue Service (FIRS) was responsible for taxes payable to the Federal Government, while the various state internal revenue services handled taxes for the irrespective state government.

However, this multi-layered structure created several challenges, including overlapping jurisdictions due to multiple tax collection authorities and the existence of numerous laws. Consequently, individuals and businesses often struggled to navigate the complex tax landscape and ensure compliance across different agencies.

ANATOMY OF THE NIGERIA TAX ACT, 2025

The Nigeria Tax Act, 2025 comprises 203 sections organized into nine chapters, designed to consolidate and replace the previously repealed tax laws. Each chapter addresses a distinct aspect of taxation, with certain provisions tailored to specific sectors.

Chapter One –Objectives and Application

Chapter Two –Taxation of Income of Persons

Chapter Three –Taxation of Income from Petroleum Operations (sector-specific)

Chapter Four –Relief from Double Taxation

Chapter Five –Taxation of Dutiable Instruments

Chapter Six –Value-Added Tax (VAT)

Chapter Seven –Surcharge

Chapter Eight –Tax Incentives

Chapter Nine –General Provisions

Overall, the Act presents a comprehensive framework that harmonizes Nigeria’s tax laws under a single legislation, ensuring clarity, consistency, and ease of administration.

KEY HIGHLIGHTS AND ANALYSIS OF THE ACT

A. Tax Rates and Exemptions for Companies:

Section 56 of the Act retains existing corporate tax rates stipulating that the taxable income of companies shall be subject to 0% tax for small companies and 30% tax for all other companies. In effect, small and medium enterprises (SMEs) are exempt from paying Companies Income Tax.

Furthermore, Section 203 defines a “small company” as one with an annual gross turnover not exceeding ₦50,000,000 (Fifty Million Naira) and total fixed assets valued at ₦250,000,000 (Two Hundred and Fifty Million Naira) or less. However, this exemption does not extend to businesses engaged in the provision of professional services.

The exemption of small companies from Companies Income Tax is a welcome relief for SMEs, as it encourages business growth, reinvestment, and sustainability, particularly for start-ups and emerging entities. However, the exclusion of professional service firms from this benefit creates a disparity that may discourage small practices in sectors such as law, accounting, and consulting. These firms, despite operating at comparable scales to other SMEs, will continue to face the full 30% tax rate, which could potentially limit their ability to expand or compete effectively. The distinction underscores the need for a more balanced approach that supports all small enterprises, regardless of industry classification.

B. Minimum Tax Requirement for Large and Multinational Companies:

Section 57 of the Act introduces a mandatory minimum tax requirement, stipulating that qualifying companies must pay not less than 15% of their profits as tax. This provision specifically targets multinational enterprise (MNE) groups and Nigerian companies with an annual turnover of ₦20billion (Twenty Billion Naira) or more.

The intent behind this provision is to curb aggressive tax avoidance practices often employed by large corporations through profit shifting, artificial deductions, or the use of tax havens. By establishing a minimum tax threshold, the law ensures that such entities make a fair and consistent contribution to national revenue, regardless of accounting maneuvers that might otherwise reduce their taxable income. Notwithstanding, while the measure aims to strengthen tax equity and compliance among high-revenue entities, it could also increase the effective tax burden on capital-intensive sectors with volatile profit margins, potentially impacting reinvestment and operational liquidity.

C. Development Levy on Companies:

‍Section 59of the Act introduces a Development Levy requiring all companies except small companies and non-resident entities to pay 4% of their assessable profit as a mandatory contribution to national development funds.

The levy will be distributed as follows:

50% – Tertiary Education Trust Fund (TETFUND)

15% – Nigerian Education Loan Fund

8% – National Information Technology Development Fund (NITDEF)

8% – National Agency for Science and Engineering Infrastructure (NASENI)

4% – National Board for Technological Incubation

10% – Defence and Security Infrastructure Fund

5% – National Cybersecurity Fund

This levy however does not apply to profits assessed under hydrocarbon tax that is, companies engaged in petroleum or oil-related operations.

The introduction of this levy represents a policy shift toward linking corporate taxation with national development priorities, especially in education, technology, and security. While the measure could enhance funding for critical sectors, it also significantly increases the overall tax burden on medium and large companies, potentially impacting profitability and investment decision-making.

D. Stamp Duties on Property and Related Transactions:

Section 126 of the Act mandates that stamp duties must be paid within 30 (thirty) days after the execution of any instrument connected toa property or similar transaction. The obligation to pay the stamp duty falls on the transferee of interest in real property, the beneficiary of any service for which consideration is paid, or any party taking security under a transaction that involves a formal instrument.

This provision reinforces the importance of timely stamping legal documents to ensure their validity and admissibility in evidence⁴. By placing the duty on the beneficiary or transferee, specifically, those gaining value from the transaction, the law ensures accountability and proper collection. For businesses, especially those involved in property or secured lending, this underscores the need for strong compliance processes to avoid penalties and ensure that all executed instruments are duly stamped within the statutory timeframe.

E. Personal Income Tax and Applicable Deductions:

Section 58 of the Act governs the income tax payable on an individual’s chargeable income, excluding individuals who earn only the national minimum wage. The Act refines personal income tax deductions and introduces clearer guidance on taxable benefits, ensuring alignment with the Nigeria Data Protection Act (NDPA) 2023 when handling employee data. Taxable income is calculated after allowable deductions listed under Section 30, such as contributions to the National Housing Fund, National Health Insurance, and Pension Reform Act, as well as interest on loans for the development of an owner-occupied residential property, among others. After these deductions, the remaining income is subject to progressive taxation as outlined in the Fourth Schedule:

The first ₦800,000 is exempt;

The next ₦2.2 million is taxed at 15%;

The next ₦9 million at 18%;

The next ₦13 million at 21%;

The next ₦25 million at 23%;

Income above ₦50 million is taxed at 25%.

F. Expanded Definition of Chargeable Assets and Capital Gains Exemptions:

Section 34 of the Act broadens the definition of chargeable assets to cover nearly all forms of property including shares, options, rights, debts, digital or virtual assets, and incorporeal property. This expansion reflects the government’s recognition of modern asset classes and the need to capture value generated through digital and financial instruments.

However, the Act provides specific exemptions to prevent over-taxation and encourage investment. For example:

· Gains from the sale of shares in Nigerian companies are exempt if the sale proceeds are below ₦150 million and the total gain does not exceed₦10 million within a twelve-month period.

· Exemptions also apply to share transfers between an approved borrower and lender under a regulated securities lending arrangement.

· Similarly, if proceeds from a share sale are reinvested in shares of another Nigerian company within the same tax year, the gain remains exempt. However, any portion not reinvested becomes taxable.

This provision modernizes Nigeria’s capital gains tax regime by including emerging asset types such as digital and virtual assets, ensuring that newforms of wealth are not outside the tax net. For investors and companies, this underscores the importance of accurate transaction documentation and reinvestment tracking to benefit from the available exemptions.

G. Exemption for Gains from Compulsory Acquisition of Land:

Section 37 of the Act provides that any gain arising from the acquisition or disposal of land through compulsory powers, such as those exercised under the Land Use Act or a similar law, shall be exempt from tax. This exemption applies only when:

· The disposal results from a compulsory acquisition by an authority legally empowered to do so;

· The owner did not acquire the land with prior knowledge that it was likely to be compulsorily acquired; and

· The owner did not take steps, such as advertising or soliciting offers, to encourage the authority to purchase the land.

This provision reflects a fair principle in taxation by ensuring that individuals or entities are not unfairly taxed on involuntary disposals of land. Compulsory acquisitions typically arise from public interest projects and taxing the resulting gains could be viewed as inequitable since the transaction is not market driven.

At the same time, the conditions attached to the exemption help curb speculative behavior where individuals might buy land strategically, anticipating government acquisition and compensation. In effect, Section 37seeks to strike a balance between protecting genuine landowners and deterring opportunistic transactions, thereby promoting transparency and integrity inland dealings.

H. Taxation of Foreign Profits and Controlled Foreign Company (CFC):

Section 6 (2) & (3) of the Act provide that profits made by a Nigerian company are taxable in Nigeria, regardless of where those profits are earned, received or retained. In essence, worldwide income of Nigerian companies is subject to Nigerian tax jurisdiction. Furthermore, where a foreign company controlled by a Nigerian parent fails to distribute its profits, the portion of those retained earnings attributable to the Nigerian company is deemed to have been distributed and thus becomes taxable in Nigeria.

The provision also mandates that if aforeign subsidiary pays less than the minimum effective tax rate prescribedunder the Act, the Nigerian parent company must pay the difference to theNigerian tax authority.

This section reflects a Controlled Foreign Company (CFC) framework, a mechanism widely used in international tax regimes to prevent base erosion and profit shifting. It ensures that Nigerian companies cannot avoid or defer tax liabilities by retaining earnings in low-tax jurisdictions or tax havens. By taxing undistributed foreign profits and enforcing a minimum effective tax rate, the law strengthens Nigeria’s global tax compliance stance and protects domestic revenue. However, while this promotes tax fairness and curbs avoidance, it could also increase the compliance burden on multinational Nigerian companies, especially those with complex cross-border structures. Hence, tax planning strategies are essential for compliance.

CONCLUSION

The Nigeria Tax Act, 2025 represents atransformative milestone in the nation’s fiscal and economic landscape. Byconsolidating several existing tax laws into a single, harmonized framework,the Act seeks to simplify Nigeria’s complex tax regime, eliminate overlaps, and promote a more transparent and efficient system of tax administration. Thisunified structure is expected to ease compliance for individuals and businessesalike, reducing administrative burdens and fostering greater voluntarycompliance.

Beyond consolidation, the Act introduces several progressive reforms designed tomodernize Nigeria’s tax environment. Notably, the inclusion of provisions ondigital asset taxation, minimum effective tax rates, and anti-avoidancemechanisms demonstrates the government’s effort to align with global taxstandards and address challenges posed by an increasingly digital economy.These measures are targeted at ensuring that all sectors contribute fairly tonational revenue while discouraging profit shifting and aggressive tax planning. Importantly, the Act balances reform with inclusivity and equity. Itprovides tax reliefs and exemptions for small and medium-sized enterprises (SMEs) and low-income earners, thereby supporting entrepreneurship, jobcreation, and social welfare.

While the effectiveness of implementation, stakeholder education, and regulatorycoordination will determine the full impact of the Act, it nonetheless sets a solid foundation for a fairer, more transparent, and growth-oriented taxsystem. In essence, the Nigeria Tax Act, 2025, is not only a legislative reformbut also a strategic tool designed to strengthen fiscal stability, driveeconomic diversification, and support sustainable national growth.

FAQ: Nigeria Tax Act 2025 Explained

1. What is the Nigeria Tax Act 2025?

The Nigeria Tax Act 2025 is a comprehensive fiscal reform that consolidates multiple tax laws into one legislation to simplify Nigeria’s tax system and improve compliance.

2. How does the Act affect small and medium enterprises (SMEs)?

Small companies with turnover below ₦50 million are exempt from income tax, encouraging SME growth and sustainability, though professional firms are excluded from this exemption.

3. Does the Act include digital asset taxation?

Yes. The Act expands taxable assets to include digital and virtual assets, aligning Nigeria’s tax regime with global digital economy practices.

4. What are the new rules for multinational companies?

Large corporations must pay a minimum of 15% tax on profits to prevent tax avoidance, and foreign profits of Nigerian companies are now taxable domestically.