By Joshua I. | March 12, 2025
The aim of the Tax Reform Bills is to simplify a multi-layered tax structure, boost compliance and generate sustainable revenue for national development.
On 3 October 2024, President Bola Ahmed Tinubu proposed four bills to the National Assembly. These tax reform bills include:
- Nigerian Tax Bill
- Nigeria Tax Administration Bill
- Joint Revenue Board (Establishment) Bill
- Nigeria Revenue Service (Establishment) Bill
Accordingly, the Tax Reform Bills repeals and replaces the following tax laws, currently in effect:
1961 Companies Income Tax Act (CITA)
1993 Personal Income Tax Act (PITA)
1967 Capital Gains Tax Act
1959 Petroleum Profits Tax Act (PPTA)
1986 Value Added Tax Act (VAT Act)
1993 Education Tax Act, amended as the Tertiary Education Trust Fund (TETFund) Act (2011)
2021 The Petroleum Industry Act, No 6 among many others.
It incorporates a supremacy clause that essentially makes it the only tax legislation in the country. According to the Bills:
”This Act shall take precedence over any other law with regards to the imposition of tax, royalty, levy, excise duty on services or any other tax, where the provisions of any other law is inconsistent with the provisions of this Act, the provisions of this Act shall prevail and the provisions of that other law shall, to the extent of the inconsistency, be void.”
The goal of the legislation is to modernize Nigeria’s taxation system, support businesses, reduce tax rates for middle-class earners, strengthen the economy and boost Nigeria’s credit ratings to lower borrowing costs.
Additionally, the reforms will eliminate over 50 nuisance taxes and levies and consolidate the remaining ones into a single-digit tax system. Attached to it is a new National Fiscal Policy that will establish a framework for fair taxation, responsible borrowing and sustainable spending.
What’s Changing? Key Highlights of the Tax Reform Bills
1. Tax Relief for Low-Income Earners and Small Businesses
Individuals: Workers earning ₦800,000 or less annually will no longer pay income tax. With only 10% of Nigerians earning above ₦100,000 monthly, this exemption lifts a significant burden on low-income households.
a. First N800k – 0% Against a. First 300K – 7%
b. Next N2.2m – 15% b. Next N300k – 11%
c. Next N9m – 18% c. Next N500k – 15%
d. Next N13m – 21% d. Next N500k – 19%
e. Next N25m – 23% e. Next N1.6m – 21%
f. Above N50m – 25% f. Above N3.2m 24%
The bills target the rich. The bills mandate banks to report the details of individuals whose monthly cumulative transactions amount to N25 million or more.
Zero Tax for Minimum Wage Earners: The bills exempt minimum wage earners from personal income tax. This will reduce tax burden
for over 90% of all workers in the private and public sectors.
Tech workers: Also, the bill exempts all employees of start-ups and technology-driven service providers from income tax.
Small Businesses: Enterprises with annual turnover below ₦50 million or with a total assets of ₦250 million are exempt from income tax and withholding taxes on vendor payments. This increase from the current cap of ₦25 million aims to reduce administrative hurdles and support growth in the informal sector. This is targeted at MSMEs, which constitute about 48% of GDP, and provide about 87% of total employment nationwide.
2. Corporate Tax Cuts
The Companies Income Tax (CIT) rate will drop from 30% to 27.5% in 2025 and further decrease to 25% in 2026. These adjustments align Nigeria’s corporate tax rates with global standards. To maintain public service funding, a new development levy (ranging from 4% to 2% of profits) will be introduced.
3. VAT Overhaul
Zero taxes on essentials: Food, education, healthcare, rent, public transport, and renewable energy are exempt from VAT, easing costs for low-income families. These items constitute an average of 82% of household consumption and nearly 100% for low income households to ameliorate the rising cost of living for the masses.
Business VAT credits: Companies can claim credits for VAT paid on assets and production costs. This change is expected to reduce operational expenses by up to 7.5%. It will prevent businesses from bearing VAT burdens, potentially lowering consumer prices.
VAT collected with be distributed according to this percentage:
- 10% to the federal government
- 55% to the state governments and FCT and
- 35% to the local governments
4. New Tax Obligations for NGOs
Under the new rules, NGOs must register for Tax Identification Numbers (TINs), file annual tax returns, and deduct withholding taxes on contractor payments. Non-compliance penalties will be increased to an initial fee of ₦100,000 initial fee, and ₦50,000 monthly.
Only humanitarian projects will qualify for VAT exemptions, while non-humanitarian activities will be subject to standard VAT rules.
5. Increased Non-taxable Compensation Payouts
Compensation payouts for job loss, injury, or other eligible claims up to ₦50 million will be tax-exempt. Any amount exceeding ₦50 million will attract a Capital Gains Tax of 27.5% in 2025, decreasing to 25% in 2026.
The present provision of the subsisting Capital Gains Tax Act is any income above ₦10 million at 10%.
6. Development Levy for Education and Tech Funding
The tax reform introduces a development levy on the assessable profits of large and non-resident companies. The proposed rates are:
- 4% for 2025 and 2026
- 3% for 2027, 2028, and 2029
- 2% from 2030 onward
Revenue from this levy will be used to fund student education loans and technological development. The funds will be distributed among the Tertiary Education Trust Fund (TETFund), Student Education Loan Fund (SEL Fund), National Information Technology Development Fund (NITDA), and the National Agency for Science and Engineering Infrastructure (NASENI). These levies will replace the existing 2.5% education tax, 0.25% NASENI tax, and 1% NITDA levy.
Stay informed about how these changes impact you and your financial planning.