The new tax laws in Nigeria, signed into law on June 26, 2025, as part of the Tax Reform Bills, introduce several measures aimed at simplifying tax processes, boosting revenue, and providing relief for individuals and businesses.
Below is a list of key benefits
Benefits for Individuals:
Personal Income Tax Exemption for Low Earners:
Individuals earning ₦800,000 or less annually are exempt from personal income tax, benefiting over 90% of Nigerian workers and increasing disposable income for low-income earners.
This encourages higher consumer spending and provides financial relief to low-income households.
Progressive Personal Income Tax Structure:
A new graduated tax rate system reduces the tax burden for lower and middle-income earners. For example, income between ₦800,000 and ₦3 million is taxed at 15% on the amount above ₦800,000, making the system fairer for moderate earners.
Exemption of Compensation and Damages:
Compensation or damages up to ₦50 million for personal or professional wrongs (e.g., loss of employment, libel, or slander) are exempt from capital gains tax, providing significant relief for affected individuals.
Rent Relief Allowance:
The Consolidated Relief Allowance has been replaced with a rent relief allowance of ₦200,000 or 20% of annual rent paid (whichever is lower), offering targeted support for renters.
Benefits for Businesses:
Tax Exemption for Small Businesses:
Small companies with an annual turnover of ₦50 million or less (and fixed assets not exceeding ₦250 million) are exempt from Companies Income Tax (CIT), benefiting approximately 90% of businesses in Nigeria.
Small companies are also exempt from deducting withholding tax (WHT) for transactions valued at ₦2 million or less, provided the supplier has a valid Tax Identification Number (TIN).
Simplified Tax Compliance:
The Nigeria Tax Bill consolidates multiple tax laws into a single framework, repealing 11 previous tax laws (e.g., Companies Income Tax Act, Personal Income Tax Act, and Value Added Tax Act), making compliance easier for businesses.
The Joint Revenue Board (Establishment) Bill fosters cooperation between federal, state, and local tax authorities, reducing multiple taxation and improving revenue-sharing mechanisms.
VAT Relief and Credits:
Essential items (food, education, healthcare, rent, public transportation, and renewable energy) are zero-rated for VAT, reducing costs for consumers and businesses.
Businesses receive tax credits for VAT paid on assets and expenses incurred in producing VATable goods and services, potentially lowering production costs by up to 7.5%.
A streamlined VAT refund process ensures refunds within 30 days without requiring an audit.
Elimination of Minimum Tax for Loss-Making Companies:
The Nigeria Tax Bill eliminates minimum tax for companies with low profit margins or losses, reducing financial burdens on struggling businesses.
Support for Remote Work and Digital Economy:
Changes to income tax laws facilitate remote work opportunities for Nigerians in the global business process outsourcing sector, empowering youth participation in the digital economy.
Benefits for Economic Development
Harmonized Tax Administration:
The Nigeria Revenue Service (Establishment) Bill creates a more efficient tax collection agency, reducing administrative bottlenecks and increasing transparency.
The Nigeria Tax Administration Bill ensures uniform procedures for consistent and efficient tax administration across the country.
Development Levy for Infrastructure:
A new Development Levy (4% in 2025, reducing to 2% by 2030) funds infrastructure and development projects, with allocations to the Tertiary Education Trust Fund (TETFUND) and the Nigerian Education Loan Fund (NELFUND). This supports education and economic growth without additional direct deductions from company profits.
Alignment with International Standards:
The reforms align Nigeria’s tax system with global standards, enhancing competitiveness and attracting foreign investment.
A new tax treaty with ECOWAS countries eliminates double taxation on income, capital, and inheritance, promoting regional trade and investment.
Revised Revenue-Sharing Formula:
The Nigeria Tax Bill revises the VAT revenue-sharing formula to fairly reward states for their economic contributions, addressing regional inequalities and promoting balanced economic growth.
Other Benefits:
Withholding Tax (WHT) Reforms:
The Deduction of Tax at Source (Withholding) Regulations 2024, effective January 1, 2025, clarify rules and reduce WHT rates for low-margin businesses. Exemptions include telephone charges, internet data, and airline tickets, easing compliance for businesses.
Support for NGOs:
Non-Governmental Organizations (NGOs) benefit from VAT exemptions on goods purchased for humanitarian donor-funded projects and capital gains tax exemptions on assets used for approved activities, provided they comply with registration and filing requirements.
Incentives for Specific Sectors:
Fiscal incentives for the gas sector, such as VAT and customs duty waivers on gas and gas equipment, improve the investment climate and increase domestic gas supply.
Tax deductions for contributions to decommissioning and abandonment funds in the petroleum sector align with the Petroleum Industry Act (PIA) 2021.
