By Peace Timi
Nigeria’s most comprehensive tax overhaul in decades came into effect on January 1, 2026, marking a bold step by the federal government to modernize the nation’s fiscal architecture, improve compliance and promote economic growth. The reforms, encapsulated in the Tax Reform Acts 2025, consolidate multiple tax laws and introduce new structures aimed at simplifying obligations for both individuals and businesses. Officials have described the reforms as a once-in-a-generation reset of Nigeria’s taxation framework, intended to create a more efficient, transparent and equitable system.
At the core of the reforms are four pieces of legislation. The Nigeria Tax Act consolidates existing tax provisions and redefines tax liabilities for both individuals and corporate entities. The Nigeria Tax Administration Act harmonizes filing procedures, enforcement protocols and penalties, while the Nigeria Revenue Service Act establishes the new Nigeria Revenue Service, replacing the Federal Inland Revenue Service. The Joint Revenue Board Act promotes cooperation among federal, state and local tax authorities to ensure consistent collection and compliance across all jurisdictions. Together, these reforms represent a sweeping attempt to streamline and strengthen the country’s fiscal management.
For individuals, the reforms have introduced significant changes. Those earning ₦800,000 or less annually are now fully exempt from personal income tax, reducing the burden on low-income earners. At higher income levels, a progressive tax rate has been implemented, with top earners facing rates of up to 25 percent. The previously used Consolidated Relief Allowance has been replaced by targeted deductions, including rent relief, which allows taxpayers to deduct up to ₦500,000 or 20 percent of rent paid from taxable income. These adjustments are intended to make Nigeria’s tax system more progressive and equitable while providing relief to lower-income households.
It is worthy to note that small enterprises with an annual turnover below ₦100 million and fixed assets under ₦250 million are exempt from corporate income tax and the newly introduced four percent development levy, which consolidates several previous levies. Medium and large companies are required to pay the four percent development levy but benefit from a simplified unified tax framework. Large firms, particularly multinationals, now face a minimum effective tax rate of 15 percent, aligning Nigeria with global standards while encouraging transparency and formalization. While these measures are designed to boost compliance and ease administrative burdens, some analysts warn that the federal government could experience short-term revenue reductions, with estimates suggesting potential forfeiture of up to ₦1.4 trillion annually due to lowered corporate tax rates.
Tax filing and compliance are now primarily conducted through digital platforms, requiring all taxpayers to register with a Tax Identification Number for financial transactions, including banking. Banks and other financial service providers are mandated to report large transactions electronically to the tax authorities, enhancing transparency and reducing opportunities for evasion. Penalties for non-compliance have been increased, reflecting the government’s commitment to enforcing discipline across all economic sectors.
While the government emphasizes the long-term benefits of simplification and fairness, some tax experts have highlighted gaps and inconsistencies in the law that could create uncertainty. There is also public apprehension fueled by misinformation regarding the law’s scope and impact, prompting authorities to clarify misconceptions. Civil society groups had initially threatened protests over perceived burdens of the new regime, though no major disruptions have occurred since implementation began.
As Nigeria moves into this new fiscal era, the real impact of the reforms will hinge on effective implementation, taxpayer education and enforcement. Key indicators to watch include revenue performance, compliance levels, especially among informal sector participants and small businesses and the response of both local and international investors to the changes. The government’s ability to manage these reforms efficiently will determine whether the Tax Reform Acts 2025 fulfill their promise of creating a fairer and more effective fiscal system.
