A landmark transformation is underway in Nigeria's financial landscape. The new Nigeria Tax Act, 2025, set to take effect from January 1, 2026, represents the most significant overhaul of the nation's tax system since independence. This comprehensive reform repeals a host of outdated laws and introduces a modern, unified framework designed to be fairer, simpler, and more conducive to economic growth.
In a recent virtual town hall meeting with the Nigerians in Diaspora Commission (NIDCOM), Mr. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, broke down the core principles of the new Act, dispelling widespread misinformation and clarifying what these changes mean for everyday Nigerians, businesses, and the diaspora community.
This report, drawing from Mr. Oyedele's presentation and the official gazetted Act, provides a detailed guide to navigating this new era of taxation in Nigeria.
Why the Change? Fixing a Broken System
For decades, Nigeria's tax system has been described as a relic of the past, a "1960s Beetle in a race with Teslas," as Mr. Oyedele put it. The old laws were complex, ambiguous, and often counterproductive, taxing poverty and capital while stifling investment. The system was no longer fit for purpose, creating a drag on economic growth.
The reform was born out of necessity. Faced with dwindling revenues, rising debt service costs, and economic distortions, the government had two choices: embark on a painful but necessary reset or face total economic collapse. The new Tax Act is a cornerstone of this reset, designed with a "people-first" philosophy.
Key Objectives: A Fairer System for All
The reform is guided by three core objectives:
Prioritizing People: To stop taxing poverty, protect small businesses and vulnerable citizens, reduce the tax burden on the middle class, and ensure high-net-worth individuals pay their fair share.
Fueling Economic Growth: To create a stable and attractive environment for both local and foreign investment by simplifying tax compliance and eliminating nuisance taxes.
Enhancing Transparency and Governance: To improve the administration of taxes and ensure that revenue collected is used responsibly for the benefit of all citizens.
Major Changes and What They Mean For You
Here’s a breakdown of the most significant changes and how they will affect different segments of the population.
1. Personal Income Tax (PIT): More Money in the Pockets of Low and Middle-Income Earners
The new law introduces a highly progressive tax system, a significant departure from the previous regressive structure. The goal is simple: if you earn less, you pay less (or nothing at all).
New Annual Tax Brackets (Fourth Schedule):
- First ₦800,000: 0%
- Next ₦2,200,000: 15%
- Next ₦9,000,000: 18%
- Next ₦13,000,000: 21%
- Next ₦25,000,000: 23%
- Above ₦50,000,000: 25%
What this means: Anyone earning ₦800,000 or less per year (approximately ₦67,000 per month) will no longer pay income tax. This will increase the take-home pay and purchasing power for millions of Nigerians.
2. Nigerians in the Diaspora: Clarity, Relief, and No Double Taxation
A wave of misinformation has caused significant anxiety among Nigerians abroad. Here are the facts under the new law:
No Tax on Remittances: Money you earn abroad and send to Nigeria will not be taxed. This applies whether the income was taxed in your country of residence or not. The old provision that taxed money "brought into" Nigeria has been removed.
Residency Rule: You are only considered a tax resident in Nigeria if you are physically present in the country for 183 days or more in a 12-month period. Most Nigerians living and working abroad will not meet this threshold and are therefore considered non-residents.
Tax on Nigerian Income Only: As a non-resident, you are only liable to pay tax in Nigeria on income generated within Nigeria. This includes rental income from a Nigerian property or profits from a business operating in Nigeria.
Unilateral Tax Credit: To eliminate the fear of double taxation, the new Act introduces a unilateral tax credit. This means that if for any reason you become liable to tax in Nigeria on income that has already been taxed elsewhere, Nigeria will grant you a tax credit, effectively ensuring you don't pay tax twice on the same income.
3. Value Added Tax (VAT): Relief on Basic Necessities
While the VAT rate remains at 7.5%, the base has been significantly revised to ease the burden on the poor and vulnerable. The law provides exemptions and zero-rates for items that constitute the bulk of spending for low-income households.
Key VAT-Exempt or Zero-Rated Items Include (Sections 186 & 187):
Basic Food Items: Cereals, bread, fish, meat, fruits, vegetables, cooking oils, etc.
Baby Products: Diapers, feeding bottles, baby food, etc.
Educational Materials: Books and other educational supplies.
Medical and Pharmaceutical Products: Including all medical services.
Agricultural Inputs: Fertilisers, seeds, and basic farm equipment.
This change is designed to make essential goods and services more affordable for the average Nigerian.
4. Small Businesses: The Biggest Beneficiaries of the Reform
Small and medium-sized enterprises (SMEs) are the backbone of the Nigerian economy. The new law provides them with unprecedented support to help them grow and create jobs.
Benefits for Small Businesses (Defined as having a turnover of ₦100 million or less):
0% Company Income Tax.
Exemption from charging VAT on their goods and services.
Exemption from withholding tax obligations, both as an agent and for payments made to them.
Simplified Compliance: The overall goal is to allow small businesses to focus on growth rather than complex tax administration.
5. Investment Incentives: A More Attractive Nigeria
The Act is packed with provisions to make Nigeria a more competitive and attractive destination for investment.
Real Estate: The removal of VAT on property sales and a reduction in stamp duties are set to boost the real estate sector.
Capital Markets: Capital gains on the sale of shares are exempt up to ₦150 million in a year. Furthermore, all income (interest and capital gains) from Federal and State government bonds is now tax-free.
Priority Sectors: A comprehensive Economic Development Incentive scheme offers tax credits and holidays for qualifying investments in critical sectors like agriculture, manufacturing, technology, and infrastructure, as detailed in the Tenth Schedule of the Act.
6. Tax ID and Bank Accounts: The Facts
The requirement for a Tax Identification Number (TIN), now harmonized as a Tax ID, for certain bank accounts is not new but has been clarified.
Who Needs It: A Tax ID is only required for bank accounts used for business purposes or to receive income.
Who Doesn't: If your account is solely for personal use, such as receiving remittances from abroad to support your family, you do not need a Tax ID.
No Automatic Debits: The rumour that the government or CBN will automatically debit accounts for tax is false. The system relies on self-assessment and verification.
7. Better Governance: The Tax Ombudsman
To protect taxpayers, especially small business owners, from harassment and ensure fairness, the new law establishes the Office of the Tax Ombudsman. This independent office will:
Be appointed by the President and accountable to the National Assembly.
Provide a quick, accessible, and free channel for taxpayers to resolve disputes with tax authorities.
Allow citizens to lodge complaints in any Nigerian language.
Conclusion: A Call to Action for a Better Nigeria
The Nigeria Tax Act, 2025 is more than just a set of new rules; it is a fundamental restructuring of the social contract between the government and its citizens. While the journey of reform involves short-term pains, it lays the groundwork for a more prosperous and equitable future.
For this reform to succeed, every Nigerian has a role to play. It requires a collective shift in mindset: from citizens to pay their fair share of taxes, and from the government to utilize these funds transparently and efficiently for public good.
Nigerians, both at home and in the diaspora, are encouraged to engage with the reforms, seek information from credible sources like the Presidential Fiscal Policy and Tax Reforms Committee website (fiscalreforms.ng), and contribute constructively to building a tax system that works for everyone. This is a journey towards a Nigeria where productivity, not connections, is the key to success.