By Victor Momodu Esq.
Nigeria is on the verge of one of the most significant fiscal reforms in its history. With the signing of the Nigeria Tax Act 2025 on the 26th of June alongside three other complementary tax laws, the country has laid the foundation for a more unified, transparent, and business-friendly tax system. These changes took effect on January 1, 2026, and they affect practically everyone who earns income within Nigeria or one way or the other connected to Nigeria.
This article provides a clear, practical breakdown of what the new law means, who it affects, and why it is a turning point for Nigeria’s economic future.
Why Nigeria Needed a New Tax Law
For many years, Nigeria’s tax system has been plagued with complexity, multiple taxation, overlapping tax authorities, and a heavy burden on compliant taxpayers. Many individuals and businesses struggled to understand what they owed, who to pay, and more was the fact that many Nigerians were not
Recognising this, President Bola Ahmed Tinubu inaugurated the Presidential Committee on Fiscal Policy and Tax Reform on August 8, 2023, chaired by renowned tax expert Taiwo Oyedele. The committee’s mandate was to:
Eliminate multiple and overlapping taxes
Simplify the tax system
Reduce the tax burden on low-income earners and stop the taxation of poverty
Harmonise tax administration across all levels of government
Improve Nigeria’s global competitiveness
Make Nigeria business and investment environment more attractive
This reform effort also followed early executive actions by the administration, including the suspension or reversal of certain taxes and levies that were considered burdensome such as the 5% excise tax on telecoms, Cybersecurity levy, Tax on imported vehicles for carbon emissions and Tax on single-use plastics.
The Four Laws That Changed Nigeria’s Tax Landscape
On June 26, 2025, the President signed four landmark Acts into law:
The Nigeria Tax Act – a single, unified legislation that clearly outlines the taxes payable in Nigeria.
The Nigeria Tax Administration Act – which defines how taxes are assessed, collected, and enforced.
The Nigeria Revenue Service Establishment Act – replacing the Federal Inland Revenue Service (FIRS) with the new Nigeria Revenue Service (NRS).
The Joint Revenue Board Establishment Act – strengthening coordination between federal, state, and local revenue authorities.
Together, these laws effected a full overhaul of Nigeria’s tax architecture.
Who the Nigeria Tax Act Applies To
The new tax regime applies broadly to anyone earning income in and from Nigeria, including:
Salary earners
Business owners and companies
Freelancers and consultants
Content creators and digital professionals
Traders and informal workers
Nigerians living abroad who earn income from Nigeria
The guiding principle is simple: tax is based on income earned or taxable events.
What Is Taxable — and What Is Not
The new tax system brings much clarity that previous regimes. The various taxes generally include Personal Income Tax (PIT) – from income earned by individuals (progressively ranging from 0% to 25% depending on income earned), Company Income Tax – on gains made by companies (30%), Capital Gains Tax – income from disposing of assets, withholding tax (varies per transaction) and Value added Tax (7.5%). Taxes also vary depending on the industry in question.
What is Taxable:
Employment income
Business profits
Professional and freelance income
Interest and investment income (subject to exemptions)
What is Not taxable:
Gifts, donations, and contributions
Money sent from abroad to family and friends
Loans received
Student stipends
Pension and retirement benefits
Salaries of military personnel
This distinction is critical, as it removes uncertainty that previously led to disputes and abuse.
Residents, Remote Workers, and Nigerians in the Diaspora
Residency now plays a clearer role in taxation. Nigerians who live and work abroad will not be taxed in Nigeria. However, they might pay taxes if they have income generated in Nigeria, for example from businesses they own, rental properties etc.
Individuals who live in Nigeria and earn income remotely from foreign employers or platforms will generally be liable to Nigerian tax, unless that income is already taxed elsewhere. This aligns Nigeria with global best practices and prevents double taxation.
Special Protections and Exemptions
The Act introduces several reliefs designed to protect vulnerable groups and encourage investment:
Individuals earning the national minimum wage or less pay zero tax
Share transaction gross below ₦150 million per year or ₦10 million in gains are exempt
Pensioners’ gratuities and retirees benefits are not taxed.
Salaries of military personnel are exempt from taxes.
Agricultural companies benefit from 5-year tax holiday.
Income from federal and state government bonds are tax-free
Allowable Deductions That Reduce Your Tax Burden
The law also strengthens individual tax reliefs, including deductions for:
Pension contributions
National Health Insurance Scheme (NHIS)
National Housing Fund (NHF)
Interest on loans for owner-occupied housing
Life insurance and annuity premiums
Rent relief of up to 20% of annual rent (not more than N500,000)
These deductions significantly reduce effective tax liability when properly claimed.
What This Reform Really Means
The Nigeria Tax Act 2025 is beyond just collecting more revenue by the government. It brings about clarity, and positioning for economic growth. By simplifying rules, reducing multiple taxation, and protecting low-income earners, the law aims to rebuild trust between taxpayers and government.
This reform marks a decisive step toward a more transparent and simplified tax system for Nigeria. No doubt it is still a work in progress and adjustments will need to be made in its execution and operation by all statekholders to ensure the aim of the new tax regime is achieved.
Momoduï is an astute business lawyer, He is the founder of Gad Legal Consult, a modern law firm built for modern business needs. His areas of specialisation cover, taxation, commercial practice, fintech, tech, data privacy and protection and real estate.
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