Tax Reform in Nigeria | February 19, 2026
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REFORM AND REVENUE DRIVE: Is Nigeria Expanding Its Tax Net?
An In-Depth Policy Analysis | Nigeria Tax Act, 2025/2026
Introduction: The Tax Problem Nigeria Has Always Had
There is a question that has haunted Nigeria's fiscal planners for decades, and it goes something like this: how do you run a country of over 220 million people on the back of one commodity? Oil built Nigeria's modern state, but it also made the country dangerously lazy about building a robust, diversified revenue system. When oil prices fell — and they always eventually fell — the cracks showed immediately. Salaries went unpaid. Infrastructure stalled. Social services frayed. The same crisis, different year.
For a long time, the answer from successive governments was to borrow. Nigeria's debt profile swelled. But borrowing has a ceiling, and debt servicing eventually crowds out every other line in the budget. The logical conclusion — the one that kept getting postponed — was that Nigeria had to take taxation seriously. Not as an afterthought. Not as a political inconvenience. As the foundation of a functioning state.
On June 26, 2025, President Bola Ahmed Tinubu signed four landmark pieces of legislation into law: the Nigeria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board (Establishment) Act. Together, these four laws represent the most thorough overhaul of Nigeria's tax architecture since independence. They do not merely patch old laws — they tear up the old rulebook and write a new one. The centerpiece, the NTA, consolidates over a dozen major existing tax statutes into one unified legislation. It redefines how businesses are categorized, how VAT works, how the digital economy is taxed, and how small businesses are treated.
This analysis unpacks the four core pillars of the reform: proposed tax harmonization, VAT adjustments, digital economy taxation, and the impact on small and medium enterprises. For each, we examine not just what the law says, but what it means — for the economy, for ordinary citizens, and for the millions of Nigerian businesses trying to survive and grow in an increasingly difficult environment.
1. Proposed Tax Harmonization: One Law to Rule Them All
Let us start with a simple truth: the old Nigerian tax system was a nightmare to navigate. It was not just complicated — it was chaotically complicated. Over the decades, Nigeria had accumulated a sprawling library of tax legislation. The Companies Income Tax Act, the Personal Income Tax Act, the Value Added Tax Act, the Capital Gains Tax Act, the Tertiary Education Tax Act, the NASENI Levy Act, the Stamp Duties Act, the IT Levy, the Police Trust Fund Levy — each with its own definitions, filing timelines, penalty structures, and enforcement agencies. Some contradicted each other. Others had been overtaken by circumstances but never formally repealed. Tax advisors charged premium rates just to help clients understand what applied to them and what didn't.
The NTA consolidates all of this. Twelve major tax statutes are repealed and absorbed into one comprehensive legal document. This is not just administrative tidiness — it is a fundamental restructuring of how taxation is organized in Nigeria. In place of the Federal Inland Revenue Service, Nigeria now has the Nigeria Revenue Service (NRS), which comes with clearer mandates, greater operational autonomy, and a digital-first institutional architecture. The Joint Revenue Board (JRB) replaces the old Joint Tax Board and, critically, now has actual enforcement authority rather than just advisory powers. The Tax Appeal Tribunal has been overhauled to resolve disputes faster, and a new Tax Ombudsman Office has been created to give taxpayers an independent avenue to challenge overreach by tax authorities.
Company Classification: Simplicity as Policy
One of the most immediately practical changes in the harmonization agenda is the new company classification system. The old three-tier model — small, medium, and large — created endless ambiguity. Where exactly a company fell often depended on who was doing the classification and in what context. The NTA simplifies this to two clean categories: small and large.
A small company is now defined as any business with annual gross turnover not exceeding one hundred million naira and total fixed assets below two hundred and fifty million naira. This is a major expansion from the previous threshold of twenty-five million naira in turnover. The significance of this shift cannot be overstated. Nigeria has experienced severe naira depreciation and inflation over the past three years. A business turning over fifty million naira today is not a large business in any meaningful sense — it might be a mid-sized retailer or a modest service firm employing fifteen people. Under the old threshold, that business would have been classified as medium and subject to Companies Income Tax. Under the new framework, it qualifies as small and is fully exempt from CIT, Capital Gains Tax, and the new Development Levy.
Large companies — those above the one hundred million naira threshold — face a flat 30% CIT rate. Multinational corporations with global revenues above EUR 750 million or Nigerian annual turnover exceeding fifty billion naira are now subject to a 15% minimum effective tax rate, bringing Nigeria into alignment with the OECD's global minimum corporate tax framework. This is not a minor detail. It means Nigeria has formally joined the international effort to prevent profit shifting and base erosion — the practice by which large corporations move their profits to low-tax jurisdictions to minimize their tax bills.
Effect on the Economy
The economic logic of harmonization is compelling. Tax complexity is itself a cost. When complying with tax rules requires hiring specialized consultants, devoting management time to interpreting contradictory statutes, and maintaining parallel record-keeping systems for different regulatory bodies, businesses face a hidden tax that never appears in any government revenue account but that suppresses economic activity all the same. The World Bank has consistently cited tax complexity as one of the primary barriers to formalization and investment in Nigeria. By reducing that complexity, the NTA lowers the cost of being a compliant, formal business.
There is also a revenue dimension that gets less attention than it deserves. A simpler tax system is easier to audit and enforce. When rules are clear and consistent, it is harder for businesses or individuals to exploit definitional ambiguities to minimize their obligations. The NRS, equipped with digital systems and clear legal authority, is better positioned to close the gap between taxes owed and taxes actually collected — what economists call the tax gap. Nigeria's tax-to-GDP ratio has historically hovered around 6-7%, one of the lowest in the world for a country of its size. Structural reform of this kind is the necessary precondition for moving that number meaningfully upward.
Benefits for Citizens
The benefits of tax harmonization for ordinary citizens are real but mostly indirect. When businesses spend less on compliance, they have more resources to invest in productive activity — which means more jobs and potentially more competitive prices for goods and services. When the government collects revenue more efficiently, it has more to spend on public services. And when the system is fairer — meaning businesses cannot escape their obligations through legal loopholes that only sophisticated counsel can identify — the burden is distributed more equitably.
Perhaps most meaningfully for citizens, the Tax Ombudsman Office creates something Nigeria has never really had before: an accessible, independent body that a taxpayer can approach without needing an expensive lawyer. If a tax collector demands payment that you believe is unjust, you now have a formal recourse mechanism. This matters most to ordinary Nigerians and small business owners who have historically had no real power to push back against aggressive tax enforcement. The psychological effect of knowing that recourse exists is itself significant — it changes the dynamic from one of pure extraction to one that has at least the architecture of a bilateral relationship between citizen and state.
2. VAT Adjustments: Protecting the Poor While Widening the Base
Value Added Tax is the tax that most Nigerians actually feel. It shows up in the price of their phone data, their restaurant bill, the cost of having their car repaired, the invoice from their accountant. It is broad, it is visible, and it is often regressive — meaning it hits lower-income households harder as a proportion of their spending. This is why VAT reform is so politically sensitive and why the decisions embedded in the 2025 reform deserve careful examination.
The headline fact is that the VAT rate does not change. It remains at 7.5%, the rate established under the Finance Act 2020. What changes — substantially — is everything around that rate: what is taxed, what is not, how input VAT is recovered, how VAT is remitted in the digital age, and how the revenue is shared across the three tiers of government.
Zero-Rating of Essential Goods and Services
The most citizen-facing change in the entire VAT reform package is the dramatic expansion of the zero-rated goods and services list. Under the NTA, the following are now explicitly zero-rated: basic food items and foodstuffs, medical and pharmaceutical products and services, educational books and materials, electricity generation and transmission, public transportation, residential accommodation rent, agricultural inputs and equipment, water supplied by water boards and utilities, and locally manufactured sanitary products. Exports of goods and services remain zero-rated, as before.
This list matters enormously in the Nigerian context. Since the removal of fuel subsidies in mid-2023 and the consequent naira devaluation, Nigeria has experienced one of the most severe cost-of-living crises in its recent history. Inflation peaked above 33% in early 2024 and, while it has moderated somewhat since then, prices for food, medicine, and housing have risen dramatically and have not come back down. Removing the VAT burden from these categories — or rather, formalizing and expanding the protections that previously existed in patchwork form — does not reverse that damage. But it does prevent the government from adding a consumption tax layer on top of already stretched household budgets for goods that people cannot live without.
The zero-rating of residential rent is particularly notable. Urban housing costs in Lagos, Abuja, and other major cities have surged. For renters — who make up the majority of urban households — zero-rating on residential accommodation removes a tax burden that, in practice, would have been passed on directly to them by landlords. It is a quiet but meaningful relief.
Expanded Input VAT Recovery: Fixing a Long-Standing Injustice
For businesses that are registered for VAT, the previous system created a structural problem. The rules around what VAT a business could recover on its own purchases — its input VAT — were narrow and ambiguous. In practice, many businesses were absorbing VAT on inputs like equipment, professional services, and raw materials without being able to reclaim it. These unrecovered costs were either absorbed as reduced margins or passed on to customers in the form of higher prices. The reform fixes this.
Under the NTA, businesses can recover input VAT on substantially all purchases — goods, services, and fixed assets — provided those inputs are attributable to taxable supplies. Where inputs relate to a mix of taxable and exempt activities, a proportional recovery mechanism applies. This aligns Nigeria's VAT treatment with the approach used in the UK, the EU, South Africa, and other jurisdictions with mature VAT systems. It means the tax is properly borne only by the final consumer, not cascading through multiple layers of the supply chain — which is what VAT is supposed to do in theory but often failed to do in practice under the old Nigerian rules.
The cash flow implications for businesses are significant. A manufacturer who previously spent fifty million naira on new machinery and absorbed the 7.5% VAT — 3.75 million naira — as an irrecoverable cost can now claim that amount back against their VAT liabilities. Over time, across thousands of businesses making capital investments, this adds up to meaningful capital that can be redeployed into productive activity rather than sitting as a lost tax cost.
E-Invoicing and Real-Time Compliance
The NTA mandates a shift to electronic invoicing for all VAT-registered businesses. All transactions must be recorded through NRS-sanctioned electronic systems, with real-time or near-real-time data reporting. This is not a small ask. Many Nigerian businesses — especially those outside Lagos and Abuja — still rely on paper-based record-keeping or basic spreadsheets. The transition to compliant digital invoicing systems requires investment in software, training, and often hardware.
However, the rationale is sound. VAT fraud — particularly carousel fraud, where businesses claim input VAT refunds on transactions that never actually occurred — has been a significant drain on the government's VAT take. Real-time electronic invoicing makes it drastically harder to fabricate transactions or inflate input claims. It also makes it easier for the NRS to cross-reference supplier declarations with buyer claims, catching discrepancies automatically rather than through slow, labor-intensive audits. In jurisdictions that have implemented similar systems — Rwanda, Kenya, and more recently Morocco — the revenue results have been substantial.
VAT Revenue Sharing: A Structural Shift
Under the previous arrangement, the federal government retained 15% of VAT revenue, with 50% going to states and 35% to local governments. The NTA restructures this: the federal share drops to 10%, state share rises to 55%, and local government share rises to 35%. The formula for distributing the state and local government portions is based on equality (50%), population (20%), and derivation — meaning consumption — (30%).
This restructuring is politically significant. By increasing the derivation component, states where more economic activity occurs — where more goods and services are bought and sold — receive a larger share of the revenue they generate. This creates stronger incentives for states to develop their local economies rather than simply waiting for federal allocations. It also means that states with active commercial sectors, like Lagos and Rivers, receive proportionally more. Critics from less commercially active states have argued this widens the inequality between regions. Supporters counter that it creates the right incentives for economic development. This tension will define debates about the reform for years.
Effect on the Economy and Citizens
The combined effect of expanded zero-rating, improved input VAT recovery, and mandatory e-invoicing is a VAT system that is simultaneously more citizen-friendly and more enforcement-ready. The zero-rating provisions protect low-income households from the regressive bite of consumption taxes on necessities. The input VAT changes reduce the cost of doing business for formal, compliant firms. And the e-invoicing mandate, if implemented with appropriate support for smaller businesses, closes the compliance gaps that have historically allowed large amounts of VAT revenue to disappear.
For average citizens, the most tangible benefit is the zero-rating of food, medicine, and housing. In a country where food accounts for a large share of household expenditure — often 50-60% for lower-income households — the VAT relief on basic food items is not abstract. It is real money that stays in real families' pockets. The indirect benefits — better government revenue, more funds for public services — are harder to feel immediately but are equally important for the long-term wellbeing of Nigerian society.
3. Digital Economy Taxation: Nigeria Enters the 21st Century
Here is a fact that has quietly irritated Nigerian tax authorities for years: some of the most profitable businesses operating in the Nigerian market pay almost nothing in Nigerian taxes. Netflix, Spotify, Amazon Web Services, Apple's App Store, various cloud service providers, global e-commerce platforms — these companies collectively generate enormous revenue from Nigerian users. Nigerians pay for subscriptions in naira. They buy apps. They host websites on foreign servers. They stream content from foreign libraries. And for most of that economic activity, the value captured has flowed abroad, mostly untaxed in Nigeria, because these companies have no physical presence here — no office, no warehouse, no registered entity.
The 2025 reforms put a formal, statutory end to that arrangement. Nigeria now has a comprehensive framework for taxing the digital economy, built on two foundations: the Significant Economic Presence (SEP) doctrine and the extension of VAT to all imported digital services.
Significant Economic Presence (SEP): The New Test
The concept of Significant Economic Presence was introduced in Nigeria through the Finance Act 2019 and subsequent amendments, but it remained poorly operationalized. The NTA codifies and strengthens it significantly. Under the new law, a non-resident company is subject to Nigerian income tax if it has a significant economic presence in Nigeria — regardless of whether it has a physical establishment here.
What constitutes significant economic presence? The NTA defines it broadly but clearly: a non-resident company has SEP in Nigeria if it provides digital services to Nigerian users, conducts transactions with Nigerian persons above a certain threshold, uses Nigerian-based data in its operations, or maintains a significant user base in Nigeria. The practical implication is that any foreign company earning meaningful revenue from Nigerian users or activities can be brought within the Nigerian tax net without needing to establish a local subsidiary or office. They must register with the NRS, file returns, and pay taxes on Nigeria-attributable income.
This places Nigeria in the company of countries that have been leading the global debate on digital economy taxation — France, Germany, the UK, India, and Kenya among them. It also creates a foundation for Nigeria to benefit from the OECD's Two-Pillar Solution, which aims to ensure that large multinationals pay a minimum level of tax wherever they generate revenue, not just where they are headquartered.
VAT on Imported Digital Services: 7.5% Goes Global
Alongside the SEP framework, the NTA mandates that VAT at 7.5% applies to all imported digital services consumed in Nigeria. Foreign digital service providers must register with the NRS and remit VAT on their Nigeria-sourced revenues. Where a digital service is provided to a VAT-registered Nigerian business, the reverse charge mechanism applies — the Nigerian business self-accounts for the VAT and remits it directly to the NRS.
This is important because it levels the competitive playing field. A Nigerian software company providing cloud services has always been subject to VAT. A US-based cloud company providing the same services to Nigerian businesses paid no Nigerian VAT. That asymmetry disadvantaged local competitors and eroded Nigeria's tax base simultaneously. Correcting it is both economically sound and fair.
The implementation challenge is real but not insurmountable. How does the NRS compel a company headquartered in California or Dublin to register and remit VAT in Nigeria? The honest answer is that direct legal compulsion has limits. However, international cooperation frameworks, payment gateway monitoring, and the reputational and market access risks of non-compliance create meaningful incentives for large platforms to comply. Kenya and South Africa have successfully implemented similar digital VAT regimes in recent years, providing a roadmap for Nigeria.
Crypto and Virtual Asset Taxation
Nigeria has one of the highest cryptocurrency adoption rates in the world. Despite a turbulent regulatory relationship with crypto — including a central bank ban that was only lifted in 2024 — Nigerians have continued to use digital assets for trading, remittances, savings, and payments. The volume of crypto transactions attributable to Nigerian users runs into hundreds of millions of dollars annually.
The NTA brings this activity within the formal tax framework. Virtual Asset Service Providers — crypto exchanges, wallet providers, NFT marketplaces — must now register with the NRS and file returns disclosing transaction and income data related to Nigerian users. Capital Gains Tax has been formally extended to cover disposals of digital and virtual assets, including cryptocurrencies and non-fungible tokens. This means that a Nigerian who buys bitcoin, watches it appreciate, and sells it at a profit has, under the new law, made a capital gain that is subject to CGT.
This is a long-overdue formalization. It does not necessarily mean that every crypto transaction is now being tracked — enforcement capacity and blockchain analysis tools in Nigeria are still developing. But it creates the legal basis for taxation and, more importantly, sets expectations. As crypto regulation matures globally and as Nigeria's own digital infrastructure improves, the ability to enforce these provisions will grow.
Controlled Foreign Company (CFC) Rules
For Nigerian multinationals and large companies with overseas subsidiaries, the new Controlled Foreign Company rules are significant. If a Nigerian parent company controls a foreign subsidiary that is subject to an effective tax rate below 15% in its home jurisdiction, the difference between the foreign rate and the 15% threshold can now be taxed in Nigeria. This closes a loophole that sophisticated corporations have exploited for decades: parking profits in low-tax jurisdictions like Mauritius, the British Virgin Islands, or the Cayman Islands to reduce their overall tax burden.
This aligns Nigeria with OECD BEPS (Base Erosion and Profit Shifting) commitments that over 140 countries have signed up to. It signals that Nigeria is not just trying to collect more tax domestically — it is trying to participate in the global architecture designed to prevent tax revenue from flowing to zero-tax jurisdictions at the expense of productive economies.
Effect on the Economy and Citizens
The economic impact of digital economy taxation is primarily on the revenue side. Nigeria stands to capture a meaningful share of the billions of naira worth of economic activity that has flowed through its digital ecosystem essentially untaxed. That revenue, if deployed effectively, can fund infrastructure, education, and healthcare. The competitive leveling effect — forcing foreign digital firms to operate under the same tax obligations as local ones — also creates a healthier environment for Nigerian tech companies to compete and grow.
For citizens, the digital economy provisions are mostly invisible on a day-to-day basis. Subscription prices for streaming platforms may marginally increase if those platforms pass the VAT cost on to users. But the broader benefit — a government better funded by revenues drawn fairly from all economic actors, including multinational corporations — is the real prize. Nigeria's digital economy is growing rapidly, and ensuring that growth generates public revenue is as important as ensuring the oil sector once did.
4. Impact on SMEs: The Reform's Most Human Story
Small and medium enterprises are the economic heartbeat of Nigeria. They account for roughly 96% of registered businesses, contribute nearly half of GDP, and employ the vast majority of the working population outside government. They are the corner shops and the tailors, the IT startups and the logistics firms, the food processors and the construction contractors. They are also — by any honest assessment — the businesses that have suffered most under Nigeria's old tax regime.
The problem was never really about the tax rates themselves. It was about complexity, arbitrary enforcement, multiple taxation, and a system that seemed designed not to raise revenue fairly but to create opportunities for extraction. A small business in Lagos might face assessment from the Federal Inland Revenue Service for company income tax, from the Lagos State Internal Revenue Service for personal income tax on its owner-managers, from the local government for tenement and business premises levies, from the FIRS again for VAT, and potentially from other agencies demanding various levies. Each of these required separate filings, separate payments, and often in-person engagement with officials whose discretion was wide and whose accountability was limited. For a business running on thin margins and limited bandwidth, the compliance burden was crushing — and the harassment potential was very real.
The 2025 reforms do not solve every one of these problems. But they address several of the most significant ones in ways that could genuinely change the operating environment for Nigerian SMEs.
The Raised Tax Exemption Threshold: Real Relief for Real Businesses
The most immediate and concrete benefit for small businesses is the expansion of the small company exemption threshold from twenty-five million naira to one hundred million naira in annual turnover. To understand why this matters, you need to think about what twenty-five million naira represents in today's Nigeria. With inflation running well above 20% for multiple consecutive years and the naira having lost significant value against the dollar, a business turning over twenty-five million naira is not, in any meaningful economic sense, a large business. It might be a small provisions shop in Ibadan, a two-person graphic design studio in Abuja, or a micro-manufacturer producing traditional textiles in Kano. Under the old threshold, all of these businesses could find themselves tripped into the companies income tax bracket — not because they were profitable enterprises generating substantial value, but because naira inflation had pushed their nominal revenue upward without any corresponding increase in real economic size.
The new one hundred million naira threshold corrects for this reality. Companies below this turnover level, with fixed assets under two hundred and fifty million naira, are now completely exempt from Companies Income Tax, Capital Gains Tax, and the Development Levy. This is not a concessionary rate — it is a full exemption. For business owners in this category, it means one less set of forms to file, one less payment to make, and one less interaction with tax authorities that could go badly. The psychological relief is as real as the financial one.
The Development Levy: Consolidating the Confusion
One of the most frustrating aspects of operating a medium or large Nigerian business under the old system was the proliferation of separate levies. Beyond Companies Income Tax, businesses were subject to the Tertiary Education Tax (a 2.5% levy on assessable profits), the NASENI Levy (supporting the National Agency for Science and Engineering Infrastructure), the IT Levy (a 1% charge on certain companies), and the Police Trust Fund Levy. Each required separate compliance. Each had its own filing requirements. And the aggregate burden — particularly for companies that were not managing their tax affairs carefully — could be substantial and unpredictable.
The NTA consolidates all four of these into a single Development Levy. The rate is set at 4% of assessable profits for large companies, declining to lower rates over the reform implementation period as adjustments are made. For medium-sized businesses navigating the transition from the small company category, this consolidation is a genuine administrative relief. Four forms, four payment processes, and four sets of penalties for non-compliance collapse into one. That might sound like a minor convenience, but for a business that was previously spending significant management time on compliance or paying consultants to handle multiple filings, it is a real cost reduction.
Input VAT Recovery: Putting Money Back in Working Capital
For SMEs that are VAT-registered — typically those above twenty-five million naira in annual turnover — the expanded input VAT recovery provisions under the NTA are potentially transformative for cash flow management. Under the old system, many small businesses were absorbing VAT costs on their business purchases that they could not recover. A small construction firm buying materials, tools, and fuel for a project was paying 7.5% VAT on those inputs but, in many cases, could not claim all of it back because the old rules around what qualified as recoverable input VAT were narrow and poorly understood. That unrecovered VAT was money that came directly out of the firm's working capital.
Under the NTA, input VAT is recoverable on virtually all business purchases that relate to taxable outputs. For an SME with thin working capital — which describes the majority of Nigerian small businesses — the ability to recover VAT on purchases of equipment, services, rent, and operational inputs is meaningful. It reduces the effective cost of doing business. Over a year of operations, the cumulative effect can free up capital for wages, stock replenishment, or investment in growth.
E-Invoicing: The Double-Edged Mandate
The mandatory e-invoicing requirement is where the reform creates its most significant implementation challenge for SMEs. The NTA requires all VAT-registered businesses to issue invoices through NRS-approved electronic systems, with real-time or near-real-time transaction reporting. In principle, this is sound policy — digital invoicing reduces fraud, simplifies record-keeping, and makes VAT administration more efficient. In practice, it asks many Nigerian small businesses to make a transition they are not currently equipped to make.
Consider the typical VAT-registered SME in Nigeria. It may be operated by an owner with a basic smartphone and a WhatsApp-based order management system. Its accounts may be kept in a paper ledger or a basic Excel spreadsheet. It may operate in an area with unreliable internet connectivity. The requirement to integrate with an NRS-approved electronic invoicing platform is not a simple checkbox — it requires the selection and purchase of compliant software, training for the owner and potentially for staff, and reliable internet access to process and transmit invoice data in real time.
The penalties for non-compliance are not trivial under the NTA — businesses using outdated or non-compliant processes face substantial fines. This creates a risk that the e-invoicing mandate, if rolled out without adequate transitional support, becomes yet another mechanism for extracting money from small businesses rather than integrating them into a fair and efficient system. The government needs to invest seriously in affordable, user-friendly e-invoicing tools designed for small Nigerian businesses, alongside a realistic transition timeline and taxpayer education campaigns that reach business owners in every state, not just Lagos and Abuja.
The Formalization Opportunity: The Biggest Prize
Underneath all the specific provisions lies a larger strategic opportunity: the chance to bring Nigeria's massive informal economy into the formal fold. Nigeria's informal sector is enormous — by some estimates, it accounts for more than half of all economic activity. Millions of businesses operate without registration, without tax filing, and without access to formal credit, insurance, or legal protection. This is not primarily because business owners are dishonest. It is because, for most of Nigerian history, the cost-benefit calculation of formalization has been negative. Registering your business and filing your taxes made you visible to a system that would impose costs — compliance costs, levy costs, harassment costs — without offering proportionate benefits in return.
The 2025 reforms, if implemented well, change that calculation. A small business with turnover under one hundred million naira now has a full CIT exemption — no tax cost for being formal. The VAT input recovery rules mean that formal businesses can reclaim VAT they pay on purchases, which informal competitors cannot. The e-invoicing system, once operational, will provide formal businesses with cleaner financial records that banks can use to assess creditworthiness — unlocking access to formal loans that informal businesses cannot access. And the Tax Ombudsman offers protection from arbitrary enforcement that informal businesses, with no legal standing, cannot invoke.
If enough of these pieces come together — and that is a genuine if — the reform could trigger a slow but significant shift toward formalization among Nigeria's small business community. The fiscal dividend from that shift would be enormous, not just in tax revenue but in the broader economic development that comes when businesses have access to formal markets, credit, and legal systems.
A System Being Built — Or Rebuilt
Nigeria's 2025 Tax Reform Acts are, by any fair measure, ambitious. They are built on a coherent vision: consolidate a fragmented system, protect the most vulnerable through zero-rating of essentials, capture the digital economy that has long escaped the tax net, give small businesses real and meaningful relief, and use technology to close the compliance gaps that have historically swallowed revenue. The vision is right. The urgency is undeniable. A country that cannot fund its own public services sustainably is a country that will always be in crisis.
But Nigeria's record with ambitious reform is complicated. The country has seen well-designed policies fail at implementation many times. The Petroleum Industry Act took nearly two decades to pass and is still being implemented imperfectly. Multiple efforts to reform the power sector have yielded results far below their potential. The risk with the tax reform is the same: that the legislation is sound but the institutions needed to implement it lack the capacity, the resources, or the independence to make it work.
The mandatory e-invoicing system needs an accessible, affordable platform — and a realistic timeline for small businesses to transition. The NRS needs to be genuinely reformed, not just rebranded — which means adequate staffing, technology investment, and a cultural shift away from arbitrary enforcement toward genuine service delivery. The VAT-sharing formula needs to be monitored carefully to ensure it does not deepen regional inequality in ways that undermine national cohesion. The digital economy provisions need enforcement capacity that can credibly reach multinational corporations operating without Nigerian legal presence. And the expanded small company exemptions need to be communicated loudly and clearly so that businesses that qualify actually know they qualify — and are not talked out of their entitlements by officials who benefit from confusion.
None of these challenges are insurmountable. Countries with far weaker institutions than Nigeria have built functional tax systems. What it requires is sustained political will, genuine investment in the revenue authority, and a willingness to treat taxpayers as partners in the system rather than targets of it. If those conditions are met, Nigeria's 2025 tax reform will look, in retrospect, like the moment the country turned a corner on its fiscal foundations. If they are not, it will be remembered as one more thorough document that promised transformation and delivered paperwork.
The net has been cast wider than it has ever been cast before. Whether Nigeria has the hands, the patience, and the institutional muscle to pull it in — that is the question that the next five years will answer.
Written by: Elvis Onuigbo |19/02/2026