Nigeria’s 2025 Tax Reform: Key Provisions and Implications for Companies and Individuals
Jacob Dipo Famodimu
11/16/20255 min read
The Nigeria Finance Act, 2025 introduces the most comprehensive tax reform in recent decades. The Act repeals and consolidates over a dozen federal tax statutes (including CITA, PITA, the Capital Gains Tax Act, and the Stamp Duties Act) into a single unified Nigeria Tax Act, 2025. The objective is to modernize Nigeria’s tax framework, eliminate overlapping provisions, reduce administrative burdens, enhance transparency, and align Nigeria’s tax regime with evolving global standards.
The reform also aims to phase out low-yield “nuisance taxes,” promote fairness, simplify compliance, and broaden the tax net. Below are the key reforms and their implications:
Minimum Top-Up Tax (15% Effective Tax Rate)
A 15% Minimum Effective Tax Rate (ETR) is introduced, in line with the OECD Global Minimum Tax (Pillar Two).
Applies to:
Multinational Enterprise (MNE) groups
Foreign subsidiaries of Nigerian parent companies
Companies with an annual turnover of ₦50 billion or more
Implication:
Large companies must now compute their ETR and pay any top-up tax where their ETR falls below 15%. This may require revisiting internal pricing, incentive structures, and tax planning strategies.
Redefinition of Small Companies and Corporate Tax Thresholds
A small company is now defined as one with:
Turnover not exceeding ₦100 million, and
Total fixed assets not exceeding ₦250 million (excluding professional firms)
Tax Position:
Small companies are exempt from Companies Income Tax (CIT) and the new 4% Development Levy.
Implication:
More micro and small businesses fall within the exempt category, promoting formalisation and easing administrative burden.
Capital Allowance Reform
Key adjustments include:
Initial allowances abolished; only annual allowances apply.
VAT on assets is recoverable as input VAT and cannot be capitalised into asset cost.
Capital allowances are deductible only after VAT and import duties are fully paid.
Balancing charge and balancing allowance are repealed, and they are replaced with a chargeable gain/loss computation upon asset disposal.
Implication:
Companies must revise fixed asset schedules and update accounting/tax reporting processes.
Taxation of Lottery and Gaming Businesses
For the first time, the Act introduces a dedicated tax regime for gaming and lottery operators, transferring fiscal control from the National Lottery Act, 2017 to the Nigeria Tax Act, 2025.
Such companies are now taxed at 30% CIT, with specific allowable deductions including:
Winnings or prizes paid to participants
Commissions to licensed agents
Statutory levies to regulators
Implication:
Gaming and lottery companies must align financial reporting with the new framework and ensure accurate tracking of prize funds, agent commissions, and levies for compliance and tax deduction eligibility.
Capital Gains Tax (CGT) Reform
CGT is now integrated into taxable income. Capital gains from the disposal of chargeable assets, including shares, options, rights, and debt. Digital assets and incorporeal property will now form part of taxable income.
The major highlights of the reforms are:
Losses on asset disposal may be deducted from gains on other disposals.
Exemptions for personal homes, up to two personal vehicles, and smaller share sales (below ₦150m).
Capital Gain Tax (CGT) rates are now between 15–25% for individuals, while 30% rate applies to companies.
Debt forgiveness and compensation above ₦50 million are taxable.
Implication:
The new rates for CGT will be effective for implementation as of January 2026. Thus, Companies and high-net-worth investors must reassess their investment structures and asset disposal strategies before 2026 to manage exposure to CGT.
5% Surcharge on Fossil Fuels
A 5% surcharge now applies to the retail price of fossil fuel products produced or sold in Nigeria. However, the 5% surcharge does not apply to renewable energy products, household kerosene, LPG, and CNG.
Implication:
Energy retail sellers, distributors, and large consumers must incorporate the surcharge into pricing models and contracts. The measure may be a signal to a gradual shift toward environmental taxation and green energy incentives. This surcharge is subject to a formal “order” by the Finance Minister and may be delayed in actual application.
The “WE Test” for Deductible Expenses
The former WREN test (Wholly, Reasonably, Exclusively and Necessarily) is streamlined to WE (Wholly and Exclusively).
Implication:
Deductibility now depends mainly on the direct link between expenditure and income-earning operations, simplifying audit disputes.
Presumptive Taxation for Unrecorded Income
Where records are incomplete or absent, tax authorities may impose presumptive tax assessments.
Implication:
Businesses must maintain proper books or risk higher assessments.
Tax Administration and Institutional Reforms
The Nigeria Revenue Service (NRS) replaces FIRS.
The Nigeria Tax Administration Act 2025 provides unified rules on assessment, compliance, stiffer penalty enforcement, appeals, rulings, and disclosures.
Mandatory Tax Identification Numbers (TIN) for all taxable persons; banks must verify TINs before operating accounts.
Introduction of Electronic Fiscal System (EFS) and e-invoicing under the FIRS Merchant Buyer Solution, phased from July 2025 through 2026 for all VAT-registered businesses.
Establishment of the Joint Revenue Board, enhanced Tax Appeal Tribunal, and the Office of the Tax Ombud.
The intention of the establishment of the Office of the Tax Ombud is to provide an independent and accessible avenue for taxpayers to challenge unfair treatment by tax authorities. The Tax Ombud protects taxpayers in the following ways:
a. Fair and Impartial Review
The Ombud acts as a neutral umpire, ensuring that taxpayer complaints are reviewed independently of the tax authorities who made the decisions. This prevents abuse of power and ensures fairness in tax administration.
b. Easy and Cost-Effective Dispute Resolution
Complaints are resolved through mediation and conciliation, rather than formal litigation. This makes it faster, less intimidating, and less expensive for taxpayers to seek redress.
c. Investigation of Misconduct or Abuse by Tax Officials
The Ombud can receive and investigate complaints about the conduct or decisions of tax officers. This discourages harassment, arbitrary tax assessments, unlawful demands, or corruption.
d. Access to Information and Transparency
The Ombud can enter premises and examine persons for evidence. This ensures that investigations are thorough, transparent and not obstructed by authorities.
e. Recommendations and Policy Influence
The Ombud can recommend corrective measures and highlight systemic issues in fiscal policy. This promotes long-term improvement in tax administration and protects collective taxpayer interests.
f. Legal Support for Taxpayers
The power to institute legal proceedings on behalf of taxpayers ensures that individuals, especially small businesses and low-income taxpayers, are not denied justice simply because they cannot afford lawyers.
g. Public Awareness and Taxpayer Education
By raising awareness of taxpayer rights, the Ombud empowers citizens to stand against unlawful tax practices and to comply confidently with tax rules.
h. No Fees Charged
The Ombud must perform its duties free of charge, ensuring that financial constraints do not prevent taxpayers from seeking justice.
Personal Income Tax Reforms
Individuals earning ≤ ₦800,000 annually are exempt.
Consolidated Relief Allowance (CRA) abolished.
Rent Relief introduced: the lesser of ₦500,000 or 20% of annual rent.
Compensation exemption threshold raised to ₦50 million.
Individual tax bands are now progressive between 15–25%.
Capital gains for individuals are now taxed at the same rates as personal income.
Strategic Takeaways for Businesses
Conduct compliance gap analysis immediately.
Review transfer pricing and group tax planning structures.
Update asset registers and VAT accounting systems.
Prepare for CGT implementation in 2026.
Anticipate fiscal shifts toward digital reporting and green taxation.
Conclusion
The various tax legislations discussed above, particularly the Nigeria Tax Act, 2025, mark a decisive shift toward tax equity, administrative efficiency, and transparency. While the reforms ease the burden on small enterprises and lower-income earners, they impose higher compliance responsibilities on large corporations, multinational groups, and high-net-worth individuals.
Proactive planning, system alignment, and early engagement with tax advisors will be critical to minimising tax risks and maximising the benefits of available incentives.
It is important to note that the highlights provided are not exhaustive of all provisions in the new tax legislation. Taxpayers are therefore strongly advised to seek professional guidance for effective tax planning ahead of the 2026 implementation.