President Tinubu Signs Four Landmark Tax Laws to Overhaul Nigeria’s Tax System: Here is What You Need to Know
On Thursday, June 26, 2025, President Bola Ahmed Tinubu signed four transformative tax laws aimed at revolutionizing Nigeria’s tax system. These laws—the Nigeria Tax Act, Tax Administration Act, Nigeria Revenue Service Act, and Joint Revenue Board Act—are designed to simplify tax processes, enhance fairness, and boost economic efficiency while protecting low-income earners and small businesses. The reforms are a cornerstone of the administration’s strategy to increase Nigeria’s tax-to-GDP ratio from 10% to 18% by 2026, ensuring more funds for critical sectors like infrastructure, healthcare, and education without overburdening the poor.
Key Highlights of the Tax Reforms
The new tax laws introduce sweeping changes to Nigeria’s fiscal landscape, addressing longstanding issues of complexity, inequity, and inefficiency. Key highlights include:
- Retention of 7.5% VAT Rate: Despite earlier proposals to raise the Value Added Tax (VAT) rate to 12.5%, the government opted to maintain the current 7.5% rate. This decision reflects a commitment to shielding citizens from additional financial strain amid inflationary pressures. Additionally, essential goods and services—such as food, education, healthcare, rent, and public transportation—are now exempt from VAT, providing relief to millions of Nigerians.
- Restructured VAT Distribution: The revenue-sharing formula for VAT has been overhauled to ensure a fairer distribution of national income. Under the new system, 30% of VAT revenue will be allocated based on consumption patterns, 50% will be distributed equally among states, and 20% will be apportioned according to population size. This approach aims to balance regional disparities and promote equitable economic growth.
- Economic Goals: The reforms are projected to significantly increase Nigeria’s tax-to-GDP ratio, which currently lags at 10%, one of the lowest in the world. By 2026, the government aims to reach an 18% tax-to-GDP ratio, aligning Nigeria closer to global standards. The additional revenue will fund critical public services, including infrastructure development, healthcare improvements, and education initiatives.
The Four Landmark Tax Laws
The four new laws signed by President Tinubu form the backbone of Nigeria’s tax reform agenda. Each addresses specific aspects of the tax system, creating a more cohesive and efficient framework.
- Nigeria Tax Act: This law consolidates over 50 disparate taxes into a single, streamlined tax code. By simplifying the tax structure, the Nigeria Tax Act reduces compliance burdens for individuals and businesses, making it easier to navigate the system. The consolidation also eliminates redundant taxes, fostering a more business-friendly environment.
- Tax Administration Act: This act standardizes tax collection rules across Nigeria, ensuring consistency and transparency in tax administration. By harmonizing processes, the law aims to reduce disputes and improve compliance, creating a more predictable tax environment for taxpayers and authorities alike.
- Nigeria Revenue Service Act: This legislation replaces the Federal Inland Revenue Service (FIRS) with a new, independent Nigeria Revenue Service. The new agency is designed to operate with greater autonomy, enhancing efficiency and accountability in tax collection and management. This move is expected to strengthen public trust in the tax system.
- Joint Revenue Board Act: This act establishes a framework for better coordination among revenue agencies and introduces two key institutions: a Tax Ombudsman to handle taxpayer grievances and a Tax Tribunal to resolve disputes. These mechanisms aim to ensure fairness and provide accessible avenues for addressing tax-related issues.
Who Benefits from the Reforms?
The tax laws are carefully crafted to balance revenue generation with social equity, offering targeted benefits to various segments of society:
- Low-Income Earners: Individuals earning less than ₦1 million annually are now exempt from personal income tax. This relief measure ensures that low-income households retain more of their earnings, helping them cope with rising living costs.
- Small Businesses: Companies with annual revenues below ₦50 million are exempt from company income tax. This exemption supports small and medium-sized enterprises (SMEs), which are vital to Nigeria’s economy, by allowing them to reinvest profits into growth and job creation.
- Large Corporations: Major businesses benefit from reduced tax rates and enhanced VAT recovery options. These incentives are designed to improve competitiveness, attract investment, and stimulate economic activity in key industries.
- Charitable and Educational Institutions: The reforms include targeted tax incentives for charitable organizations and educational institutions, recognizing their critical role in social development. These incentives will enable such entities to expand their impact in communities across Nigeria.
Broader Implications and Economic Impact
The tax reforms are a pivotal step toward modernizing Nigeria’s fiscal system. By simplifying tax processes and reducing the burden on low-income earners and small businesses, the government aims to foster inclusive economic growth. The retention of the 7.5% VAT rate and exemptions for essentials demonstrate a commitment to protecting vulnerable populations from inflationary pressures.
The restructured VAT distribution formula is another significant achievement, as it addresses longstanding concerns about regional disparities in revenue allocation. By allocating funds based on consumption, equality, and population, the formula ensures that both urban and rural states benefit equitably from national resources.
The establishment of an independent Nigeria Revenue Service and the introduction of a Tax Ombudsman and Tribunal signal a shift toward greater transparency and accountability. These measures are expected to build public trust in the tax system, encouraging compliance and reducing tax evasion.
The projected increase in the tax-to-GDP ratio to 18% by 2026 is ambitious but achievable, provided the reforms are implemented effectively. The additional revenue will enable the government to invest in critical infrastructure, such as roads, power, and healthcare facilities, while improving access to quality education. These investments are essential for Nigeria’s long-term development and global competitiveness.
