Nigeria’s tax system has entered a new phase following the signing of the Tax Reform Bill into law on June 26, 2025. 

The reforms which will take effect on the 1st of Jnauary, 2026 will bring together several old tax laws into a clearer and more modern framework, affecting workers, small businesses, big companies, and investors.

Among these reforms are four new laws, the Nigeria Tax Act, the Nigeria Tax Administration Act, the Nigeria Revenue Service Act, and the Joint Revenue Board Act. 

Together, they reshape how taxes are charged, collected, and enforced across the country. Here are the most important tax law changes you should understand, explained in simple terms.

1. Corporate Tax Reform for Businesses

One of the biggest changes affects how businesses are taxed, especially small companies.

Small businesses now enjoy wider tax exemptions. Any company with annual turnover of ₦50 million or less and fixed assets not above ₦250 million no longer pays Companies Income Tax, Capital Gains Tax, or the Development Levy. 

This is meant to reduce pressure on small businesses and encourage them to operate formally.

For larger companies, capital gains are now taxed the same way as normal business profits. Capital Gains Tax for companies has increased to 30 percent, matching the corporate income tax rate. This stops companies from selling assets just to pay less tax.

The law also targets indirect share sales. If a foreign company sells shares that mainly derive value from Nigerian assets, the profit can now be taxed in Nigeria. This closes a loophole that allowed profits to escape taxation through offshore structures.

Several old levies have also been merged into a single Development Levy of four percent. This replaces multiple charges like education tax and IT levies, making compliance easier.

In addition, very large companies must now pay a minimum effective tax rate. If a company earns huge revenue but pays very little tax, a top-up tax will apply to bring it to at least fifteen percent.

2. Personal Income Tax for Low-Income Earners

Personal income tax has been adjusted to reduce the burden on low earners and make the system more progressive.

Anyone earning ₦800,000 or less in a year after reliefs is now fully exempt from personal income tax. This is a major relief for workers on low wages and aligns better with the minimum wage reality.

High earners will now pay slightly more tax. Individuals earning ₦50 million and above annually fall into a higher tax band, with rates going up to twenty-five percent. This shifts more responsibility to those who earn more.

Compensation for loss of employment or personal injury has also been given better protection. The tax-free threshold for such compensation has increased from ₦10 million to ₦50 million, offering support during difficult times.

The law now clearly defines who is considered a tax resident. Spending up to 183 days in Nigeria, having a permanent home, or strong economic or family ties can make you a resident for tax purposes. This removes confusion, especially for people who work across borders.

3. Stronger VAT and Digital Compliance Rules

Value Added Tax remains at 7.5 percent, despite fears of an increase. However, how VAT is managed has changed significantly.

Businesses can now recover input VAT on services and capital assets, not just on goods for resale or production. This means companies can claim VAT paid on things like equipment and professional services.

More essential items are now zero-rated, including basic food items, medical equipment, educational materials, electricity transmission, and non-oil exports. This helps reduce costs for consumers and exporters.

VAT-registered businesses must now use approved electronic invoicing systems. These systems report transactions in real time to tax authorities, improving transparency and reducing tax evasion.

Tax filing and payments are also becoming fully digital. Businesses are expected to keep digital records and file taxes online, with stiffer penalties for non-compliance or outdated systems.

4. Investment Incentives & Economic Development Measures

Old-style tax holidays have been replaced with a more structured incentive system tied to real investment.

The new Economic Development Incentive offers companies a five percent annual tax credit for up to five years on qualifying capital investments. Instead of enjoying tax breaks without conditions, companies must now show real spending on productive assets.

Unused tax credits can be carried forward, but only for a limited time. If companies fail to use them within the allowed period, the benefits expire. This encourages serious and timely investments.

Companies can no longer claim tax deductions for assets or services that avoided VAT or import duties. This move discourages informal transactions and strengthens compliance across supply chains.

Free Zone and Export Processing Zone companies still enjoy export benefits, but selling into Nigeria’s local market now comes with stricter rules and monitoring.

5. Better Tax Governance and Dispute Resolution

The reforms also change how taxes are administered and how disputes are handled.

A new Nigeria Revenue Service now replaces the former tax authority and is responsible for collecting federal taxes and revenues. It operates with more independence and a stronger focus on technology.

The Joint Revenue Board has been created to reduce multiple taxation. It brings together federal, state, and local tax authorities to share data and align policies.

What This Means for You

Whether you are an employee, business owner, or investor, these tax law changes affect how much you pay, how you file, and how disputes are resolved. 

The reforms aim to reduce confusion, protect low-income earners, encourage real investment, and make tax administration more transparent.

Understanding these changes early can help you stay compliant, avoid penalties, and take advantage of available reliefs under Nigeria’s new tax system.