We can only hope that it is the start of a virtuous cycle where Nigerians pay more taxes because they see the value, feel the difference, and believe that the process is fair. The reforms are ambitious and welcome, but they are not enough. They need to be matched by an equivalent surge in collective will to work. And this, perhaps, is Nigeria’s new tax reform “new normal.”
- Introduction
Fragmented, outdated, weakly enforced, and often misaligned with citizens’ expectations, Nigeria’s tax system has been a frequent target for criticism. However, with a tax-to-GDP ratio of approximately 6 per cent for many years and one of the lowest in the world, the Tinubu administration decided to take a bold step and signed four new tax reform bills into law on 26 June.
|
|
The new laws – the Nigeria Revenue Service (Establishment) Act, the Nigeria Tax Act, the Nigeria Tax Administration Act, and the Joint Revenue Board Act – mark a turning point in tax legislation, phasing out several outdated statutes. They introduce measures that build a more efficient, less complex, and more citizen-aligned system for tax governance in Nigeria. In what may be the most symbolic of the new tax laws, the FIRS will be known as the Nigeria Revenue Service (NRS). However, the rebranding goes beyond just a name change; it represents a shift in institutional focus, strategic approach, and performance metrics as well.
Key features of these reforms include new reliefs for individuals and SMEs, a consolidated tax code, enforcement mechanisms, technology use, and a platform for intergovernmental coordination. Taxpayers can also expect to see independent adjudication and dispute resolution, which were conspicuously absent. This being said, when it comes to tax reform and, by extension, economic reform, policy is only half the battle. Between the policy ink and the implementation space are significant gaps. In some cases, agencies are underfunded. In others, capacities are weak. In most cases, taxpayers are uninformed or misinformed. As a result, many reforms have stayed as mere entries in the gazette, gathering dust over the years.
|
|
|
|---|
This article provides a critical review of Nigeria’s new tax laws, highlighting key areas of concern, implications for businesses and citizens, and offers recommendations for action.
- Background and Evolution of Nigeria’s Tax Laws
Nigeria’s tax laws originated from a revenue system used by the colonial administration to collect customs, income, and property taxes. This laid the foundation for the existing tax system and structure. Over the years, the system has evolved into a complex, highly fragmented taxation ecosystem comprising over 50 federal enactments, resulting in overlaps and inefficiencies in tax administration (nesgroup.org).
Recent reforms in this area have been mainly incremental, but they have lacked coherence within the broader landscape. Beginning with the Finance Acts 2019 to 2023, the government introduced VAT adjustments, new excise duties, lower withholding taxes, NTDIS, and simplified voluntary tax payment requirements, such as digital tax registration, to drive compliance. Yet the legal framework continued to be disjointed and confusing for taxpayers, while the overall system still fell far short of revenue targets. Nigeria’s tax-to-GDP ratio is approximately 6 per cent, significantly lower than the rates achieved by other nations, which range from 15 per cent to 18 per cent.
The new tax reform package, as detailed in the four integrated Acts, seeks to address historical weaknesses and simplify and streamline the tax law. It builds enforcement capacity, establishes new governance structures, and embarks on institutional reforms through the NRSA. In many ways, the Acts represent a significant paradigm shift from incremental reform to comprehensive transformation.
- Key Features of the New Tax Laws
3.1. Institutional Rebranding: From FIRS to NRS
The Nigeria Revenue Service (Establishment) Act, 2025 repeals the Federal Inland Revenue Service Act of 2007, establishing a federal tax agency with autonomy and authority to “exercise control, supervision and regulatory oversight of all Federal Taxes and certain non–tax revenues collected on behalf of the Federal Government” (nesgroup.org). The NRS is responsible for FIRS’s functions and cases as well as its assets and officers. It has complete jurisdiction over FIRS mandates, with a view to transforming the existing system into one with a high level of transparency and accountability, as well as improving service delivery for taxpayers.
3.2. Unified Tax Legislation
The Nigerian Tax Act, 2025 consolidates all taxes previously governed by old laws into a single tax code, including PIT, CIT, CGT, VAT, Stamp Duties, and new Development levies (nesgroup.org). The Nigerian Tax Act also updates the minimum tax regime and eliminates overlapping and duplicative taxes, streamlining tax compliance and reducing bureaucracy.
3.3. Governance and Dispute Mechanisms
The Joint Revenue Board Act provides for the establishment of the Joint Revenue Board (JRB) to coordinate tax administration and harmonise policies between Nigeria’s three tiers of government (federal, state, and local). It ensures collaboration in setting rates, sharing taxpayer information and other tax data, and facilitating overall tax policy (nesgroup.org). The reforms also establish a zonal Tax Appeal Tribunal as well as a Tax Ombud and an independent Office of the Tax Ombud (OTO) to provide independent oversight and effective ADR for tax disputes (nesgroup.org).
3.4. Progressive Tax Incentives
- All individuals earning up to ₦800,000 (N800,000) per annum are exempt from paying tax. Additionally, a 20 per cent deduction is applied to rent paid up to ₦500,000 (₦ 500,000); (nesgroup.org).
- Small companies with a turnover of not more than ₦100 million and fixed assets not exceeding ₦250 million in any financial year are exempted from CIT, CGT, and Development Levy; (pwc.com).
- Corporate income tax rates are to be reduced gradually from 30 per cent to 25 per cent. In contrast, effective tax minimums are updated, capital gains rates are aligned, and sector-specific levies are consolidated to improve competitiveness.
3.5. VAT and Fiscal System Overhaul
Nigeria maintains a VAT rate of 7.5 per cent but now introduces zero-rating on essentials, including food, pharmaceuticals, and medical devices, which allows for a claim for input credit (pwc.com). Nigeria also introduces VAT fiscalisation and e-invoicing, making Nigeria part of a growing list of countries moving towards electronic tax in both VAT and sales tax (pwc.com).
- Policy–Implementation Gaps
The small details and operational nuances of implementation can still undermine the most finely crafted legislation. These are often “the gaps” between policy and practice. Despite the detail and thoroughness with which Nigeria’s new tax laws were articulated, there are several weak links and bridges that remain unbuilt. These pose real risks to the ambitious, positive impact and implementation laid out in the Acts:
4.1. Constitutional Ambiguity and Jurisdictional Conflicts
One of the least resolved issues is jurisdiction over taxes such as VAT and Stamp Duties, with the Supreme Court being involved in cases of disputes between the federal government and some state governments over who collects VAT. Despite the coordination efforts of the Joint Revenue Board Act, which aims to harmonize rates and other tax administration processes across various tiers of government, it does not explicitly address or override the provisions of the Constitution, on which many of these issues are based. This poses a risk for especially noncompliant states that are politically combative or at loggerheads with the federal government, or those with high-value natural resources that are major revenue generators at the state level.
4.2. Superficial Institutional Reform?
While the FIRS rebranding to the NRS is a much-publicized reform as part of the move to improve efficiency and effectiveness, changing the name alone does not address underlying systemic inefficiencies. Cosmetic rebranding will not be transformational in a culture of inaction without significant changes in other areas, such as an autonomous budget, a skilled workforce, internal performance metrics linked to public service outcomes, and progressive autonomy from the Ministries of Finance at both the federal and state levels.
4.3. Technological Readiness and Inclusivity
Fiscalization, e-invoicing, and other forms of real-time digital tax data reporting are best practices in line with international trends in e-tax. However, Nigeria has a notable digital divide in tax literacy and uptake between urban and rural populations, particularly among SMEs. Rural businesses and sectors may lack infrastructure, digital tools, or human capacity to comply with digital reporting obligations. Without a phased approach with grace periods, subsidies, and training, these SMEs may face the unintended consequence of being pushed further into the informal economy as a result of the reform.
4.4. Weak Enforcement and Audit Capacity
Enforcement remains one of the common pitfalls of many tax reforms worldwide. In Nigeria, this is particularly true given the country’s limited audit capacity. Nigeria’s audit teams are often understaffed and face significant capacity and skill gaps. With increased complexity and expectation of compliance under the new digitally structured tax regime, scaling enforcement by leveraging technology to track noncompliance runs the risk of deepening intimidation and other corrupt activities without strengthening transparency and ethical oversight.
4.5. Limited Public Awareness and Civic Engagement
The enactment of such wide-ranging and deeply impactful laws must be accompanied by robust public sensitisation and transparency measures to ensure broad buy-in from the affected communities, but this appears to be insufficiently considered or prioritised. Public engagement is key to inclusive economic development. Most Nigerians, especially those in the informal sector, which makes up a significant portion of the economy, may not be aware of the new laws, their benefits, or how to comply with them. If this lack of awareness persists, it will be challenging to achieve the desired outcomes of increased revenue and compliance. Tax compliance remains a major concern in Nigeria, with trust issues stemming from perceived inefficiencies, waste, and corruption in government spending.
4.6. Inter-Tier Collaboration Challenges
The concept of the Joint Revenue Board (JRB) and Joint Taxpayers’ Affairs is a laudable and much-needed move to bridge the coordination gap. However, it will be limited by the complexities of Nigeria’s intergovernmental relations. Nigerian states may lack the political maturity, efficient administrative systems, data infrastructure, or mutual trust to collaborate effectively on data sharing, policy setting, and dispute resolution, which will be the lifeblood of the JRB and OTO.
In short, the architecture and content of the tax reform are solid. It is the implementation that will test the country’s will, capacity, and responsiveness. The coming months will reveal whether Nigeria has turned a corner or merely repackaged its old challenges in new legislative wrapping paper.
- Implications for Businesses and Citizens
The impact of Nigeria’s new tax laws extends beyond the aggregate of increased revenues or cost savings for individual companies or citizens. They also have real effects on Nigeria’s economic productivity, citizen trust, and socioeconomic justice.
5.1. Implications for Micro, Small, and Medium Enterprises (MSMEs)
In terms of benefits for businesses, MSMEs can look forward to relief on income tax payments. However, the biggest challenge for MSMEs here is whether the eligible businesses are even aware of, registered, and run their operations in a manner that allows them to take advantage of these benefits.
Business owners, especially the more than 50 million MSMEs operating within the informal economy, are often viewed with suspicion and fear of harassment from revenue agents or audit raids. To change the business culture around taxation in the country, the NRS, alongside state revenue agencies, must play the long game to shift the perception of the relationship with citizens and businesses from one of an adversarial cop to one of empathy and as a critical social investment.
5.2. For Large Corporations and Multinationals
Corporate income tax rates for businesses will see some gradual reduction in the medium to long term. However, some of the stricter changes, such as transfer pricing rules, e-invoicing, and collection of new sector-specific development levies, increase the compliance burden for multinationals and large corporations. In response, these companies are likely to experience higher demand for tax advisory services, increased updates to ERP and other technology systems, and a larger in-house tax function. In terms of investment, the reforms will likely be met with a sigh of relief for some clarity in policy, but also a wait-and-see approach to stability and real application.
5.3. Social Equity and Cost of Living
From the lens of fiscal justice, many of the tax reforms, including progressive income tax reliefs for low-income earners, tax exemption on property acquisition for those under 18 or over 70, zero-rating of VAT on basic items, and rent relief, are steps in the right direction to alleviate the burden on people with low incomes. However, a key to the success of these aspects of the reforms lies in their implementation.
If vendors continue to mark up zero-rated VAT items or if agencies responsible for regulating prices at markets are corrupt or in denial, then the reforms have contributed to the inflation problem instead of addressing the issue of equity. Similarly, rent relief at a fixed maximum of ₦500,000 annually does not have a significant impact in cities like Lagos or Abuja, where most rental rates are significantly higher than this. To achieve a meaningful impact on equity, tax relief must be combined with measures that enforce regulatory price caps and provide social protection.
5.4. Public Accountability and Civic Perception
At the heart of taxation is more than just an economic or fiscal tool, but also a social contract. Currently, the primary constraint on compliance in Nigeria is the perception that taxes are unfairly collected or spent. These reforms will likely be met with enthusiasm by the public if and only if the government can demonstrate real progress and improvements in infrastructure, public goods, healthcare, education, social welfare, and other areas of expenditure.
In a time of heightened insecurity, the government must demonstrate that these tax revenues are being used effectively and for the better, or at the very least, in ways that the people can directly feel, touch, and see in their daily lives. Transparent and public-facing tax utilization, as well as a rapid response to citizen engagement, are critical to gaining the much-needed buy-in that will encourage positive compliance and cooperation.
- Case Examples
Tax analysis and theory are well and good, but it is in practice that the rubber hits the road. The case examples in this section of the article illustrate some of the opportunities and challenges in implementing Nigeria’s new tax system, highlighting both successes and failures.
6.1. Lagos State’s Digital Tax Experience – Promise and Pitfalls
The State of Lagos, Nigeria’s commercial capital, has led the charge for digital tax administration in the country for over a decade, developing some of the continent’s most cutting-edge digital tax solutions and consistently piloting new methods. Through the LIRS e-Tax platform, Lagos introduced digital solutions for tax remittance automation, Tax Identification Number (TIN) generation, payment tracking, and other services. While these e-tax platforms undoubtedly improved data tracking and tax collection in the sector, their implementation was not without its issues.
Businesses, especially microenterprises, often bemoan poor orientation and support, software integration issues with the federal tax system, system downtime, and general data inaccuracy. Informal operators in markets, transport unions, and similar organizations also either opt out entirely due to literacy, cultural, or mistrust issues, or they find ways to circumvent the process. Nigeria’s national rollout of digital fiscalisation in the new fiscal system under the NRS should therefore use Lagos as a case study. Technological innovations only work to the extent that they are user-friendly, usable, and effectively publicised.
6.2. FCT Revenue Streamlining – A Scalable Model
The Federal Capital Territory (FCT) has also provided a more positive example in recent years of the benefits of a simple, centralised, and technology-enabled revenue mobilisation approach. Its introduction of a single-window revenue portal for agencies, integration of Area Council revenue into its system, and its use of property databases to reduce leakage all helped drive efficiency. In addition, the FCT Authority pays close attention to taxpayer feedback sessions and regularly makes necessary adjustments, while also simplifying the process for FCT taxpayers to pay their taxes.
The NRS and Joint Revenue Board may be able to scale the FCT’s efforts on a national level as a key model in several states, where tax administration is highly fragmented and reliant on intermediaries, revenue collectors operating within the informal sector.
6.3. The Kaduna State Tax Academy – Building Human Capital
In an interesting move that few in the country were aware of, the Kaduna State government has been investing heavily in capacity building and training for its internal staff. This investment focused on training its revenue collection staff, both at headquarters and in the field, on ethics, new e-tax platforms, and practical communication skills, creating a new cadre of officials that emphasized taxpayer communication and education over pure enforcement.
The NRS can draw an important lesson from Kaduna State’s Tax Academy: Build your people. It is not enough to issue new policies without backing them up with human capital investment on the ground at all levels. After all, laws don’t implement themselves; people do.
6.4. Ghana’s e-Levy Rollout – A Regional Comparison
A relevant case study to learn from in the near region is Ghana’s introduction of the e-Levy, also known as the Electronic Transaction Levy (ETL), in 2022. This initiative aimed to tax electronic mobile money transactions to expand its tax base. However, while its intentions may have been good, the e-Levy suffered from poor public sensitization before introduction, a high number of technical errors in the first months, and public perception that it was double taxation, among other factors.
Nigeria must guard against the same mistake. Reform will need to be underpinned by stakeholder and taxpayer engagement and buy-in, as well as the setting of clear, widely understood, and attainable objectives at each stage. Transparency and an incremental approach can also help.
The lessons from these cases are clear: tax reform is as much a process as it is an event. It is not enough to sign a bill; the Nigerian government should actively learn from the successes and challenges of the cases above to achieve desired outcomes in the reform process.
- Recommendations
For the reforms to achieve their desired objectives and enjoy the full benefits anticipated by their noble designs, they must be translated from textual intent to purposeful action. In this regard, the following points are recommended for consideration in the alignment of policy with implementation:
- Clear Constitutional Ambiguities
To resolve outstanding ambiguities, especially those surrounding VAT and consumption taxes, the National Assembly, in concert with the judiciary and constitutional reform committees, must concretely and conclusively determine the tax powers, revenue assignments, and judicial jurisdictions between federal and state governments to ensure a binding legal framework with less room for future litigation.
- Endow the Nigerian Revenue Service (NRS) with Real Authority
The new agency must be empowered not only with sufficient political insulation and autonomy, but also with a well-defined and adequately funded expanded mandate. Institutional reforms should focus on performance metrics, staff training, and modernising taxpayer services, with a long-term goal of establishing an effective internal monitoring unit to hold the agency accountable for integrity and service delivery.
- Close the Digital Divide
To narrow the technological divide, the government should explore the subsidisation of fiscal devices as well as onboarding incentives for SMEs. Community-level training programmes, pilot projects, and partnerships with fintech companies can help accelerate the adoption of e-tax in regions with limited connectivity.
- Simplify Tax Compliance Processes
To encourage tax compliance and voluntary registration, the NRS should create easy-to-navigate tax portals, mobile applications, and helplines. Taxpayer services should be user-friendly and available in local languages. Additionally, features such as live chat support and simplified payment instructions can significantly reduce the perceived compliance burden.
- Enhance Intergovernmental Cooperation
To operationalise the Joint Revenue Board, shared audit teams, common tax databases, and harmonised reporting could yield significant benefits. Jointly published audits, performance-based incentives, and publicised progress reports can provide more transparency while reducing data duplication. Regular inter-agency retreats and personnel exchange programmes may further ease frictions.
- Scale Up Public Enlightenment Campaigns
For the reforms to take effect, more taxpayers need to be informed. This can be achieved through multilingual mass media broadcasts, social media toolkit releases, roadshows, and community town hall meetings. Leveraging the reach of trade associations, professional groups, and faith-based organisations may be helpful.
- Activate Independent Oversight Functions
The Office of the Tax Ombud and the zonal Tax Appeal Tribunals must be fully independent, adequately staffed and funded, and mandated to hear and render decisions on complaints or tax-related disputes in the shortest possible time. Their decisions and quarterly activity reports should be published annually to increase accountability and transparency further.
- Evaluate Reform Performance
An annual Tax Reform Review Committee should be established to evaluate the effectiveness of reforms in improving Nigeria’s tax-to-GDP ratio, enhancing taxpayer services, and creating a fairer tax system that supports economic growth. Their recommendations should be incorporated into future policy amendments.
- Conclusion
The passage of the new tax laws in Nigeria is a watershed moment in the country’s tax history. These reforms aim to overhaul the country’s entire fiscal system from the ground up, creating a system that is fairer, more inclusive, more accountable, and more efficient in tax collection.
In many ways, these reforms mark a paradigm shift from the status quo to a new Nigerian tax system that prioritises integrity and service at its core. Lowering and harmonising tax rates is just one step. The goal is to establish a new culture of compliance through a redesigned trust in government institutions that fosters broad-based buy-in from taxpayers in both the private and informal sectors.
Renaming FIRS to the Nigeria Revenue Service (NRS) is a rebranding exercise that carries significant symbolic importance. The new agency is to have not just a wider mandate but also more powers and responsibilities. It is meant to be better, with an emphasis on making tax simpler, easier, and more supportive of businesses. But only time and results will tell.
Under the new laws, more power is now shared between the NRS and state governments, especially in terms of monitoring and enforcement. The question is: Will this usher in a golden era of revenue collaboration or merely institutionalise revenue war?
At this critical moment for Nigeria’s tax regime, it is difficult to predict how well these reforms will work in practice or whether they will lead to a sustained increase in the tax-to-GDP ratio. The policy architects have given it their best shot, and now it is up to the forces of history and implementation to take it forward.
We can only hope that it is the start of a virtuous cycle where Nigerians pay more taxes because they see the value, feel the difference, and believe that the process is fair. The reforms are ambitious and welcome, but they are not enough. They need to be matched by an equivalent surge in collective will to work. And this, perhaps, is Nigeria’s new tax reform “new normal.”
Bolutife Oluwadele is an author, chartered accountant, certified fraud examiner and public policy scholar based in Canada. Email: [email protected]
