From Controversy to Clarity: Understanding the Nigerian Tax Act of 2025
The Nigerian Tax Act of 2025 has been widely discussed since President Bola Ahmed Tinubu signed it into law on June 26, 2025, with full implementation starting in January 2026. The law has sparked considerable controversy, leading to ongoing public debate and scepticism about whether it is a positive development. Recently, reports emerged indicating that the version of the tax law passed by the National Assembly differs from the one officially signed and gazetted by the President.
Rather than focusing on whether the law passed by the National Assembly differs from the one signed by the President, it is important to examine the government’s stance in enacting it, the benefits Nigeria and its people stand to gain, and its implications for individuals.
Nigeria's Revenue Challenge
Nigeria ranks among Africa’s three largest economies but has not met revenue expectations. Its tax-to-GDP ratio remains very low compared to South Africa, and its tax revenue-to-budget ratio is also lower. In 2024, South Africa, with about 64 million people, collected $122 billion in taxes, while Nigeria collected only $13 billion. Even when considering Egypt, Nigeria’s tax revenue falls significantly short of Egypt’s $44 billion.
This analysis shows that despite its larger population, Nigeria lags behind its peers in revenue generation and efficiency. The government has implemented various measures, such as ending fuel subsidies and reducing debt exposure, but these have had limited impact, indicating the need for a more strategic approach. Additionally, addressing issues such as inefficient tax collection, double taxation, and the expansion of the tax base to include non-taxpayers, particularly those in the informal sector, is essential. All these issues prompted the government to establish the Presidential Committee on Fiscal Policy and Tax Reforms, which resulted in the enactment of the Nigerian Tax Act of 2025.
Impact on Individuals
Now that we’ve addressed that, you might wonder how the new tax law will benefit individuals and business owners alike. I firmly believe that the government’s intention is good in implementing this law. Over the years, Nigeria has been taxing the poor and subsidising the wealthy. As someone in FIRS mentioned, we have been “taxing poverty,” which should not be the case. With most of our population living below the poverty line, people should prioritise survival and boosting their purchasing power instead of paying taxes.
The new law exempts those earning the minimum wage or less from income taxes. This change also impacts higher earners, who will see a decline in income taxes and a slight increase in their net salaries. Conversely, those earning over 50 million naira will face higher taxes. Essentially, the government has reinforced progressive taxation: the more you earn, the more you pay. Low-income earners now have enough to cover basic needs without the burden of taxes.
Impact on Businesses
Companies, especially small, medium, and micro businesses, gain specific benefits from the new law. SMEs with an annual turnover under 50 million naira and total assets below 250 million naira will now pay no corporate taxes. Additionally, corporate taxes are set to decrease to 25%, as ordered by the President and advised by the National Economic Council.
The law also introduces a 4% Development Levy on assessable profit, replacing other levies such as the 2% Tertiary Education Tax Fund (TETFund), 2% NASENI Levy, 0.25% Police Trust Fund (PTF) Levy, and 1% NITDA fee for certain sectors. The revenue from the Development Levy will be allocated as follows: 50% to TETFund, 15% to NELFUND, 10% each to NITDA, NASENI, and the Defence and Security Fund, and 5% to the National Cybersecurity Fund. This reform reduces the number of separate taxes companies need to pay from their profits.
Concerns Regarding Rent Relief Allowance
Although the new tax law has received much praise, there are some concerns about the introduction of the Rent Relief Allowance (RRA), which replaces the Consolidated Relief Allowance (CRA). The primary issue is that the RRA ceiling amount is too low and offers little benefit to individuals paying higher rent. Furthermore, since not everyone who pays taxes also pays rent, many are excluded from benefiting from the RRA, which raises questions about fairness in tax administration and collection.
I suggest that the RRA ceiling should be linked to the taxpayer’s salary, allowing those with higher rents to receive some relief. Additionally, the government should consider extending these benefits to all tax-paying individuals, regardless of whether they pay rent.
Clarifying Tax Collection Procedures
Finally, regarding whether the tax authority will deduct funds directly from your account, the answer is no. The tax authority will initially contact you to contest your self-assessment if they suspect you have underreported your income. It is recommended to respond and provide a detailed explanation to address their objection and resolve the issue amicably. The tax authority also has specific procedures to follow if a taxpayer defaults or fails to respond to their objections.
The Nigerian Tax Act is here to stay, and as Nigerians, we must support the government’s efforts by fulfilling our civic duties and paying our taxes.