Nigeria Tax Act 2025 Explained: How the New Tax Reform Acts Changed Income Tax, VAT, and Revenue Sharing in 2026

Nigeria's tax system before 2026 was, by the government's own description, fragmented across dozens of overlapping federal, state, and local statutes, a structure widely blamed for multiple taxation, high compliance costs, and inconsistent enforcement. The Nigeria Tax Act 2025 is the centrepiece of the reform, consolidating this patchwork, reportedly more than 60 separate taxes into a single framework built around fewer than ten clearly defined statutes. It repeals and replaces, among others, the Personal Income Tax Act, the Companies Income Tax Act, the Capital Gains Tax Act, and the Value Added Tax Act, bringing income tax, corporate tax, capital gains tax, and VAT rules under one consolidated Act for the first time.

The reform did not emerge overnight. It traces back to the Presidential Fiscal Policy and Tax Reforms Committee, inaugurated by President Tinubu on 8 August 2023 and chaired by Taiwo Oyedele who now serves as Nigeria's Minister of Finance and Coordinating Minister of the Economy. Oyedele's committee has described an extensive consultation process behind the final bills: tailored engagement sessions covering more than 40 economic sectors representing over 90% of the economy, memoranda received from all 36 states and the Federal Capital Territory, consultation sessions involving CFOs from more than 300 companies, and direct engagement with the Nigeria Governors' Forum, the Federal Executive Council, the National Economic Council, state finance commissioners, and the Joint Tax Board.

For individual taxpayers, the single most consequential change is the new tax-free threshold: individuals with a taxable profit of ₦800,000 or less per year, after applicable reliefs and exemptions, are now completely exempt from personal income tax — a measure the government has framed as aligning the tax-free floor with Nigeria's national minimum wage and easing the burden on the country's lowest earners.

Above that threshold, the personal income tax structure has become more progressive. The new regime applies marginal rates ranging from 0% to 25%, with individuals earning ₦50 million or more annually now falling into the top band, taxed at up to 25%, up from a previous top marginal rate of 24%, per Baker Tilly Nigeria's analysis. Separately, the exemption threshold for compensation related to loss of employment or personal injury has been raised substantially, from ₦10 million to ₦50 million.

The old Consolidated Relief Allowance (CRA) previously the higher of ₦200,000 or 1% of gross income, plus a further 20% of gross income, applied automatically regardless of a taxpayer's actual living costs has been abolished entirely. In its place, the NTA introduces a rent relief under section 30(2)(a)(vi) (cited elsewhere as section 30(vi)): a deduction equal to 20% of a taxpayer's annual rent paid, capped at ₦500,000, whichever figure is lower. Multiple independent sources confirm this figure precisely and consistently. Unlike the old CRA, rent relief is not automatic, an employee must actively declare their annual rent, typically through an employer's payroll self-service system or directly to the tax authority, to receive the deduction. For context on its practical value: a worker who declares ₦3,000,000 in annual rent qualifies for the full ₦500,000 capped deduction, which — at an 18% marginal rate — translates to roughly ₦90,000 in annual PAYE savings, according to a worked example published by payroll platform AnooreHR.

Other pre-existing deductions have been retained, including life insurance premiums, mortgage interest on an owner-occupied home, and National Housing Fund and pension contributions — though all now require documentary evidence to support the claim, reflecting the reform's broader emphasis on stricter compliance and verification.

Coverage of the new corporate income tax (CIT) rate is not consistent across sources, and this is worth stating plainly rather than resolving by picking one. Several sources including Teasoo Consulting's plain-language guide describe a general CIT rate cut from 30% to 25%. Daily Trust's reporting instead describes larger firms as continuing to pay the existing 30% rate, with only a "possible cut to 25 per cent for key sectors", implying any reduction to 25% may be sector-specific rather than a blanket change.

Small company treatment is more consistently reported, though the exact turnover threshold also varies across sources. Multiple sources agree that companies below a defined turnover threshold pay 0% corporate income tax, but that threshold is reported inconsistently: some sources cite a turnover ceiling of ₦50 million (with an additional fixed-asset ceiling of ₦250 million), while others including Daily Trust and Teasoo Consulting cite a ₦100 million turnover threshold instead. Small companies qualifying under whichever threshold applies must still register with Nigeria's Corporate Affairs Commission and adopt e-invoicing. Given this inconsistency, businesses assessing their own small-company eligibility should confirm the precise, currently applicable turnover figure directly with the Nigeria Revenue Service rather than relying on secondary reporting.

One area with strong, consistent cross-source confirmation: manufacturers are now explicitly exempted from withholding tax (WHT) on the sale of locally manufactured goods — a change intended to ease cash-flow pressure and remove the delays manufacturers previously faced reclaiming overpaid withholding tax.

Multinational enterprises face a new minimum effective tax rate of 15%, per Daily Trust's reporting, alongside new levies specifically targeting undistributed offshore profits — a structure that echoes the OECD's global minimum tax (Pillar Two) framework other jurisdictions, including South Africa, have separately begun implementing around the same period.

It would be inaccurate to characterise the 2025 reform purely as a tax-cutting exercise — the capital gains tax (CGT) changes represent a genuine, substantial tightening. The CGT rate for companies has risen from 10% to 30%, aligning it with the standard corporate income tax rate, a change Baker Tilly Nigeria describes as intended to eliminate arbitrage between capital gains and ordinary trading income and discourage artificial asset disposals structured purely to access the old, lower CGT rate. For individuals, CGT rates now align with the individual's applicable personal income tax rate, rather than sitting at a separate, fixed rate.

The scope of what counts as a chargeable gain has also expanded significantly: disposals of digital and virtual assets — including cryptocurrencies and NFTs — now fall within CGT's scope for the first time, alongside derivatives and other alternative income streams. Some relief remains: exemptions apply to low-value share sales, disposals of a taxpayer's principal residence, and reinvested gains, and — per Mondaq's summary — gains below ₦150 million within a rolling 12-month period are exempt, subject to a ₦10 million cap per individual disposal.

Value Added Tax is where the reform's political stakes were highest, and where the practical fiscal effects are now measurable in real money moving between tiers of government.

The headline VAT rate itself did not change — it remains 7.5%. A proposal during the legislative process to raise the rate further was, per The Africa Report, "watered down" in parliament and ultimately dropped. What did change is the treatment of specific goods and the mechanics of input tax recovery: basic goods and services — food, education, and healthcare among them — are now zero-rated, meaning businesses supplying them can fully recover VAT paid on their own inputs, rather than simply being VAT-exempt (a technical distinction with real cash-flow consequences for suppliers of essentials). Separately, businesses generally can now claim input VAT credit on most purchases, broadening what had previously been a narrower input-recovery regime.

The more structurally significant change is how VAT revenue is now shared between the federal government, states, and local governments — and, separately, how VAT is attributed to individual states in the first place.

On the vertical split between tiers of government, the new law reduced the Federal Government's share of VAT revenue from 15% to 10%, while increasing the states' share from 50% to 55%; local governments' 35% share is unchanged. This is a direct, quantifiable transfer of fiscal power away from the centre and toward subnational government.

Separately, and this is the change that generated the most political heat during the legislative process, the reform replaced the basis on which VAT is attributed to individual states at all. Under the pre-2026 system, VAT was effectively credited to the state where a company's head office was located, regardless of where its customers actually were. In practice, this meant a telecommunications company headquartered in Lagos, selling airtime to subscribers across every state in the federation, had the VAT on those nationwide sales statistically credited almost entirely to Lagos — systematically inflating the recorded VAT contribution of a handful of corporate hub states (chiefly Lagos and the FCT) relative to their actual share of national consumption. The 2026 reform replaces this with a destination principle: VAT derivation is now calculated based on the location of the final consumer, not the seller's corporate registration address.

The fiscal effect is already measurable. According to Nairametrics' analysis of Federation Account Allocation Committee (FAAC) data, state governments received ₦2.37 trillion in VAT allocations in the first half of 2026 — a 23.5% increase from ₦1.92 trillion in the equivalent period of 2025. Total VAT revenue shared across all three tiers of government in H1 2026 reached ₦4.39 trillion, up 14.3% from ₦3.84 trillion in H1 2025, with VAT accounting for 31.2% of the total ₦14.08 trillion shared nationally across federal, state, and local governments in that period. The revised formula is estimated to have shifted approximately ₦219.72 billion from the Federal Government's allocation to state governments over that six-month window alone. Within the states' collective share, individual state allocations are reportedly now calculated using a blended formula weighting equality (50%), population (20%), and consumption (30%), according to Mondaq's summary — though we note this specific weighting was not independently cross-confirmed by a second source in our research.

The Nigeria Revenue Service (Establishment) Act 2025 rebrands the Federal Inland Revenue Service (FIRS) as the Nigeria Revenue Service (NRS) — a change KPMG describes as reflecting a deliberate recognition that the institution collects revenue for the entire Federation, not solely for the Federal Government. The NRS formally began full operations under its new name and expanded mandate on 1 January 2026, following a transition period during which FIRS underwent organisational restructuring, staff retraining, and technology system upgrades.

The reform also mandates the harmonisation of taxpayer identification: a Tax Identification Number (TIN) is now mandatory for financial transactions, with an individual's National Identification Number (NIN) serving directly as their Tax ID — a measure intended to close identification gaps that previously allowed inconsistent or duplicate taxpayer registration across different revenue authorities.

The Joint Revenue Board (Establishment) Act 2025 creates two further institutions of direct practical relevance to taxpayers in dispute with any revenue authority: an Office of the Tax Ombud, intended to function as an impartial arbiter for taxpayer complaints, and a Tax Appeal Tribunal, to help settle disputes and coordinate tax administration consistently across federal, state, and local government levels.

Who must act, and what specifically changes: Employees should proactively declare their annual rent to claim the new rent relief deduction, since it is not applied automatically. Businesses should confirm their small-company eligibility status directly with the Nigeria Revenue Service given the conflicting turnover-threshold figures circulating in secondary reporting, rather than relying on any single unverified source. Companies holding digital assets, including cryptocurrency, should reassess their CGT exposure given the newly expanded scope.

Financial and operational exposure: Multinational groups should assess exposure under the new 15% minimum effective tax rate and the new levies on undistributed offshore profits. Any business engaged in real estate, given the significant CGT rate increase for companies (10% to 30%) and the new destination-based VAT treatment for consumption-heavy sectors, should review deal and transaction structures that assumed the old rates or the old head-office-based VAT attribution. Global Law Experts specifically flags "risk-based auditing" as a feature of the new administration framework, which industry observers expect will increase both the volume and sophistication of tax disputes through 2026 and 2027 — businesses should confirm every group entity holds a single TIN and updated NRS registration, and review any live contracts referencing the old 30% CIT rate or pre-2026 VAT treatment.

Realistic timeline: The core framework is already fully in force as of 1 January 2026. The Transition Guidelines apply on an ongoing basis to any matter straddling the changeover date. No further phase-in period applies to the core provisions.

What remains uncertain or pending: The precise, currently applicable general CIT rate (25% generally, or 30% with only sector-specific reductions) is inconsistently reported and should be verified directly against the certified Act text. The small-company turnover threshold for 0% CIT (₦50 million versus ₦100 million, in different sources) is similarly unresolved in available reporting. The opposition's allegation that the gazetted Acts contain unapproved insertions expanding enforcement powers has not been confirmed as resolved. The specific court challenge that was rejected, and the grounds on which it was dismissed, were not detailed in the source available to us.

What are Nigeria's four Tax Reform Acts of 2025? The Nigeria Tax Act, the Nigeria Tax Administration Act, the Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board (Establishment) Act — signed into law by President Tinubu on 26 June 2025, with core provisions effective from 1 January 2026.

Who is exempt from personal income tax under the new law? Individuals with a taxable profit of ₦800,000 or less per year, after applicable reliefs and exemptions, are completely exempt from personal income tax.

How does the new rent relief work? Taxpayers can deduct 20% of their annual rent paid from their taxable income, capped at ₦500,000, whichever figure is lower. This replaces the old Consolidated Relief Allowance and must be actively declared — it is not applied automatically.

Did the VAT rate increase under the new law? No. The VAT rate remains 7.5%. A proposed increase was dropped during the legislative process. What changed is which goods are zero-rated, how input VAT can be reclaimed, and how VAT revenue is attributed and shared between states.

What replaced FIRS? The Federal Inland Revenue Service has been renamed and restructured as the Nigeria Revenue Service (NRS), reflecting its role collecting revenue for the whole Federation rather than only the Federal Government.

Why did VAT allocations to state governments increase so much in 2026? Two separate changes combined: the Federal Government's fixed share of VAT revenue was reduced from 15% to 10% (with the states' share rising to 55%), and VAT is now attributed to states based on where consumption actually occurs (a destination principle) rather than where a company's head office is registered — a change that particularly reduced the disproportionate VAT credit previously recorded for corporate-hub states like Lagos.

Is the general corporate income tax rate now 25% or still 30%? Sources disagree, and we were unable to fully reconcile the discrepancy. Businesses should confirm the currently applicable rate directly with the Nigeria Revenue Service or against the certified Act text before relying on either figure.

Is the reform being challenged legally or politically? Yes, on two fronts. Opposition lawmakers have alleged the gazetted text contains provisions not approved by parliament, a dispute that does not appear to be resolved based on available reporting. Separately, a court challenge seeking to halt implementation was filed and rejected, allowing the rollout to proceed as scheduled.