Nigeria: Benefits of New Tax Laws for Nigerians

As Nigeria steps into a new fiscal era, the recently introduced tax reforms are poised to reshape the economic landscape, writes Oluchi Chibuzor

With the government enforcing the new tax laws from January 1, 2026, many Nigerians are seeking to understand how these changes will affect their daily lives and the broader economy. The core objective of the new tax laws is to make the Nigerian tax system fairer, simpler, and more growth-friendly. Revenue generation by the government should not result in hardship for the citizens or come in the way of long-term development. This reform became necessary because the nation's tax laws and administration had become fragmented, outdated, and highly inefficient, resulting in sub-optimal revenue generation and an unconducive fiscal environment for growth.

Most people understandably associate taxation with paying more because of the word "tax". However, this reform was designed to reduce the current tax burden of workers, small and large businesses. VAT has been removed from essential consumptions such as food, healthcare and education to shield low-income households. The VAT rate remains at 7.5 percent, and the reforms now allow businesses to claim input VAT more broadly on assets and overheads, which is expected to reduce the "hidden VAT" that was previously embedded in final consumer prices.

Indeed, Nigeria's tax rates for major taxes is now more competitive than most of its peers in African countries. For instance, Nigeria's VAT rate remains 7.5 percent compared to 15 percent in Ghana, 16 percent in Kenya and 15 percent in South Africa.

The cut in corporate income tax rate to 25 percent compares favourably to 30 percent in Kenya, 27 percent in South Africa, and 25 percent in Ghana. The five percent excise tax on airtime in Nigeria has been reversed compared to 15 percent in Kenya and five percent in Ghana.

The top marginal tax rate for high-income earners is 25 percent in Nigeria, much lower than the 35 percent in Ghana and Kenya or 45 percent in South Africa. A small company in Nigeria pays a zero percent corporate tax rate compared to about three percent of turnover in Kenya and Ghana. Nigeria's VAT design is now similar to Kenya and South Africa by widening input VAT recovery to assets and overhead while tax administration and compliance will become more digital compliance relying more on tax intelligence and adopting risk-based audit.

However, while some critics have expressed concern about the timing and impact of these laws, it is important to highlight the potential benefits for ordinary citizens, businesses, and the nation at large.

Encouraging Economic Formalisation

One of the most significant advantages of the new tax laws is the push toward economic formalisation. Historically, Nigeria's informal sector has been large, making it difficult to collect revenue, track economic activity, and plan development projects.

By introducing clearer guidelines for taxation, the government encourages businesses and individuals to register formally.

For small and medium enterprises (SMEs), compliance with the new tax laws opens access to formal financial services, credit facilities, and government support programs. Formalization also enhances transparency, reduces bureaucratic bottlenecks, and helps businesses participate in the broader economy, ultimately boosting Nigeria's GDP.

Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Mr. Taiwo Oyedele said: "Small businesses and informal operators should expect less tax pressure while they are small and more structured as they grow. Key changes include expansion of small-company exemptions threshold to N100 million annual turnover, exemption from VAT collection obligations, capital gains tax, and withholding tax in addition to protection from harassment and exploitation through harmonisation of taxes and the introduction of the Office of Tax Ombud.

"If a company's annual turnover is N100 million or below (and meets the fixed-asset condition of not more than N250 million), the law treats it as a small company, granting major reliefs. This means over 90 percent of micro and small businesses will be out of the "tax-paying" bracket for major taxes - Companies Income Tax (CIT), Capital Gains Tax (CGT), Withholding Tax, VAT and Development Levy, leading to lighter compliance expectations."

Speaking further, Oyedele said: "The reform's pro-growth design focuses on wider exemptions for small companies to free up capital for reinvestment and hiring, modern input VAT credit rules that reduce production and service costs by allowing recovery, thereby encouraging formal supply chains, and a coordinated administration architecture to reduce duplication and disputes, enabling businesses to focus more on production. Businesses that hired more people in the past two years will enjoy extra tax deductions for the salaries paid."

Promoting Fairness and Equity

The new tax laws also seek to make the system more equitable. By ensuring that higher-income individuals and profitable corporations pay their fair share, the government can reduce the burden on low-income earners. Progressive taxation, where taxes are aligned with income levels, ensures that wealthier citizens contribute proportionally more to national development.

This approach helps redistribute resources without resorting to direct subsidies that often benefit the wrong segments of society. For the average Nigerian, it promises a fairer system where everyone contributes according to their capacity.

"The biggest win is for the economy as a whole. While ordinary citizens benefit from fairness and less pass-through costs, workers benefit from higher disposable income, and small businesses gain from higher exemption thresholds and simpler compliance, the overarching result is more trust, fewer leakages, and less friction to do business," Oyedele added.

According to Oyedele: "Generally, only high-income earners and large businesses that previously evaded taxes will feel like they are paying more. While some higher-income individuals would pay more in personal income tax, most of such individuals will earn more than corresponding increases in their business incomes through tax cuts including the planned reduction of the corporate tax rate from 30 percent to 25 percent or higher executive bonus as a result of increased profitability for their businesses."

Stimulating Investment and Business Growth

While taxes are often viewed as a burden, properly structured tax laws can stimulate investment and economic growth. The reforms include incentives for businesses that invest in critical sectors such as technology, manufacturing, agriculture, and renewable energy.

According to Oyedele: "All investors in the capital market are eligible for capital gains tax exemption with over 99 percent exempted unconditionally based on a threshold of N150 million proceeds and N10 million gains in any 12 months' period.

"Pension funds, small companies and real estate investment trusts are also unconditionally exempt. The remaining less than one percent of investors are eligible for exemption by way of reinvestment relief, which is designed to protect genuine long-term investment and support market depth. In addition, other reforms to make investment in shares more attractive include exemption of withholding tax on bonus shares and stamp duties waiver on documents for the transfer of shares."

Encouraging Transparency and Accountability

New tax laws often come with stricter reporting and compliance requirements. For Nigeria, this translates into greater transparency in revenue collection and government spending. Citizens and civil society groups can track how tax revenues are utilized, holding both government and corporate bodies accountable.

Transparency ensures that funds are directed to projects that benefit citizens, such as hospitals, schools, and public infrastructure. It also reduces corruption, which has historically siphoned resources away from development projects.

"Public education is critical. Implementation will only succeed if Nigerians clearly understand who is exempt, what records to keep, how VAT credits work, and what banks or tax authorities can and cannot do.

"Continuous, structured education through social and traditional media, trade associations, organised private sector, and engagements in local languages will be crucial to counter the high volume of misinformation which may derail a smooth transition.

"Trust is earned, but unfortunately, there is a huge deficit due to a history of unfriendly tax systems, poor accountability, and low benefits for taxes paid. The true test of these reforms will be whether the poor are allowed to breathe, small businesses stop being harassed, and all taxpayers get clear rules and quick dispute resolution. The government must be more transparent about what it collects and how it is used. The new tax laws create stronger mechanisms for accountability, and citizens must hold the government to measurable outcomes going forward," Oyedele explained.

Shedding light on how Nigerians can claim input VAT on many purchases for the first time, Oyedele said: "Input VAT will be claimed by VAT-registered taxpayers (businesses) translating to lower prices for consumers. Nigeria now adopts a more globally acceptable standard VAT credit rules, allowing businesses to recover input VAT on many purchases (including services and fixed assets) when linked to taxable supplies. Records typically required include VAT invoices or receipts and evidence that the purchase relates to a taxable business activity."

He further clarified controversy surrounding the need for Taxpayers Identification Numbers (TINs) for bank transactions: "Banks are only required to request a Tax ID from "taxable persons," not from everyone. No authority will take money from anyone's bank account or arbitrarily order a freeze. The law requires a taxable person to make self-declaration. If you earn taxable income (salary, business, trade, investment income etc.), you should have a Tax ID. Students, dependents, and individuals with no income can operate their bank accounts without a Tax ID."

Encouraging Civic Responsibility

The new tax laws also promote a sense of civic duty among Nigerians. By complying with tax regulations, citizens actively contribute to national development. This shift from viewing taxes as a burden to seeing them as an investment in the country's future is vital for nation-building.

When citizens understand that their taxes fund schools, hospitals, and public infrastructure, they are more likely to support government initiatives and participate in national development programs. Over time, this fosters a culture of responsible citizenship.

Strengthening Nigeria's Global Image

Compliance with modern tax laws also enhances Nigeria's reputation globally. International investors, development partners, and financial institutions are more confident in engaging with a country that demonstrates fiscal discipline and robust governance systems.

A positive international image attracts foreign direct investment, strengthens the naira, and opens opportunities for global partnerships. For Nigerians, this means potential job creation, technology transfer, and access to global markets.

Incentivizing Innovation and Entrepreneurship

Finally, the new tax laws encourage innovation and entrepreneurship. By reducing tax burdens on startups and providing incentives for research and development, young entrepreneurs are empowered to pursue innovative solutions.

For example, tech startups in fintech, agriculture, and renewable energy can access tax reliefs, allowing them to reinvest profits into growth and expansion. This not only drives job creation but also positions Nigeria as a hub for innovation in Africa.

Conclusion

While any major reform comes with challenges, Nigeria's new tax laws offer a clear path toward economic stability, fairness, and growth. From funding essential services to fostering entrepreneurship, formalising businesses, and empowering local governments, the benefits extend across society.

For citizens, compliance is not just a legal obligation, but an opportunity to participate in shaping the nation's future. As 2026 unfolds, the new tax laws are poised to transform Nigeria's economic landscape, offering prosperity, inclusivity, and a stronger foundation for generations to come.

Read the original article on This Day.

Nigeria: Benefits of New Tax Laws for Nigerians

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