Tinubu Signs Landmark Tax Reforms into Law: What It Means for Nigerians and the Economy
In a bold step toward reshaping Nigeria’s economic landscape, President Bola Ahmed Tinubu on Thursday signed into law four transformative tax reform bills aimed at overhauling the country’s outdated and inefficient tax system. This major development signals a decisive move by the administration to simplify tax processes, promote fairness, broaden the revenue base, and reduce the financial burden on low-income households and small businesses.
The new tax laws come as part of the recommendations from the Presidential Committee on Fiscal Policy and Tax Reforms led by renowned tax expert, Taiwo Oyedele. Designed to boost revenue without hurting the most vulnerable segments of society, these reforms mark a turning point in Nigeria’s quest to create a fairer and more transparent tax regime.
VAT Rate Remains But Scope Expands
One of the most anticipated aspects of the reform was the fate of the Value Added Tax (VAT) rate. While early proposals had hinted at an increase in VAT from the current 7.5 per cent to 12.5 per cent, the final legislation keeps the rate at 7.5 per cent, providing relief to households already struggling under inflationary pressures.
However, the scope of VAT has been redefined to enhance clarity and fairness. In a significant move aimed at reducing the cost of living, the government has zero-rated essential items. These include food, education, healthcare, public transport, residential rent, and exports. Zero-rating means these items are exempt from VAT altogether, offering much-needed relief to everyday Nigerians.
By maintaining the VAT rate but expanding exemptions, the government hopes to curb inflation while still enhancing revenue efficiency. This approach balances fiscal responsibility with social sensitivity, demonstrating a government responsive to the economic realities of its citizens.
Restructured VAT Allocation: A New Revenue Sharing Formula
In a bid to encourage consumption-based revenue generation and reduce inequality among states, the new law introduces a fresh formula for sharing VAT proceeds among the three tiers of government. Under the revised structure:
- 30 per cent of VAT proceeds will now be allocated based on consumption in each state, rather than contribution.
- 50 per cent will be shared equally among all 36 states and the Federal Capital Territory.
- The remaining 20 per cent will be distributed based on population size.
This new formula is designed to ensure that all states, including those with smaller economic footprints, receive equitable support while encouraging internal consumption and development. It also discourages tax avoidance since states now benefit more by encouraging local spending and compliance.
Overview of the Four New Tax Laws
To comprehensively reform the tax system, the government has introduced four new pieces of legislation, each targeting a key area of Nigeria’s fiscal framework:
1. Nigeria Tax Act
This law consolidates more than 50 small, overlapping taxes into a single, coherent code. The result is a simpler and more streamlined tax framework that is easier for businesses and individuals to understand and comply with. By eliminating redundant taxes and bureaucracy, this act is expected to reduce the cost of doing business in Nigeria significantly.
2. Tax Administration Act
This law creates a unified structure for tax collection across federal, state, and local government levels. It standardizes tax administration processes, removing inconsistencies that previously led to confusion, duplication, and inefficiency. It also establishes clear guidelines for taxpayer engagement and dispute resolution, boosting trust and encouraging voluntary compliance.
3. Nigeria Revenue Service Act
Replacing the Federal Inland Revenue Service (FIRS), this act establishes the Nigeria Revenue Service (NRS) as an independent body. The new agency is designed to have greater operational autonomy and efficiency, free from political interference. With a clear mandate to oversee tax collection and enforcement, the NRS is expected to operate more transparently and professionally.
4. Joint Revenue Board Act
This law enhances coordination among the various tax authorities in the country. It establishes a national Joint Tax Board that includes representatives from federal, state, and local governments. Additionally, the law creates a Tax Ombudsman to address taxpayer grievances and a Tax Appeal Tribunal to adjudicate disputes fairly and efficiently.
Key Goals of the Reforms
The new tax framework is guided by four overarching objectives aimed at revitalizing Nigeria’s economic environment:
1. Simplify the Tax System
By eliminating numerous micro-taxes and streamlining processes, the reforms reduce bureaucratic hurdles and make it easier for businesses—especially small enterprises—to comply with tax laws. This simplicity is particularly beneficial for informal traders and microenterprises who previously found compliance too complex or costly.
2. Improve Revenue Efficiency
Nigeria’s tax-to-GDP ratio currently stands at around 10 per cent—far below the African average of 16 to 18 per cent. The goal of the reform is to raise this ratio to 18 per cent by 2026, not by introducing new taxes or increasing existing ones, but by making collection more efficient and reducing evasion.
3. Ease the Burden on Vulnerable Groups
One of the core principles of the reform is equity. The laws are structured to relieve low-income households and small businesses while ensuring that high-income earners and luxury consumers pay their fair share. This helps promote social justice and economic balance.
4. Fund Public Services and Reduce Borrowing
The expected increase in revenue will be channeled into critical sectors such as education, healthcare, public infrastructure, and security. This will reduce Nigeria’s dependence on borrowing and improve the government’s fiscal sustainability.
Who Gains from the New Tax Laws?
The reform package is carefully calibrated to ensure that all segments of society benefit—albeit in different ways. Here’s how:
Low-Income Households
For Nigerians earning up to ₦1 million annually (roughly $650), a rent relief of ₦200,000 has been introduced. This reduces taxable income to ₦800,000, making them exempt from personal income tax. Furthermore, VAT exemptions on key services and goods—such as food, healthcare, education, baby products, and electricity—will significantly reduce the cost of living.
Small Businesses
Enterprises with annual revenue below ₦50 million ($32,400) are now exempt from Company Income Tax. The reforms also waive the need for audited financials when filing taxes, thereby cutting compliance costs. This creates an enabling environment for entrepreneurship and growth in the informal sector.
Large Businesses
Corporate tax rates are set to decline gradually—from 30 per cent to 27.5 per cent in 2025, and then to 25 per cent. Additionally, businesses can claim tax credits for the VAT paid on inputs and capital investments, allowing them to recover part of their expenses and reinvest more efficiently.
Charitable, Educational, and Religious Organizations
These organizations will enjoy new tax incentives for their non-commercial earnings. This move encourages them to expand their community development initiatives without the burden of taxation on their primary activities.
Broader Impact Across Society
The tax reform package is not just about balancing budgets—it is designed to correct long-standing structural imbalances in Nigeria’s tax system:
- Low-income earners will have more disposable income and face fewer tax burdens, helping them manage inflation and maintain basic living standards.
- Small businesses will benefit from simplified processes and reduced costs, encouraging formalization and growth.
- High-income individuals and luxury consumers will shoulder more tax responsibility, in line with their ability to pay. This includes higher VAT on luxury goods and capital gains tax on large transactions.
- The government expects a healthier flow of revenue that can be directed toward vital development projects, creating jobs and improving public welfare.
Why These Reforms Were Urgently Needed
Nigeria’s tax regime had long been described as inefficient, overly complicated, and regressive. With more than 50 separate taxes and levies—many of them poorly enforced—the system discouraged voluntary compliance and disproportionately impacted low-income earners and SMEs.
Furthermore, Nigeria’s abysmally low tax-to-GDP ratio meant that critical infrastructure and social services were underfunded, leading to poor outcomes in education, healthcare, transportation, and security. Without significant reform, the country faced a bleak fiscal future, including unsustainable debt levels and limited capacity to meet the needs of a growing population.
Public and Expert Reactions
Early reactions to the tax reforms have been largely positive. Small business owners, long burdened by unpredictable and often arbitrary tax demands, have welcomed the exemptions and simplified filing processes. However, many have called for clearer communication and effective implementation to prevent abuse by overzealous tax agents.
Low-income Nigerians have also expressed relief at the exemption of basic goods and services from VAT. Still, there is cautious optimism, with many waiting to see whether the government will enforce the rules fairly and transparently.
Taiwo Oyedele, head of the Presidential Fiscal Policy and Tax Reform Committee, reported that over 90 per cent of Nigerians supported the reforms during public consultations. He stressed, however, that awareness campaigns, consistent enforcement, and stakeholder engagement will be key to the long-term success of the initiative.
A New Era for Taxation in Nigeria
The signing of these tax laws represents a significant milestone in Nigeria’s fiscal history. By prioritizing equity, efficiency, and simplicity, the Tinubu administration has taken a bold step toward building a modern tax system that works for everyone.
If implemented effectively, these reforms have the potential to drive economic growth, reduce inequality, improve the ease of doing business, and strengthen public trust in government institutions. Most importantly, they offer a blueprint for other African nations seeking to strike a balance between revenue generation and social justice.
The success of this initiative, however, will rest not only on the laws themselves but on their enforcement. Transparency, consistency, and public trust must remain central to the process if Nigeria is to unlock the full benefits of its reformed tax architecture.