Last week, President Bola Ahmed Tinubu enacted four (4) tax reform bills into law in Nigeria. The tax reforms have been viewed from different perspectives by different individuals and businesses. However, this article will explain what the taxes mean to small and medium businesses, corporate organization, and salary earners.
For Small and Medium Businesses
The Tinubu Tax reforms have changed the way small businesses in Nigeria pay taxes; businesses that earn less than ₦50 million per year (approximately $32k at the time of writing) will now be paying less the amount corporate organization are paying for taxes.
These taxes reforms have certainly given small businesses. The exemption from paying corporate income tax is a substantial increase from the previous threshold. More so, withholding tax will no longer apply to transactions under ₦2 million ($1,300) if the business's TIN is valid and active.
Furthermore, the practice of physical cash tax collection has been abolished. These changes are expected to reduce administrative burdens and compliance challenges for small business owners to create a more favorable environment for growth and sustainability in the country.
For Corporate Organizations
The Tinubu Tax reforms have also reduced some burden for people running larger businesses in Nigeria. The tax reforms reduce corporate income taxes progressively—from the current 30% to 27.5% in the coming year, and ultimately to 25% by 2026.
Furthermore, the three (3) separate levies that corporate organizations pay have now been consolidated into a single Development Levy which will commence at a rate of 4% and gradually reducing to 2% by the year 2030.
Quick Hints: The three (3) corporate levies that's been converted into a single Development Levy are:
- Tertiary Education Tax (TETFund): This is a tax that allows companies to contribute 2% to 3% of their annual assessable profit to support tertiary education development via the Tertiary Education Trust Fund. This tax were mandated before the Tinubu's Tax reforms bills were signed into law.
- NASENI Levy: Under the National Agency for Science and Engineering Infrastructure Act, businesses with turnover above ₦4 million were required to pay 0.25% of turnover toward supporting science and engineering infrastructure. This taxes were also mandatory before the new ta reforms law became effective.
- Information Technology Tax (via NITDA): This tax is mandated for certain sectors—such as banking, telecoms, insurance, pension funds, and internet service providers. Before the tax reforms, companies in these sectors with annual turnover exceeding ₦100 million were obligated to pay 1% of profit before tax to the National Information Technology Development Agency.
Now, these three (3) taxes have been consolidated into a Development Levy, starting at 4% and will shrink to 2% by 2030.
With these changes in corporate income tax, larger businesses and enterprises can concentrate more effectively on their business growth and development in the country to further boost the economy growth.
For Salary Earners
The Tinubu's tax reforms have also bring some meaningful reliefs to salary earning individuals in Nigeria. The new personal income tax regime introduces a progressive structure, beginning with a complete exemption for individuals earning less than $520 annually.
Tax rates will then increase gradually, reaching a maximum of 25% for those earning above $32,000. This change is particularly beneficial for the majority of Nigerians, especially those earning below ₦100,000 per month, who are likely to see reduced tax liabilities—or none at all.
However, it's important to note that this individual tax reforms will take effect in 2026. In addition to that, the Value Added Tax (VAT) rate remains unchanged. However, essential goods and services—including food, rent, education, healthcare, public transportation, and exports—have been designated as zero-rated.
Quick Hints: Zero-rated means the good and services are taxed at a 0% rate under a VAT, but are still considered taxable supplies.
Zero-rated allows businesses to claim input VAT on these goods and services, leading to cost savings that may be passed on to consumers.
In addition to VAT, the revenue-sharing formula has been revised: states will now receive 55% of VAT collections, while the federal government’s share decreases to 10%. As a result, taxpayers may observe increased engagement from state-level tax authorities rather than federal agencies.
Conclusion
In addition to the tax reforms, the Federal Inland Revenue Service (FIRS) has been replaced with the new Nigeria Revenue Service (NRS) to oversee tax collections and activities in Nigeria. Furthermore, six (6) separate tax laws have been consolidated into a unified framework to simplify administration and enforcement.
The reforms also introduce a Joint Revenue Board to enhance coordination among tax authorities, along with a Tax Ombudsman to handle taxpayer complaints and promote accountability. In a nutshell, all these changes are made to make tax collection more transparent, efficient, and equitable.
