Nigeria’s tax system is undergoing one of its most significant overhauls since independence, thanks to the introduction of the Nigeria Tax Bill (NTB). This landmark piece of legislation is designed to streamline the country’s tax structure, reduce the burden on businesses, and increase revenue collection efficiency. While the bill impacts various sectors of the economy, it holds particular significance for Micro, Small, and Medium Enterprises (MSMEs), larger businesses, and individuals. Here’s everything you need to know about the new tax regime and its implications.
1. Harmonization of Corporate Taxes: Relief for Businesses
One of the most significant changes introduced by the NTB is the harmonization of corporate taxes. Starting in 2030, companies will only need to pay two major taxes: the income tax and the development levy, with a combined maximum rate of 27%. This is a major reduction from the current top rate of 33.25%, offering substantial relief to businesses, especially larger corporations. The new tax regime will ease the compliance burden and provide businesses with more predictability in their financial planning. For MSMEs, this shift could mean more resources to reinvest in business growth and expansion.
2. Progressive Value Added Tax (VAT): Protecting the Poor
The Nigeria Tax Bill also introduces a progressive VAT rate structure, gradually increasing the VAT rate from 7.5% to 10% in 2025, 12.5% in 2026, and eventually reaching 15% by 2030. While this represents an increase in VAT rates, the bill ensures that essential goods and services consumed by the poor are either exempt from VAT or zero-rated. These include food, medical items, baby products, transportation, electricity, and petroleum products. This protection is a key feature, ensuring that the tax burden does not disproportionately affect the less privileged.
Another important aspect of the VAT reform is the shift in the VAT distribution formula. Under the NTB, VAT revenue will be distributed as follows: 10% to the federal government, 55% to state governments and the Federal Capital Territory (FCT), and 35% to local governments. Notably, the revenue allocated to states and local governments will be further distributed based on the place of supply and consumption, rather than the current system that favors regions with many company headquarters.
3. Redesigning Capital Gains Tax: Exemptions and Threshold Adjustments
The NTB also brings changes to the capital gains tax regime. It raises the threshold for taxation and introduces exemptions to ease the tax burden on individuals. For example, individuals will be exempt from capital gains tax on the sale of their residential property or land adjoining it, up to a distance of 1 acre. The bill also exempts compensation for personal injuries, such as loss of employment or defamation, from capital gains tax if the amount is below N50 million. These changes are designed to provide relief to individuals, particularly those affected by personal or economic setbacks.
4. Reforms in Petroleum and Mining Taxation: Increased Efficiency
The NTB also addresses the taxation of the petroleum and mining sectors, both crucial to Nigeria’s economy. The bill transfers the responsibility for collecting royalties from the Nigeria Upstream Petroleum Regulatory Commission (NUPRC) to the Nigeria Revenue Service (NRS), which is expected to improve revenue collection efficiency. Additionally, the bill introduces tax exemptions to encourage investment in natural gas and renewable energy sectors, further aligning Nigeria’s tax policy with global sustainability trends.
For the mining sector, the NTB establishes royalty rates for 71 solid minerals, which will be levied at 3% or 5% of the selling value of the minerals. This is expected to generate significant revenue for the government while ensuring that the mining industry remains competitive and attractive to investors.
5. Streamlining Stamp Duties: Clarity and Simplification
Another key feature of the NTB is the streamlining of stamp duties on dutiable instruments. The bill specifies 47 instruments subject to stamp duties, with clear rates outlined in the ninth schedule. Of these, 34 instruments will be levied duties ad valorem (as a percentage of the value), while the remaining 13 will have fixed duties. The NTB also harmonizes exemptions from stamp duty, reducing confusion and ensuring greater transparency in tax administration.
6. Tax Incentives for Priority Sectors: Boosting Economic Growth
The NTB introduces a range of tax incentives aimed at stimulating growth in priority sectors, as outlined in the eleventh schedule of the bill. These incentives are designed to encourage investment in sectors critical to Nigeria’s economic development, such as agriculture, technology, and manufacturing. The bill also clarifies tax exemptions within export processing and free trade zones, providing greater certainty for businesses operating in these areas.
The Nigeria Tax Bill is undoubtedly one of the most transformative pieces of legislation in the country’s history. By simplifying the tax structure, introducing progressive VAT rates, and offering incentives for key sectors, the bill aims to create a more business-friendly environment, stimulate economic growth, and enhance revenue collection.
For MSMEs, businesses, and individuals, the bill provides much-needed relief by reducing the overall tax burden and offering clearer, more predictable tax rules. It also ensures that the poor are protected from the adverse effects of tax increases, making it a progressive and equitable reform.
