More Money in your Pocket: What the New Tax Bills mean for Workers, Businesses and Investors
On June 26, 2025, the President of Nigeria signed into law four transformative tax bills aimed at reforming the nation’s complex and often inequitable tax system. These new laws mark a pivotal shift in Nigeria’s tax structure, introducing reliefs and incentives that benefit all segments of society—especially low-income earners, employees, entrepreneurs, and businesses.
The laws are scheduled to take effect from January 1, 2026, and promise more fairness, greater compliance, and economic empowerment across the board.
A Brief History of Nigeria’s Tax System
Nigeria’s tax system has historically been governed by legacy legislation such as the:
- Personal Income Tax Act (PITA)
- Companies Income Tax Act (CITA)
- Value Added Tax Act (VATA)
- Stamp Duties Act
- Capital Gains Tax Act
Although these laws were updated periodically, tax administration remained riddled with ambiguity, multiple taxation, poor compliance culture, and a high cost of doing business, especially for Micro, Small, and Medium Enterprises (MSMEs). Additionally, subnational governments (states and local councils) remained largely dependent on federal allocations due to limited tax autonomy.
Understanding the Existing Tax Structure
- PAYE (Pay-As-You-Earn)
This is a method where employers deduct income tax directly from their employees’ salaries and remit it to the tax authorities. It is based on a graduated scale from 7% to 24%, depending on the level of income. While effective for formal employment, PAYE has been criticized for disproportionately affecting middle and lower-income workers due to limited reliefs.
- Withholding Tax (WHT)
WHT is a tax deducted at source from payments such as rents, contracts, commissions, and dividends. It’s intended as an advance payment of income tax but often results in double taxation for small businesses that cannot claim refunds easily.
- Value Added Tax (VAT)
VAT is currently charged at 7.5% on most goods and services. However, it lacked differentiation between essential goods (like food and medicine) and luxury items, disproportionately affecting the poor.
- Companies Income Tax (CIT)
Companies earning over ₦100 million annually pay 30% in CIT, while medium-sized companies (₦25–₦100 million) pay 20%. Small companies earning under ₦25 million were previously exempt but faced challenges from overlapping taxes at the state and local levels.
- Stamp Duties
Stamp duties are levied on legal documents like leases, loan agreements, and contracts. These duties added extra costs for individuals and SMEs dealing with everyday transactions like renting accommodation or accessing business loans.
How the New Tax Laws Change the Game
How the New Tax Laws Change the Game
S/N | Previous Rate | New rate |
1 | First N30,000 – 7% | First N800,000 – 0% |
2 | Next N300,000 – 11% | Next N2,200,000 – 15% |
3 | Next N500,000 – 15% | Next N9,000,000 – 18% |
4 | Next N500,000 – 19% | Next N13,000,000 – 21% |
5 | Next N1,600,000 – 21% | Next N25,000,000 -23% |
6 | Above N3,200,000 – 24% | Above N50,000,000 – 25% |
The 2025 tax reforms bring long-awaited reliefs and clarity. Here’s how various groups stand to benefit:
A. Households and Individuals
- Complete PAYE exemption for low-income earners earning up to ₦1 million/year (about ₦83,000/month).
- Reduced PAYE rates for those earning up to ₦1.7 million/month.
- Zero VAT on basic needs: food, healthcare, education, baby products, rent, sanitary towels, and fuel products.
- Tax incentives for employers who provide wage awards or transport subsidies to low-income earners.
- Employment tax credits for companies that hire more people than they did in the last three years.
- No stamp duty on rent agreements below ₦10 million.
- PAYE tax exemption for military personnel fighting insecurity.
- Clear tax guidance for digital nomads and remote workers to ensure compliance without excessive burden.
- Clarity on taxation of digital assets, with provisions to avoid double taxation and recognize losses.
B. Small Businesses
- Tax exemption threshold increased from ₦25 million to ₦50 million turnover.
- Zero Company Income Tax for small businesses.
- No withholding tax deduction on income earned by small businesses.
- Exempt from deducting tax on vendor payments, reducing compliance hurdles.
- Unaudited simplified financial reporting can now be used for tax filing.
- Creation of a Tax Ombud to protect businesses from arbitrary tax assessments.
- Dispute resolution in 14 days by the Tax Ombud.
- Harmonisation of taxes, eliminating multiple levies.
- Ban on cash tax payments and physical roadblocks, easing tax collection.
- Attractive regime to encourage business registration and formalisation.
C. Businesses and Investors
- CIT rate reduced from 30% to 25% and harmonisation of earmarked taxes at a lower rate.
- Input VAT credits allowed on capital assets and services, reducing production costs.
- Tax credit for foreign-sourced income to prevent double taxation.
- Economic development incentives introduced for priority sectors.
- Friendly terms for restructuring, mergers, or business combinations.
- Statute of limitations set at 6 years, and tax objections must be resolved within 90 days.
- VAT and other tax refunds within 90 days (30 days for VAT), or offset allowed against future tax liabilities.
- Advance tax ruling requests must be responded to within 21 days.
- Pre-commencement expenses (up to 6 years) can now be deducted.
- Interest deduction limitations now apply only to related-party loans.
D. High-Income Earners and HNIs
- Exemption on personal effects up to ₦5 million, sales of primary homes, and two private vehicles.
- VAT exemption on real estate purchases.
- Clarity and cap on benefits-in-kind taxation—no more than 20% of annual income.
- Capital gains exemption on share sales up to ₦150 million or gains not exceeding ₦10 million.
- Progressive personal income tax up to 25%.
- Exemption of tax on compensation for job loss (up to ₦50 million).
- Progressive VAT rates on luxury items, balancing tax fairness.
- Bond income from state-issued securities now tax-free, just like federal bonds.
- Tax breaks for businesses hiring more employees.
- Exemption from tax on bonus shares for Nigerian company investors.
E. Subnational Governments (States)
- 5% of national VAT revenue ceded to states.
- Full rights to revenue from Electronic Money Transfer (EMT) levy.
- Obsolete stamp duties law repealed, replaced with a modernized, simplified version.
- States gain taxing power over Limited Liability Partnerships (LLPs).
- State-issued bonds now tax-exempt.
- More equitable VAT attribution formula.
- Integrated tax systems for better intelligence and dispute resolution.
- Attorney General of the Federation empowered to deduct unremitted taxes by MDAs and remit directly to beneficiary states.
- State Internal Revenue Services (SIRS) empowered with more autonomy.
- Legal framework for taxing lotteries and gaming, with withholding tax channeled to states.
Conclusion
The 2025 tax reforms represent a massive leap toward a more equitable, transparent, and efficient tax regime. From workers earning less than ₦100k monthly to high-net-worth individuals and global investors, everyone has something to gain.
By simplifying compliance and removing unfair tax burdens, Nigeria is positioning itself for inclusive economic growth and enhanced domestic revenue generation.
At ChampsPro Consulting, we are committed to helping individuals and businesses navigate the new tax environment. Whether you need support with payroll structuring, legal compliance, tax strategy, or regulatory reporting, our team of experts is here to help you unlock every benefit these new laws offer.
About the writer:
ThankGod Simeon is a corporate commercial lawyer, business process analyst, and HR consultant. With a deep understanding of regulatory compliance, workforce strategy, and operational efficiency, he advises businesses and individuals on aligning legal frameworks with sustainable growth and people-centric practices.
