President Bola Tinubu has signed into law four major tax reform bills, bringing about the most comprehensive overhaul of Nigeria’s tax structure in decades.
The laws, proposed in 2024 by the Presidential Committee on Fiscal Policy and Tax Reforms, aim to simplify the tax system, widen the formal tax base, protect low-income earners, and increase compliance across sectors through stricter enforcement measures.
Here is what you need to know:
FIRS Rebranded as Nigeria Revenue Service with Expanded Powers
A major institutional shift in the new tax framework is the transformation of the Federal Inland Revenue Service (FIRS) into the Nigeria Revenue Service (NRS). The renamed agency is now vested with broader powers, taking over revenue functions previously handled by several major government bodies including the Nigeria Customs Service, Nigerian Ports Authority, NIMASA, and the Nigerian Upstream Petroleum Regulatory Commission.
This centralization of tax collection under the NRS is designed to reduce duplication, block leakages, and create a unified platform for fiscal oversight. Experts believe the move could streamline administration and improve efficiency—provided that inter-agency coordination challenges are properly managed.
Low-income Nigerians (N800,000 or less per annum) Pay No Tax
At the heart of the reforms is a redesigned Personal Income Tax framework that significantly raises the threshold for taxable income. Under the previous regime, individuals earning N300,000 annually were liable to pay a minimum of 7% in taxes. The new law lifts the exemption threshold to N800,000, meaning anyone earning that amount or less per year pays zero tax.
For middle- and upper-income earners, a new sliding scale applies, ranging from 15% to 25%, depending on income levels. For example, someone earning N3 million to N12 million annually will now pay N1.95 million in tax, while those making above N50 million will part with 25% of earnings beyond that threshold.
The restructuring is a major shift toward progressive taxation, long advocated by policy experts to align tax obligations with the ability to pay. However, the actual impact on tax revenue is expected to be limited—at least in the short term.
VAT Stays At 7.5%, Zero on Essential Goods
The new laws also revise Value Added Tax (VAT) rules to ease the burden on everyday Nigerians. The VAT rate remains at 7.5%, but lawmakers have exempted essential items such as food, healthcare, education, public transport, house rent, and renewable energy products. These categories represent a significant share of household spending, especially among lower-income groups.
While these exemptions are expected to ease inflationary pressures and protect purchasing power, they may also reduce overall VAT collections. Lawmakers tried to balance this by changing the VAT-sharing formula, favoring the place of consumption rather than the point of origin. The goal is to ensure that states where goods and services are consumed receive a fairer share of VAT revenue.
Mandatory Tax Filing
The reforms also end the automatic tax shield that employees previously enjoyed under the Pay-As-You-Earn (PAYE) system. Under the new framework, every employee—regardless of income type—must now file an annual tax return disclosing all sources of income, not just their salary. This includes rental income, dividends, freelance work, and crypto earnings.
The move is intended to plug gaps in the informal sector and prevent under-reporting of income. However, the capacity of tax authorities to enforce these provisions effectively across millions of informal workers remains uncertain.
TIN Now Required for Banking, Government Contracts, and Digital Finance
The reforms make possession of a Tax Identification Number (TIN) a legal prerequisite for several everyday transactions. Nigerians will now need a TIN to:
- Open or operate a bank account
- Register for insurance or stock trading
- Sign contracts with government bodies
- Access certain digital finance services
To ensure full coverage, the law empowers authorities to automatically assign TINs to individuals and businesses that fail to register voluntarily. The aim is to bring more people into the tax net—but again, enforcement could prove difficult in a largely informal economy.
Banks Must Report Large Transactions
In a move aimed at curbing tax evasion and money laundering, banks and financial institutions must now report individuals whose total monthly transactions exceed N50 million, and companies that exceed N250 million. This requirement was raised from N25 million for individuals after pushback during the legislative review.
Failure to comply attracts a N50,000 fine in the first month, and N25,000 monthly thereafter. Additionally, companies that issue contracts to unregistered individuals face an N5 million fine.
Crypto, and NFTs, Now Taxable as Digital Assets
The new tax laws explicitly categorize digital assets such as cryptocurrencies and NFTs as taxable property. While the 2023 Finance Act had already acknowledged these assets as chargeable, the new laws provide more clarity and enforcement power to tax authorities. This applies to both residents and non-residents who earn income from digital asset transactions in Nigeria.
Corporate Tax and Development Levy
Lawmakers retained the 30% corporate income tax rate, rejecting earlier proposals for a gradual reduction. However, the definition of small companies was adjusted upward to include businesses with up to N50 million in annual turnover.
A new National Development Levy, ranging from 2% to 4%, will be applied to support national priorities such as TETFund, NITDA, NASENI, education, and security. This levy is meant to support federal investment in critical sectors without solely relying on oil revenue or debt.
Only 10% of Nigerians Earn Enough to Pay Income Tax
While the reforms introduce bold steps in aligning tax policy with economic realities—such as expanding exemptions, improving revenue collection, and incorporating digital asset taxation—analysts warn that the revenue returns may fall short of expectations due to the sheer scale of poverty and informality in the economy.
Despite Nigeria’s large population, the majority of citizens fall below the new income thresholds. According to a 2023 report by Intelpoint, a Lagos-based analytics and research firm, only 10% of Nigerians earned above N100,000 monthly, or N1.2 million annually. This means the overwhelming majority of Nigerians will now be exempt from personal income tax under the new structure.
This means government revenue from income tax may remain modest, despite the expanded framework. With only a small share of Nigerians earning enough to be taxed, and with most of the economy still informal, the potential gains will depend heavily on economic growth, job creation, and rising incomes in the coming years.
The government’s hope is that by broadening the legal framework, simplifying compliance, and closing loopholes, Nigeria can gradually build a more inclusive and sustainable tax culture. But in the short term, the most visible outcome of the new laws will be greater financial scrutiny, more enforcement, and a broader expectation that every Nigerian must now be tax-visible, even if they are not yet tax-liable.
