Key Points
- Recent Legislation: On June 26, 2025, President Bola Ahmed Tinubu signed four tax reform bills into law, aiming to simplify Nigeria’s tax system.
- Major Changes: The reforms include increased tax exemptions for small businesses, a new VAT sharing formula, and a Development Levy for larger companies.
- Economic Impact: These changes are likely to reduce the tax burden on small businesses and low-income earners while increasing revenue from larger corporations.
- Mixed Reactions: While the reforms are seen as a step toward economic growth, some businesses express concerns about higher tax rates and compliance costs.
- Action Needed: Businesses should assess the impact and update their tax strategies to align with the new laws.
Overview of the Reforms
On June 26, 2025, Nigeria took a significant step toward modernizing its tax system when President Bola Ahmed Tinubu signed four tax reform bills into law. These bills—the Nigeria Tax Act (NTA), Nigeria Tax Administration Act, Nigeria Revenue Service (Establishment) Act, and Capital Gains Tax Act—aim to streamline the country’s fragmented tax system, reduce the number of taxes, and create a more equitable and business-friendly environment. The reforms are designed to boost economic growth, support small businesses, and enhance revenue collection, but they also introduce new challenges for larger corporations.
Why It Matters
Nigeria’s tax system has long been criticized for its complexity and inefficiency. The new laws seek to address these issues by consolidating taxes, clarifying regulations, and introducing incentives for investment and job creation. For home builders and other businesses, understanding these changes is crucial to ensure compliance and leverage new opportunities, such as tax exemptions and credits.
What to Expect
The reforms introduce significant changes, including tax relief for small businesses and low-income earners, a revised VAT distribution model, and new levies for larger firms. While these changes are expected to foster economic development, they may also increase compliance costs for some businesses. Below, we explore the details of these reforms and their implications.
Nigeria’s Tax Reform Bills: Transforming the Fiscal Landscape
On June 26, 2025, President Bola Ahmed Tinubu signed into law four transformative tax reform bills, marking a pivotal moment for Nigeria’s fiscal policy (State House Nigeria). These bills—the Nigeria Tax Act (NTA), Nigeria Tax Administration Act, Nigeria Revenue Service (Establishment) Act, and Capital Gains Tax Act—aim to simplify the tax system, reduce the number of taxes to a single-digit figure, and promote economic growth (PwC Nigeria). For home builders, small businesses, and large corporations alike, these reforms introduce both opportunities and challenges. This article delves into the key changes, their impacts, stakeholder reactions, and actionable steps for businesses.
Key Changes and Their Impacts
The Nigerian Tax Reform Acts introduce a range of changes designed to modernize and streamline the tax system. Below is a detailed breakdown of the major provisions and their implications, based on insights from PwC Nigeria:
| Key Changes | Impacts |
|---|---|
| Increased Exemption Threshold for Small Companies: Gross turnover ≤ NGN100m (previously NGN25m), fixed assets ≤ NGN250m, exempt from Corporate Income Tax (CIT), Capital Gains Tax (CGT), and Development Levy | Encourages growth and formalization of small businesses, including home builders, by reducing tax burdens. |
| Increased CGT Rate: From 10% to 30% for companies; individuals taxed at progressive Personal Income Tax (PIT) rates | Aligns CGT with CIT, reducing tax arbitrage but increasing tax liability for capital gains, affecting property developers. |
| CGT on Indirect Transfer of Shares: Triggers Nigeria CGT for offshore intermediary disposals; exemption threshold increased to NGN150m (from NGN100m); gains ≤ NGN10m exempt | Expands tax net for international transactions, potentially impacting foreign investors in real estate, subject to treaty exemptions. |
| Introduction of Development Levy: 4% of assessable profits for companies (except small), consolidating TET, IT, NASENI, and PTF levies | Streamlines levies but increases tax burden on larger home builders, funding development initiatives. |
| Minimum Effective Tax Rate (ETR): 15% on Net Income for multinational groups with turnover ≥ EUR750m or NGN50b; Nigerian parent pays top-up tax if subsidiaries below 15% ETR; excludes Free Zone export companies | Ensures minimum tax for large multinationals, potentially increasing compliance costs for big construction firms. |
| Progressive PIT Regime: Income ≤ NGN800,000 exempt; higher rates up to 25%; compensation exemption increased to NGN50m (from NGN10m) | Reduces tax for low-income workers, such as construction laborers, while increasing taxes for high earners, promoting social equity. |
| Economic Development Incentive: Replaces pioneer tax holiday with 5% annual tax credit for 5 years on qualifying capital expenditure; carry forward 5 years | Encourages investment in construction projects, providing tax relief for capital-intensive home builders. |
| Resident and Non-Resident Individuals Defined: PIT on worldwide income for residents; employment income taxed in Nigeria if resident or duties performed in Nigeria without foreign tax | Clarifies tax obligations for expatriates in construction, potentially increasing compliance requirements. |
| Introduction of Tax Ombuds Office: Independent arbiter for tax complaints | Enhances dispute resolution and transparency, benefiting businesses facing tax disputes. |
| VAT at Zero Rate on Essentials: Includes basic food, medical products, educational materials, electricity, medical equipment, tuition, and exports (excluding oil/gas) | Reduces costs for home builders on essential materials and services, improving affordability. |
| Input VAT Recovery: 7.5% VAT rate retained; allows claims on all purchases, including services and fixed assets | Improves cash flow for home builders by allowing VAT recovery on construction-related expenses. |
| VAT Fiscalisation Rules: Codifies e-invoicing, mandatory for businesses | Enhances tax collection and reduces evasion, requiring home builders to adopt digital invoicing systems. |
These changes aim to create a more equitable tax system by reducing the burden on small businesses and low-income earners while increasing revenue from larger corporations and high-net-worth individuals. For home builders, the increased exemption thresholds and VAT recovery options are particularly beneficial, but the new Development Levy and higher CGT rates may pose challenges for larger firms.
Stakeholder Reactions
The tax reforms have sparked a range of reactions. President Tinubu has described the new laws as “the way forward for Nigeria’s prosperity,” emphasizing their role in consolidating fragmented tax laws into a harmonized statute (State House Nigeria). The new VAT sharing formula, where each state retains 30% of the VAT it generates and 50% is shared equally among states, is seen as a move to empower states and incentivize better tax collection (Punch Nigeria).
However, some businesses, particularly larger construction firms, have expressed concerns about the increased CGT rate and the new Development Levy, which could raise operational costs. Experts from Deloitte Nigeria note that while the reforms simplify the tax system, the transition may require significant adjustments in compliance processes, especially for firms with complex operations.
Implications for Home Builders
For home builders, the reforms offer both opportunities and challenges:
- Small Builders: The increased exemption threshold (NGN100m turnover) and zero-rated VAT on essentials like construction materials will reduce costs and improve competitiveness for small firms.
- Large Builders: The Development Levy and higher CGT rates may increase tax liabilities, particularly for firms involved in high-value property transactions.
- Client Impact: The zero-rated VAT on essentials and progressive PIT regime could make housing more affordable for low-income clients, potentially boosting demand.
The introduction of e-invoicing and the Tax Ombuds office will also require home builders to adopt digital tools and prepare for potential tax disputes, enhancing transparency but adding to administrative tasks.
What Businesses Should Do
To navigate the new tax regime, home builders and other businesses should take the following steps, as recommended by PwC Nigeria:
- Sensitize Management and Train Staff: Educate teams on the new tax laws and their implications.
- Assess Impact: Analyze how the reforms affect your business, particularly exemptions and new levies.
- Reframe Tax Strategy: Adjust tax planning to leverage incentives like the Economic Development Incentive.
- Update Compliance Processes: Implement e-invoicing and update accounting systems for compliance.
- Engage Stakeholders: Communicate changes to clients, suppliers, and subcontractors.
- Monitor Developments: Stay informed about clarifications or updates from tax authorities.
Looking Ahead
The Nigerian Tax Reform Acts are a bold step toward a more efficient and equitable tax system. By reducing the tax burden on small businesses and low-income earners, the reforms aim to stimulate economic growth and formalization. However, larger home builders and corporations may face increased costs, necessitating strategic planning. As Nigeria positions itself as a leader in tax reform in Africa, businesses must act swiftly to adapt to these changes and capitalize on new opportunities.
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