Abdussalam Muhammad Kani, Ph.D,
As Nigeria prepares for the implementation of the Nigerian Tax Act, 2025, effective January 1, 2026, misinformation has spread rapidly among citizens and businesses.
Claims that “75% of income above N900,000 will be taxed” or that “all business owners will lose their profits to the government” are all a pack of lies and have created unnecessary fear.
The Fiscal Discipline and Development Advocacy Centre (FIDAC) dwells specifically on the Personal Income Tax and Corporate Income Tax, as these have generated the most misinformation.
Contrary to circulating rumours, the Nigerian Tax Act, 2025 actually introduces fairer and more progressive provisions under Personal Income Tax (PIT) aimed at protecting low and middle-income earners while improving compliance.
For instance, the Act provides N0 tax on the first N800,000 of annual income, protecting low-income workers from undue burden.
To ensure that taxes apply only to actual disposable income, deductions for pension contributions, health insurance and all other eligible deductions are made before tax is calculated.
It also offers rent relief and home loan interest deduction for workers who take loans to build their owner-occupied residential homes.
Similarly, members of the armed forces and other security agencies engaged in frontline operations are exempted from PAYE tax.
For instance, an employee earns N2,400,000 annually, contributes N200,000 to pension and N100,000 as health insurance scheme, pays N240,000 as rent relief, his taxable income is N1,860,000.
The first N800,000 out of the N1,860,000 is tax-free, and the balance N1,060,000 is taxed at 15% i.e., N156,000 per annum and N13,250 monthly. This structure protects low-income earners while ensuring equity.
Beyond the major corporate tax incentives, the Nigerian Tax Act, 2025 introduces several forward-looking provisions designed to make compliance easier, promote accountability, and align Nigeria’s tax system with modern business realities.
The new Act increases the exemption threshold for small companies from N25 million to N50 million. This means companies with annual turnover below N50 million pay no corporate tax, except professional service firms like law, accounting, and consulting firms.
To improve cash flow for struggling firms, companies making no profit, no longer need to pay a mandatory “minimum tax.”
Also the previous 20% tax for “medium companies” is abolished, simplifying the system.
Capital allowance and loss relief are also part of the incentives offered to businesses and companies under the new Act. Deduction for pre-commencement expenses is also introduced.
For instance, a company earns N100m as turnover with N80m as expenses, including capital allowance and loss relief deductions.
The profit of N20m is taxed progressively under the approved tax bands of 15%, 18%, 21%, 23% and 25%.
The Act exempts small businesses from the requirement to deduct and account for tax on payments to vendors, thereby easing administrative burdens and reducing compliance costs for micro and small enterprises.
A simplified statement of accounts, duly attested to by the business owner, is now acceptable for tax returns in place of audited financial statements.
This measure acknowledges the practical realities faced by small enterprises that may not have access to professional audit services while still ensuring accountability.
The Act also introduces the Office of the Tax Ombud, an independent entity mandated to protect taxpayers against arbitrary assessments, unfair treatment, and administrative bottlenecks.
This office will serve as a neutral avenue for dispute resolution between taxpayers and revenue authorities, promoting fairness and trust in the system.
Another significant provision is the economic development incentive for priority sectors, replacing the old “pioneer status” scheme.
This incentive focuses on industries critical to national growth, such as agriculture, renewable energy, technology, and manufacturing, by offering targeted reliefs and encouraging private investment in areas with high development potential.
In recognition of emerging work patterns, the new law provides friendly tax rules for remote workers and digital nomads, ensuring that individuals earning income across borders are fairly taxed without double taxation or undue complexity.
The Act also raises the exemption threshold for compensation for loss of office or employment from N10 million to N50 million, protecting employees who receive severance or redundancy packages from excessive taxation.
However, the public need to know that definition of taxable income is expanded to include income from prizes, winnings, honoraria, grants, and awards.
Non-cash benefits such as accommodation, vehicles, and school fees are also taxable as provided in the new Tax.
Presumptive tax for small businesses and informal traders without proper accounting records is also introduced, and the government may assess tax based on estimated turnover, business type, or location, making compliance simpler and fairer.
While the Nigerian Tax Act 2025 is progressive and pro-business, FIDAC noted that without proper guidelines, presumptive tax may lead to arbitrary assessments on small businesses.
On fiscalization-electronically recording, validating, and monitoring financial transactions-FIDAC observes that many small taxpayers may struggle with new digital compliance requirements.
We also noted the enforcement concerns that, strict enforcement without transparency could breed harassment or corruption.
Other key challenges include ensuring consistency across states, preventing misuse of presumptive tax, and avoiding harassment during enforcement
While commending the equity and transparency built into the Acts, FIDAC calls for public sensitization, capacity building for tax officials, and independent monitoring to ensure the spirit of reform, equity, simplicity, and fairness, is upheld.
The Federal Inland Revenue Service (FIRS) and State Revenue Services must intensify tax education and public enlightenment campaigns to dispel misinformation, promote transparency, and ensure that Nigeria’s tax reform truly delivers on its promise of fairness, development, and accountability.
FIDAC urges every taxpayer, individual and corporate, to obtain a Tax Identification Number (TIN), keep accurate financial records, take advantage of available reliefs and incentives, and stay informed through credible sources rather than rumours.
If implemented with transparency, clarity, digital readiness, and accountability, the Nigerian Tax Acts, 2025 will serve as blueprint for fiscal justice and economic revitalization.
By embracing transparency and cooperation, Nigerians can transform the new tax regime into a foundation for inclusive growth, accountability, and sustainable development.
FIDAC is a non-governmental organization raising the standards of fiscal discipline and development in Nigeria by inspiring a community of active citizens to demand fiscal transparency, accountability, institutional reforms, and efficient service delivery.
Kani, Ph.D, is the Executive Director of FIDAC
