Olusola Bello
For several decades, Nigeria has operated with archaic and outdated tax laws that have stifled economic development. The current tax regime has multiple layers that do not allow companies or industries to grow the way they should have grown. As a matter of fact, they discourage investment. For instance, there are so many taxes that have to be paid at the local government level, ditto the state level. The Nigerian situation has come to a level that every community, local government, could just wake up one morning and announce one tax or the other.
This situation portends very dangerous omens for the Nigerian economy. The worst thing is that people who are supposed to enjoy the benefits of the multiplicity of taxes don’t feel the impact. The mode of tax collection also created a loophole for the money collected to end up in private pockets. Moreover, many vulnerable Nigerians are the ones paying taxes at the moment, while the ‘big boys’, including companies, have short-changed the country in numerous ways, to the detriment of our economic growth.
President Bola Tinubu’s administration, having observed this tax situation critically, decided that it is not good for the country and that drastic action needed to be taken to address the situation. Consequently, new tax laws were framed and sent to the National Assembly as bills, which have now been passed into law as the Nigerian Reforms Acts. Two of the tax laws are in operation already, while the other two will commence implementation on January 1, 2026.
The implementation of the other two tax laws is, unfortunately, generating a lot of apprehension among Nigerians, especially the business concerns, and this should be so if only Nigerians could see the benefits associated with these tax reforms. Politicians have capitalized on the ignorance of the majority of Nigerians to say that it is going to add to their poverty level, increase the burden on businesses.
This is far from the truth; it would rather create more jobs, attract more investment, and help in growing our GDP if the laws are properly implemented. Therefore, the fears being entertained by Nigerians are not necessary and are misplaced. So investors shouldn’t fear Nigeria’s new tax reforms because they aim to enhance predictable, simpler, and fairer system, eliminating multiple taxes, offering relief to small businesses (SMEs) and low earners, closing loopholes, and building a stronger economic foundation, and signaling a commitment to a stable investment environment.
A diligent study of the reforms proves that they will make the country more competitive. How? Some of the numerous taxes have been consolidated into what is known as the Development Levy. Multinational companies will be paying 15 % minimum tax, which is the global modus operandi. Capital gains taxation will be modernized to be in tune with our realities of today.
With the merging of so many of the levies currently in existence into one it means there will be a reduction in investor cost of doing business, cost of compliance, and they will be able to make predictions about their business. This is against what is currently happening, where we have so many agencies for specific levies created with the attendance consequences of uncertainty.
To address this situation, the new tax reforms created what is called the Development Levy, which will take care of a litany of taxes in the present regime. This Development Levy set out as a unified framework for funding education, defence, security, technology, and cybersecurity from a single pool, signalling to investors that the era of ad hoc earmark taxes is finally over.
Certainty and simplicity are some of the values investors hold dear to their hearts, and the Development Levy will deliver both. The 4% Development Levy, which is correctly being misunderstood by companies,is to replace all scattered levies such as the Tertiary Education Tax (3%), NITDA Levy (1% of PBT), NASENI Levy (0.25%), and the Police Trust Fund Levy. Some have incorrectly described it as “a new tax.” It is not. It replaces a chaotic regime of fragmented earmarked taxes, including the Tertiary Education Tax (3%), NITDA Levy (1% of PBT), NASENI Levy (0.25%), and the Police Trust Fund Levy.
According to Tope Fasua, Special Adviser to President Bola Tinubu on Economic Affairs, an Entrepreneur, Economist, Politician, and also a writer, he said: “ one of the areas that is the most misunderstood elements of the reform is the 4% Development Levy. Some have incorrectly described it as a new tax.” It is not. It replaces a chaotic regime of fragmented earmarked taxes, including the Tertiary Education Tax (3%), NITDA Levy (1% of PBT), NASENI Levy (0.25%), and the Police Trust Fund Levy. When aggregated, these distinct levies imposed an effective tax burden that could exceed 4% particularly for companies in the technology, telecommunications, and financial sectors.
Furthermore, small businesses with a turnover of 100 million and below and non-resident companies are now exempted from the Development Levy. Another area that has generated anxiety is the treatment of Free Trade Zones. Critics suggest that the government watered down their incentives. Again, this is incorrect. A careful reading of Section 60 and the Second Schedule of the NTA reveals a policy designed to curb tax base erosion while sustaining incentives for genuine exporters. The NTA maintains the core tax-exempt status of Free Trade Zone entities but imposes critical conditions to ensure these zones serve their primary economic purpose: generating foreign-exchange earnings through exports.”
He stated that the Nigerian Tax Act has now set a 25% threshold for domestic sales by FTZ companies. If an FTZ enterprise sells up to 25% of its output into the Nigerian market, it continues to enjoy exemptions for a three-year transition period (2026 to 2028). The intention behind the establishment of FTZs is that they should attract exporters, manufacturers producing for global markets, logistics hubs, and high-value assembly plants. They are not meant to attract companies enjoying tax-free status while competing unfairly with Nigerian firms inside the domestic economy.
Without doubt, these tax reforms, which are anchored by the new Nigeria Tax Act (NTA) and Nigeria Tax Administration Act (NTAA), can best be described as one that represents one of Nigeria’s most pro-investment, pro-market, and modernising tax policy updates in decades, Fasua stated
“It is far from undermining growth and competitiveness. The reforms simplify the tax landscape, align Nigeria with global best practices, reduce compliance burdens, and protect both businesses and individuals from outdated rules. More importantly, the reforms are fundamentally progressive, in line with Mr President’s promise to improve the standard of living of all Nigerians,” he said.
