Nigeria’s tax reforms, signed into law in June 2025, are designed to be progressive, with specific provisions aimed at protecting low-income earners and other vulnerable groups while expanding the tax base for high-income individuals and large corporations. Although the reforms include strong safeguards, some regions and sectors may still experience indirect effects.
Protection for Vulnerable Groups
The reforms deliberately shield low-income individuals and small businesses from additional financial strain.
Low-income earners
Individuals earning ₦800,000 or less per year are fully exempt from personal income tax (PAYE). The new progressive tax structure significantly reduces the tax burden for the majority of salaried workers.
Consumers of essential goods and services
Several essential goods and services are now zero-rated for Value Added Tax (VAT), meaning consumers no longer pay the 7.5% VAT on:
Basic food items
Medical and pharmaceutical products
Educational books, materials, and tuition fees
Electricity generation and transmission
Public transportation and residential rent
These exemptions help cushion vulnerable households against rising living costs.
Small and medium enterprises (SMEs)
Businesses with an annual turnover of ₦50 million or less are exempt from Companies Income Tax (CIT), VAT, and withholding tax. This relief supports business growth, sustainability, and formalization.
Informal sector workers
A simplified presumptive tax regime is being introduced to gradually integrate informal workers into the tax system without imposing undue burdens on small-scale activities.
Areas of Potential Concern
Despite its protective framework, the reforms raise some concerns.
Regional disparities
The revised VAT-sharing formula allocates 55% of VAT revenue to states based on consumption, which may disadvantage states with lower levels of economic activity, particularly in northern Nigeria.
Implementation challenges
The success of the reforms depends on transparent and efficient implementation. Poor management or corruption could prevent vulnerable populations from benefiting from increased public investment in healthcare, education, and infrastructure.
Indirect cost pressures
Although essential goods are VAT-exempt, higher operating costs for large businesses—such as the new 4% development levy—may result in price increases that indirectly affect low-income households.
Digital exclusion
The transition to digital tax compliance, including e-invoicing and digital identity integration, may pose challenges for individuals and small businesses in areas with limited digital infrastructure or low digital literacy.
Nigeria’s new tax regime offers significant protections for low-income citizens, but its overall impact will depend on equitable implementation, regional balance, and effective use of tax revenues to improve public services.
