Key Changes in Nigeria's Tax Space: What’s Effective from January 1, 2025, and What Could Have Been

As we step into 2025, Nigeria’s tax landscape is undergoing a transformation that promises to streamline compliance, reduce burdens, and enhance revenue collection. However, not all of the proposed changes are in effect yet. Some key aspects of the Tax Reform Bills are still pending at the National Assembly, and their delay means certain reforms are on hold. Here’s a closer look at the tax changes effective from January 1, 2025, and a look at what could have been if the reforms had followed the proposed timeline.

Effective from January 1, 2025: Key Tax Changes

The Withholding Tax (WHT) regulations are the most immediate and impactful change in Nigeria’s tax space starting from January 1, 2025. The reform introduces new rates and processes for WHT deductions, aimed at improving the efficiency and transparency of tax remittance. By updating the WHT rules, the government seeks to reduce tax evasion and improve compliance. Businesses and individuals must now navigate these new regulations to ensure proper deductions and remittances to the Federal Inland Revenue Service (FIRS).

This change will have an immediate impact on a wide range of transactions, especially for businesses that deal with payments subject to WHT.

What Could Have Been: Missed Opportunities Due to Delays in Tax Reform Bills

While some tax changes are effective immediately, many significant reforms are on hold due to the delay in passing the Tax Reform Bills through the National Assembly. Had the reforms followed the original timeline, Nigeria would have experienced a more rapid transformation in its tax space. Here are the reforms that would have been in place by 2025:

1. Corporate Income Tax (CIT) Reduction

One of the major benefits of the Tax Reform Bills was the progressive reduction of Corporate Income Tax (CIT). Under the proposed reforms:

• Small companies (with turnover below ?25 million) would have been exempt from CIT, stimulating growth among small and medium-sized enterprises (SMEs).
• Medium and large companies would have seen their CIT rates progressively reduced: In 2025, the CIT rate would have been reduced from 30% to 27.5%. From 2026 onwards, it would have dropped further to 25%.

This reduction in corporate tax rates would have positioned Nigeria as a more attractive destination for business investments, improving the competitiveness of companies operating in the country.

2. Harmonised Development Levy

Another key change that would have been in effect is the consolidation of multiple annual deductions into a single Development Levy. This reform simplifies the tax structure by merging the following taxes:

• Tertiary Education Tax (TET), which was previously 3% of assessable profits.
• NASENI Levy set at 0.25% of turnover for companies with annual revenues exceeding ?4 million.
• Information Technology Tax (ITT), which was 1% of profit before tax for certain industries like banking and telecommunications.

The Development Levy will start at 4% in 2025 and 2026, reducing progressively to 2% by 2030. This simplification allows businesses to focus on fewer tax obligations, while the allocation of proceeds will support crucial national funds like the Tertiary Education Trust Fund (TETFUND) and the Student Education Loan Fund (NELF).

3. Personal Income Tax (PIT) Reduction

One of the most notable changes in the Nigeria Tax Bill (NTB) is the progressive reduction in Personal Income Tax (PIT) rates. The new provisions aim to reduce the burden on low-income earners and bring more fairness to the system.

The new PIT rates, outlined in the bill, are as follows:

• First N800k – 0%
• Next N2.2m – 15%
• Next N9m – 18%
• Next N13m – 21%
• Next N25m – 23%
• Above N50m – 25%

In comparison, the previous PIT rates were as follows:

• First N300k – 7%
• Next N300k – 11%
• Next N500k – 15%
• Next N500k – 19%
• Next N1.6m – 21%
• Above N3.2m – 24%

The new rates reflect a more pro-poor tax regime, as individuals earning up to ?800,000 annually (approximately ?66,000 per month) will be exempt from paying PIT. This would benefit more than 70% of Nigerians, including minimum wage earners, who will no longer be subject to income tax. Additionally, employees of start-ups and technology-driven service providers will be exempt from PIT under the new provisions, providing a significant boost to youth employment in the ICT sector.

The new progressive tax rate ensures that only high earners, with an annual income above ?50 million, will pay the highest tax rate of 25%. This adjustment makes the tax system fairer by ensuring that wealthier individuals contribute more, while lower-income earners face minimal tax burdens.

4. Value Added Tax (VAT) Increase

Another proposed change under the reform was the gradual increase in Value Added Tax (VAT), from the current 7.5% to 10% by 2025. This adjustment was aimed at boosting revenue for the government while still providing businesses time to adjust to the higher rates. Unfortunately, this VAT increase has not been implemented as originally planned due to the delay in passing the reform.

Furthermore, the proposed allocation formula for VAT proceeds was set to change. The new distribution would ensure that a larger portion of VAT revenues goes toward state and local governments, enhancing their ability to fund developmental projects. These changes were designed to address the regional inequalities in revenue distribution, enabling more equitable development across the country.

For more on the key changes in VAT, read my previous article.

5. Funding for National Initiatives

Had the Tax Reform Bills passed according to the original timeline, more funds would have been available for critical national initiatives such as education, infrastructure development, and technology. Specifically, the harmonization of taxes and the redistribution of revenue through the Student Education Loan Fund (NELF) and the National Information Technology Development Fund (NITDF) would have provided substantial funding for these key areas, accelerating Nigeria's economic development.

Progress or Procrastination: Navigating the Unfinished Business of Nigeria's Tax Reforms

As Nigeria enters 2025 with some key reforms now in place, the delays in the Tax Reform Bills raise questions about what could have been achieved. The changes that are effective — including the new Withholding Tax regulations — mark significant progress toward a more efficient and equitable tax system. These reforms are particularly beneficial for low-income companies and emerging industries like technology, setting the stage for a fairer tax structure.

However, the delayed implementation of other key reforms, such as the Corporate/Personal Income Tax reductions, VAT revenue distribution, and enhanced tax administration systems, leaves a sense of missed opportunities. If these changes had been enacted sooner, Nigeria could have seen faster economic growth, better funding for national initiatives, and a more attractive environment for foreign investment. Or so it seems.

This tension between progress made and progress delayed underscores the ongoing challenges in Nigeria’s tax reform journey. As the bills continue to make their way through the legislative process, the country must weigh its immediate gains against the long-term benefits of a fully reformed tax system.

Ultimately, the question remains: How long can Nigeria afford to wait for the full implementation of these crucial reforms? The answer will determine the future trajectory of the country’s tax landscape and its broader economic development.

As we await the passage of the Tax Reform Bills, businesses and individuals must adapt to the new regulations already in place while keeping an eye on the reforms that could soon reshape the tax system for the better.

In conclusion, while delays in passing the Tax Reform Bills have postponed some key changes, the reforms already implemented offer a glimpse of a simpler, more efficient tax system. With continued efforts toward tax modernization, Nigeria’s tax future holds great promise for businesses and the economy as a whole.