Beyond the legal clean-up, the NTA ushers in changes that could impact how nearly every Nigerian earns, spends and invests. The NTA broadens the definition and scope of taxable income, introducing categories that reflect modern economic realities, from cryptocurrencies and digital tokens to unconventional financial returns like securities lending. This is not just legal housekeeping; it’s a recognition that wealth today is generated in ways traditional tax systems may not have envisaged.

For the average Nigerian, this could mean that one-off earnings, such as digital rewards, prize money, or even profit from the sale of virtual assets, may no longer be overlooked for tax purposes. Admittedly, this might be seen as an unwelcome if not needless expansion, rather than a fairer way to contribute to government revenue, especially with the recognition of income from digital assets.

The NTA retains the progressive personal income tax system but revises its brackets to favour low-income earners. Minimum wage earners remain exempt, while higher incomes are taxed in tiers, from zero per cent on the first ₦800,000 to 25 per cent on earnings above ₦50 million. For wage earners and companies that bear the burden of their employees’ employment taxes, this may free up cash at the lower end. Relatedly, given Nigeria’s skewed income distribution, where less than 0.4 per cent of the population earn above ₦1 million, the revised income tax regime appears more favourable to a larger proportion of the workforce, leaving them unaffected. However, this may result in reduced tax revenue for individual states that administer personal income tax. Considering Nigeria’s fiscal realities, it is foreseeable that the Internal Revenue Services of various states may respond by seeking alternative revenue sources through the imposition of permissible levies and taxes within their jurisdiction, or by adopting more stringent enforcement measures on income earners within the taxable bracket. Notably, the NTA empowers tax authorities, through the introduction of presumptive taxation, to estimate a person’s income where proper records are missing or unreliable. Instead of relying solely on formal accounts, they can use indicators such as business type, size, location, or visible assets to determine owed taxes. This means informal or cash-based businesses can no longer avoid tax simply by not keeping books. Thereby, broadening the tax net and encouraging better record-keeping.

For SMEs, the NTA expands the turnover threshold for classification of a ‘small company’ from ₦25 million to ₦50 million, alongside a cap of ₦250 million on total fixed assets. These businesses remain exempt from companies’ income tax and the newly introduced 4 per cent development levy, giving businesses within the qualifying turnover and asset threshold breathing room to formalize operations without immediate tax pressure. The improved threshold brings more SMEs under the protective umbrella of tax relief, reducing compliance pressure and operational costs. It also creates a more enabling environment for informal businesses to formalize without immediate tax liabilities. However, the exclusion of professional service firms (which remain undefined) from the foregoing raises curiosity as to what could have informed such. That is, even where professional service firms have an annual turnover below ₦50 million and an aggregate net asset below ₦250 million, the tax benefit accruable to such companies would still not apply to them.

For large companies, the NTA holds the line on headline rates but tightens compliance expectations. While the earlier regime imposed a graduated rate of 20 per cent to 30 per cent on companies’ income tax rate, depending on annual turnover, the NTA flattens the rate to 30 per cent irrespective of the annual turnover. The NTA also introduces an additional layer of compliance through a minimum effective tax rate (ETR) of 15 per cent for companies with an annual turnover of ₦20 billion or more, and companies that are constituent entities of a multinational enterprise (MNE) group. The NTA defines ETR to mean the rate produced by dividing the aggregate covered tax paid by a company for a year of assessment by the profit of the company. For the purpose of determining the ETR, profit is regarded as profit before tax per the audited financial statements, less than five per cent of depreciation and personnel costs in the year.

Where the actual tax paid by such companies falls below the ETR, an additional tax liability is imposed to bring their ETR up to the required minimum. Additionally, where the income tax paid by a non-resident company, which is a subsidiary of a Nigerian company or a member of a multinational group of a Nigerian company in any year, yields less than the minimum effective tax rate, the Nigerian parent company is required to pay an amount to make that non-resident subsidiary’s income tax equal to the minimum ETR. This addition recognizes Nigeria’s intention to harmonize its tax rules with international best practices.

Further, the NTA introduces a four per cent development levy on all companies other than small companies and non-resident persons. The proceeds of the levy are earmarked for strategic national development funds in education, technology, defence and cybersecurity. Thus, this replaces taxes such as the tertiary education tax, National Agency for Science and Engineering Infrastructure levy, and Police Trust Fund levy, all of which have now been repealed.

Generally, the NTA redefines what it means to have a taxable presence in Nigeria by setting out new rules on permanent establishment and significant economic presence, expanding the scope beyond what was obtainable under existing provisions. This raises concerns for non-resident businesses with economic activities in Nigeria, as such activities will now need to be reassessed against the NTA to determine whether they trigger increased compliance obligations.

Finally, the VAT system, while modernized, remains at 7.5 per cent. By expanding VAT exemptions to basic goods like food, education supplies and medical products, the government is attempting to shield everyday consumers from indirect tax hikes on essential items. However, the shift to e-invoicing and VAT fiscalization signals a clampdown on under-reporting of VAT, especially on large taxpayers. While this may improve VAT reporting and collection, it may have unintended consequences of demonstrating aggressive behaviour by the tax authorities.

These changes are bold and stiff, signalling a clear direction for Nigeria’s tax administration. One hopes that Nigeria’s tax authorities will roll out circulars, implementation guidelines and directives to ease taxpayers into this new era, as many new innovations still remain undefined and unclear as to their practical application. However, as is often the case in Nigeria, the risk remains that the coordinated effort required for ground-level execution may be missing. This may result in certain reforms becoming passive and ineffective, thereby undermining the intended objectives of the tax reforms.