The portion of profits that banks can retain may increase when the new tax laws take effect. On Thursday, President Bola Tinubu signed four tax reform bills into law: the Nigeria Tax Act, the Nigeria Tax Administration Act, the Nigeria Revenue Service Act, and the Joint Revenue Board Act, collectively referred to as “the Acts”.
The bills have been touted as a major step toward bringing Nigeria’s tax regime into the 21st century by consolidating the country’s fragmented tax laws into a harmonised statute and establishing a uniform legal and operational framework for tax administration across federal, state, and local governments.
According to an analysis by the professional services firm PwC, the Acts introduce at least 20 changes that will impact taxpayers. One of the key changes is that small companies are now exempt from Companies Income Tax, Capital Gains Tax, and the newly introduced Development Levy. Small companies are defined as those with an annual gross turnover of N100 m (previously N25 m) or less and total fixed assets not exceeding N250 m.
The Acts also introduce a development levy set at four per cent of assessable profits (i.e., tax profits before deducting depreciation and losses) for Nigerian companies, excluding small companies.
“The Development Levy consolidates the Tertiary Education Tax, the Information Technology Levy, the National Agency for Science and Engineering Infrastructure Levy, and the Police Trust Fund Levy,” PwC explained.
According to the Federal Inland Revenue Service, the education tax is three per cent of assessable profit and is imposed on all companies incorporated in Nigeria. This tax is viewed as a social obligation requiring companies to contribute to the development of educational facilities in the country.
The National Information Technology Development Agency Act 2007 mandates specified companies to contribute one per cent of their profit before tax to the agency. Section 4 of the Nigeria Police Trust Fund (Establishment) Act 2019 requires companies operating in Nigeria to contribute 0.005 per cent of their profit before tax to the Trust Fund. The NASENI Act (Cap N3 LFN 2004) stipulates that commercial companies and firms with income or turnover of N100 m and above must contribute 0.25 per cent of their profit before tax to the NASENI fund.
Combined, these levies amount to over four per cent. However, with their consolidation into a single development levy, banks may retain more funds.
Speaking about the new tax Acts, Ayotunde Olubunmi, Head of Financial Institutions Ratings at Agusto & Co, said, “I think the real beauty for the banks is that all the different levies, including the Education Tax, NASENI levy, and others, are now bundled into a four per cent share of their taxable income. This helps banks with better planning and consolidation. It may also slightly reduce their tax liability since they now deal with one unified levy instead of multiple charges.”
Olubunmi added that the new tax laws will strengthen collaboration between banks and tax authorities.
“There is a provision requiring banks to work with tax authorities on planning. We’ll likely see more collaboration between both parties. Over the past three years, tax authorities, at both state and federal levels, have focused on tracking the cash flows in business and individual accounts. So, we’ll likely see increased monitoring of company accounts to verify claims, especially from small businesses declaring less than N200m in annual revenue.”
He noted that some Acts already mandate banks to share such information with tax authorities.
The financial analyst further stated that the Acts aim to “protect the vulnerable and block loopholes in the tax regime that the wealthy have long exploited.”
In its analysis, PwC agreed that the Acts mark a significant transformation in Nigeria’s tax landscape.
“It is crucial for businesses to carry out a comprehensive review of their tax strategies, processes, and compliance frameworks to ensure readiness and resilience,” the firm said.
It added, “Reframe your tax strategy to align with your commercial goals. The tax function will need to do more to protect business value amid changes from the new laws and technologies like VAT fiscalisation. Maintain a live risk register to identify, monitor, and manage tax risks in real time.”
PwC also urged businesses to update compliance processes, stating, “Taxpayers must revise systems to accommodate new rates, revised obligations, filing requirements, information-sharing protocols, and input VAT claims.
Update accounting software and ERP logic to align with new rules, and ensure end-to-end compliance, especially with upcoming changes such as e-invoicing.”
They advised companies to develop internal and external communication strategies regarding these changes.
VAT, local governments, and revenue allocation
The new VAT sharing formula reduces the Federal Government’s share from 15 per cent to 10 per cent while increasing allocations to states and local government areas to 55 per cent and 35 per cent, respectively. Of the VAT revenue allocated to states and LGAs, 50 per cent is divided equally, 20 per cent is based on population, and 30 per cent is based on the place of consumption.
The President of the Chartered Institute of Taxation of Nigeria, Innocent Ohagwa, commended President Tinubu for signing the Acts, saying, “The signing of the new tax Acts by His Excellency, President Bola Tinubu, GCFR, marks a historic and commendable milestone in Nigeria’s fiscal reform journey. It reflects the government’s resolve to use tax policy as a strategic tool for economic growth, stability, and shared prosperity.”
He praised all stakeholders involved in the reforms and called on CITN members to support implementation: “The Institute will continue to offer technical expertise to ensure these reforms deliver lasting progress in Nigeria’s tax system.”
On increased VAT allocations, Ohagwa added, “With more funds, citizens will naturally demand greater transparency and improved service delivery from state and local governments. This is a golden opportunity to link taxes to development outcomes. Civic awareness and accountability are now more crucial than ever.”
He urged citizens to advocate for full implementation of the Supreme Court directive on direct allocation remittances to LGAs, saying it would ensure financial autonomy and reduce undue interference from higher tiers of government.
Tunde Amolegbe, CEO of Arthur Steven Asset Management, said the new tax laws “set Nigeria on the path followed by countries that have achieved sustainable economic growth.”
Key highlights of the new tax acts
The Acts introduce stiffer penalties for non-compliance and new obligations.
PwC noted: “Failure to file returns now attracts a penalty of ₦100,000 in the first month and N50,000 for each subsequent month.
An N5m penalty applies for awarding contracts to entities not registered for tax.
There are penalties for obstructing technology deployment or attempting to induce tax officials.
Also, the Nigeria Tax Administration Act requires companies to voluntarily disclose tax planning schemes that provide a tax advantage.
This includes any action that secures new or increased tax relief, results in a tax refund, avoids or defers tax, accelerates repayments, or avoids withholding or payment obligations.
Meanwhile, KPMG commended the new laws but stressed the need for an independent fiscal watchdog: “Nigeria needs an independent body like the UK’s Office for Budget Responsibility to analyse the impact of proposed fiscal policies and improve transparency and accountability.”
