By Oyewole Sarumi
On June 27, 2025, President Bola Tinubu affixed his signature to four groundbreaking tax reform bills, heralding what may well become the most consequential fiscal policy transformation in Nigeria’s post-independence history.
This legislative package—comprising the Nigeria Tax Bill (Fair Taxation), Nigeria Tax Administration Bill, Nigeria Revenue Service (Establishment) Bill, and the Joint Revenue Board (Establishment) Bill—represents nothing short of a complete reimagining of the nation’s approach to revenue generation, economic management, and social equity. This is a A Watershed Moment in Nigeria’s Fiscal History
The significance of this moment cannot be overstated. After decades of operating under a fragmented, inefficient, and often predatory tax regime that stifled economic growth and disproportionately burdened the most vulnerable citizens, Nigeria has finally taken decisive steps toward creating a modern, efficient, and equitable fiscal system.
The reforms consolidate over 200 disparate taxes into a streamlined framework of just 10 major levies, establish the Nigeria Revenue Service (NRS) as the centralized authority for federal tax collection, and introduce sweeping protections for low-income earners and small businesses.
Yet as students of public policy well know, the passage of legislation marks merely the beginning of the journey. The true measure of success will lie in the implementation—the complex, often messy process of translating legislative intent into tangible results.
As Nigeria prepares for the January 1, 2026, effective date, this article undertakes a comprehensive examination of the reform package’s transformative potential, the formidable challenges that lie ahead, and the strategies required to ensure these bold reforms deliver on their promise of economic renewal.
The Genesis of Reform: Confronting Decades of Fiscal Dysfunction
To fully appreciate the magnitude of these reforms, one must first understand the dysfunctional system they seek to replace.
For years, Nigeria’s tax environment has been characterized by a bewildering array of levies—some legitimate, many arbitrary—that created an unbearable compliance burden for businesses while enabling rampant revenue leakage.
A 2023 study by the Nigerian Economic Summit Group (NESG) identified no fewer than 97 different taxes, levies, and fees imposed across various tiers of government, with many businesses reporting spending up to 15% of their annual revenue on tax compliance alone.
The establishment of the Presidential Committee on Fiscal Policy and Tax Reforms in August 2023 under the leadership of Taiwo Oyedele, a renowned fiscal policy expert, marked the first serious attempt at systemic overhaul. The committee’s diagnostic work revealed several critical pathologies in Nigeria’s tax ecosystem:
First, the system suffered from acute fragmentation, with multiple agencies—including the Federal Inland Revenue Service (FIRS), Nigeria Customs Service (NCS), and numerous ministries—operating overlapping tax collection mandates. This not only created confusion but also provided fertile ground for corruption, as businesses often faced demands for the same tax from different agencies.
Second, the tax burden fell disproportionately on formal sector businesses and salaried workers, while vast segments of the economy—particularly the informal sector and high-net-worth individuals—contributed minimally. World Bank data showed Nigeria’s tax-to-GDP ratio languishing at just 10.86% in 2023, among the lowest globally and far below the African average of 16.5%.
Third, the system was riddled with perverse incentives and distortions. Numerous tax exemptions—many granted arbitrarily—created an uneven playing field, while complex compliance requirements pushed many small businesses into informality.
The committee’s two-year reform journey involved unprecedented stakeholder engagement, including contentious negotiations with state governors reluctant to cede fiscal authority and federal agencies protective of their revenue streams.
The breakthrough came through a carefully crafted compromise that balanced centralization with federalism, efficiency with equity, and immediate relief with long-term revenue potential.
Key Provisions of the New Tax Regime: A Comprehensive Breakdown
A. The Birth of the Nigeria Revenue Service: Centralization for Efficiency
The establishment of the Nigeria Revenue Service (NRS) as the sole federal tax collection agency represents perhaps the most transformative aspect of the reforms.
By consolidating functions previously dispersed across FIRS, NCS, NUPRC, and other agencies, the NRS aims to eliminate duplication, reduce compliance costs, and enhance transparency.
This centralization follows international best practices. A 2024 IMF study of 50 tax administration reforms worldwide found that countries that consolidated collection functions under a single authority typically achieved 15-20% efficiency gains within three years.
The NRS model draws particularly from successful examples like South Africa’s South African Revenue Service (SARS) and Kenya’s Kenya Revenue Authority (KRA), both of which significantly improved compliance rates after similar consolidations.
However, the transition will not be without friction. The Nigeria Customs Service, which previously collected numerous import-related taxes, has already signaled resistance.
In a March 2025 memo leaked to the press, Customs leadership warned that the reforms could jeopardize national security by undermining the agency’s financial autonomy. Managing this institutional resistance while ensuring uninterrupted revenue flows will require deft political maneuvering in the coming months.
B. Progressive Taxation: Rewriting Nigeria’s Social Contract
The reforms introduce Nigeria’s most progressive taxation framework to date, with specific protections for vulnerable groups:
For Workers: The exemption of minimum wage earners from Pay-As-You-Earn (PAYE) taxes will immediately benefit approximately 12 million formal sector workers, according to National Bureau of Statistics (NBS) data. This builds on global evidence that reducing taxes on low-income workers stimulates consumption and improves living standards. A 2025 World Bank simulation suggested this measure alone could increase disposable income for affected households by 8-12%.
I. For Small Businesses: By exempting over 90% of micro and nano enterprises from corporate income tax and VAT, the reforms address one of the biggest barriers to formalization. The International Finance Corporation (IFC) estimates that Nigeria’s informal sector accounts for over 60% of economic activity but contributes less than 5% of tax revenue. The new exemptions—coupled with simplified registration processes—could bring millions of businesses into the formal economy over time.
II. For Consumers: The zero-rating of VAT on essential items—food, education, healthcare, and transportation—marks a significant departure from previous policy.
Research by PricewaterhouseCoopers (PwC) suggests this could reduce the cost of basic necessities by 4-7%, providing crucial relief amid high inflation.
The inclusion of transportation is particularly strategic, given that transport costs account for nearly 30% of household expenditures for low-income families.
C. The VAT Compromise: Balancing Equity and Federalism
The reforms’ treatment of Value Added Tax (VAT) represents a delicate political compromise. While retaining the 7.5% rate (rather than the proposed increase to 10%), the legislation introduces two critical changes:
First, it modifies the revenue sharing formula to give greater weight to derivation—the principle that states generating more consumption should receive larger allocations. This partially addresses long-standing grievances from high-consumption states, particularly in the South, while maintaining a redistributive element to support less economically vibrant regions.
Second, it establishes clear exemptions to prevent VAT from becoming regressive. Beyond the zero-rating of essentials, the law provides specific protections for small businesses with annual turnover below ₦25 million—a threshold that covers the vast majority of Nigerian enterprises.
The VAT reforms draw lessons from global experiences. In Brazil, a similar shift to destination-based VAT allocation in the 1990s helped reduce regional inequalities while boosting compliance. However, Nigeria’s federal structure adds complexity, requiring robust mechanisms to prevent double taxation and ensure uniform enforcement across state lines.
D. Energy Sector Incentives: Fueling the Transition
The codification of energy sector incentives represents a strategic effort to align tax policy with Nigeria’s energy transition goals. By enshrining Presidential Directive 40 and related measures into law, the reforms provide long-term certainty for investors in oil, gas, and renewable energy—a critical factor given Nigeria’s need to attract $10-15 billion annually to meet its energy infrastructure targets.
The early results are promising. The $6 billion in new investments unlocked since the reforms were announced includes major commitments in gas processing (notably the $2.1 billion UTM Offshore FLNG project) and renewable energy (including a $1.4 billion solar manufacturing initiative by a European consortium).
These incentives position Nigeria to capitalize on shifting global energy investment patterns. As noted in a recent McKinsey report, Africa is projected to receive over $100 billion in energy transition investments by 2030, with countries offering stable fiscal regimes likely to capture the lion’s share
Implementation Challenges: Navigating the Road Ahead
A. Institutional Resistance and Transition Management
The consolidation of tax collection under the NRS will inevitably face pushback from agencies losing revenue streams. The Nigeria Customs Service, which historically derived significant operational funding from tax-related charges, has already hinted at potential service disruptions if its funding model isn’t preserved.
Effective transition management will require first, a clear roadmap for integrating personnel and systems from legacy agencies. Second, a transparent funding arrangements to ensure continuity of critical functions. third, a strong oversight to prevent last-minute revenue diversion
International experience suggests such transitions work best when accompanied by retraining programs and performance-based incentives for affected staff.
B. Digital Infrastructure: Building the Backbone for Modern Taxation
The NRS’s ambitious digital strategy—leveraging NIN, BVN, and other digital IDs to combat evasion—faces significant hurdles:
I. Data Integration: Nigeria’s various identity systems remain siloed, with inconsistent coverage. While NIN enrollment exceeds 90 million, only about 60% of adults have linked it to bank accounts.
II. Cybersecurity: The centralized tax database will become a prime target for hackers. Nigeria’s financial sector already experiences over 5,000 cyberattacks annually, according to the Nigeria Cybersecurity Report 2024.
III. Capacity Gaps: Many small businesses and individual taxpayers lack digital literacy. A 2025 survey by the Small and Medium Enterprises Development Agency (SMEDAN) found that only 38% of micro-businesses use digital accounting tools.
Addressing these challenges will require massive investments in digital infrastructure, coupled with extensive user education campaigns.
C. Federal-State Relations: The Delicate Balance
The VAT reforms in particular risk reigniting tensions between the federal government and states. Some northern governors have already criticized the new derivation elements, arguing they are a disadvantage to less commercially active regions.
Key to maintaining harmony will be transparent, timely revenue sharing, clear dispute resolution mechanisms, and capacity building for state revenue agencies
The establishment of the Joint Revenue Board—a key reform component—could help mediate these tensions if properly empowered.
D. Compliance Culture: From Resistance to Engagement
Decades of mistrust between taxpayers and authorities won’t disappear overnight. The NRS will need to first launch nationwide awareness campaigns using local languages and community networks. then, develop simplified filing interfaces for low-literacy taxpayers, and demonstrate tangible benefits of compliance through improved public services
Behavioral economics research shows that compliance improves most when taxpayers perceive the system as fair and see their contributions translating into visible benefits.
Stakeholder Perspectives: A Spectrum of Expectations
A. Private Sector: Cautious Optimism
The organized private sector has largely welcomed the reforms. The Nigeria Employers’ Consultative Association (NECA) estimates the changes could reduce tax compliance costs by up to 40% for medium-sized businesses. However, as Director-General Adewale-Smatt Oyerinde noted, “The euphoria of passage must now give way to the hard work of implementation.”
B. International Investors: Watching Closely
Multinational corporations have taken note. The Nigeria-South Africa Chamber of Commerce reports a 25% increase in investment inquiries since the reforms were announced. However, as Standard Chartered’s Africa CEO cautioned, “Sustained investor interest will depend on consistent, transparent implementation.”
C. Civil Society: Guarded Hope
Transparency advocates applaud the reforms’ pro-poor elements but warn against potential pitfalls. “Without robust anti-corruption safeguards, the NRS could become another opaque bureaucracy,” noted Auwal Musa Rafsanjani of Civil Society Legislative Advocacy Centre (CISLAC).
Conclusion
Yes, it is a historic opportunity, but with a daunting challenge because with this tax reform law, Nigeria stands at this fiscal crossroads, and the stakes could not be higher.
Successful implementation of these reforms could first, increase tax-to-GDP ratio to 15% by 2030, then, bring 5 million informal businesses into the formal sector, and generate $20 billion in additional annual public revenues
But achieving these outcomes will require sustained political will, technical competence, and stakeholder engagement over years—not months.
The January 1, 2026, effective date marks not an endpoint, but the beginning of Nigeria’s most ambitious governance experiment in a generation.
The world will be watching to see if Africa’s largest economy can translate bold reforms into tangible prosperity for its people.
