The Nigerian government’s push for tax reforms mark a major change in how the country manages its finances. The frenzied reactions that initially welcomed the reforms were expected. For those who have studied Nigerian politics for long enough, tax reforms fall within a set of amendments that touch on the very delicate subject of adjusting a contentious federal system that operates by its own ambiguous rules.
Anyone who followed Nigeria’s president, Bola Ahmed Tinubu’s tenure as governor of the country’s economic powerhouse, Lagos state, between 1999 and 2007, would not be surprised by his current push for national tax reforms.
As governor of Lagos state, Tinubu pushed for tax reforms that introduced clear legal framework for tax collection in the state. Those who knew this would have anticipated his major fiscal reform in the country, one that would shake the very core of Nigeria’s federal structure. He did not disappoint.
The goal of the current reforms is to boost revenue and fix unfair gaps in the tax system, the government says. It is generally accepted that Nigeria needs this now more than ever, with tax collection lagging, many dodging payments, and big development plans hanging in the balance as the global economy stays shaky.
The reform had met with strong opposition when it was first proposed, and for good reason. Politicians and leaders of thought from the country’s north had voiced strong opposition.
Their criticism centredbiasseveral areas, including the Value Added Tax (VAT) sharing formula, consumption-based derivation, perceived southern bias, inadequate consultation, and potential economic burdens for their region. They argued that these provisions threatened northern states’ financial stability and demanded adjustments to ensure equitable resource distribution.
The region’s leaders argued that the Bill’s proposal, increasing the derivation-based allocation (where VAT is generated or consumed) of VAT from an initial 20% to 60%, with 20% based on population and 20% on equality (equal distribution among states), would be of benefit to the major commercial and oil mining hubs of Lagos and Rivers states in the south of the country, reducing funds for northern states to cover salaries and infrastructure.
The reforms had redefined VAT derivation to focus on the location of consumption rather than where companies are headquartered. Northern leaders argued that this would be a disadvantage for their region, as northern states have lower consumption rates due to economic challenges and insecurity, which limits business activity.
Critics warned that this could lead to reduced VAT revenue for northern states, potentially causing inflation, poverty, and job losses, worsening insecurity.
The proposed VAT rate increase (from 7.5% to 10% in 2025, 12.5% by 2026–2029, and 15% by 2030) and the introduction of a 4% development levy, they warned, could reduce purchasing power, slow business activity, and lead to job losses, particularly in the north, where economic activities are already constrained by insecurity.
Crucial engagements eventually led to compromises. The government has kept the VAT at 7.5%, avoiding price hikes for consumers and businesses. They also tweaked the sharing formula, striking a fair balance. In January, the Nigeria Governors’ Forum reached a consensus on a revised revenue-sharing formula, adjusting the allocation structure to 50% based on equality, 30% on derivation, and 20% tied to population.
To avoid further strain on businesses, certain controversial measures, including proposed excise duties on services, were scrapped entirely. Funding models were revised to ensure the independence of key institutions like the Tax Appeal Tribunal and the Office of the Tax Ombudsman, with clear qualifications stipulated for tax commissioners. Amendments to the Petroleum Industry Act (PIA) were also fine-tuned to remove ambiguous clauses
The tax reforms, as outlined by the Federal Inland Revenue Service (FIRS), now restructured into the Nigeria Revenue Service (NRS), introduce several pivotal changes. A January report from WTS Global shows that the reforms are built on four key bills, these are the Nigeria Tax Bill (NTB), the Nigeria Tax Administration Bill, the Nigeria Revenue Service Establishment Bill (NRSEB), and the Joint Revenue Board Establishment Bill (JRBEB). Together, these bills aim to fix Nigeria’s broken tax system, making it fairer, easier for businesses, and more effective.
One major shift is the drop in corporate tax, from 30% down to 25%. The goal is to pull in more investment, especially when stacked against neighbouring West African countries. The government claims the slight VAT hike will bring in more money while easing the burden on lower-income families. Small businesses making less than 50 million Naira a year (about $30,000) will be exempt from income tax or VAT, This would help entrepreneurs and cut costs for small businesses.
Another major part of the reform is a new 4% development levy. It removes a number of old taxes, such as the 3% education tax, 1% NITDA fee, and 0.25% NASENI charge. Back in 2024, reports said the new levy would kick off at 4% for 2025 and 2026, then dip to 3% between 2027 and 2029. The money’s supposed to go toward schools, hospitals, and roads, matching the government’s big plans. Not everyone is convinced.
The newly approved fiscal measures have had mixed reactions. Proponents argue that the reforms, particularly lower taxes for corporations and breaks targeting small enterprises, could fuel job creation and spur innovation. Others argue that the VAT increase may worsen the financial strain on Nigerian families, many of whom are already confronting high living costs.
Nigeria’s ongoing struggle with inflationary pressures makes this concern more pressing. Historical data reveals a stark contrast. in 2015, Nigeria’s VAT contributions accounted for just 0.8% of GDP, while neighbouring ECOWAS member-states maintained an average of 6.7%.
The VAT increase is being pushed to patch up government finances, but there are genuine worries that the impact on the average Nigerian will be tough. During a 2024 interview, Taiwo Oyedele, head of the Presidential Committee on Fiscal Policy and Tax Reforms, addressed public worries over the VAT hike. He stressed that essentials would remain exempt, shielding Nigeria’s most vulnerable from the worst effects. The committee played a pivotal role in crafting these changes, tightrope-walking between equity and the urgent push to shore up government finances..
The development levy, while consolidating previous taxes, has also sparked debate. A WTS Global Africa newsletter pointed out one important exception, the new levy will not touch profits from oil and gas operations. This move was clearly a lifeline thrown to the industry that keeps the country’s money flowing.
However, some analysts argue that this exemption could undermine the reform’s goal of broadening the tax base. They say while the levy simplifies tax administration, its selective application risks perpetuating sectorial imbalances, and that the government must ensure that all sectors contribute fairly to national development.
The transition from the FIRS to the Nigeria Revenue Service (NRS) is a cornerstone of the reform, aimed at improving coordination between federal and state tax authorities.
The Joint Revenue Board Establishment Bill (JRBEB) is another step forward. It sets up a system where different agencies can work together, finally tackling the messy problems of duplicate taxes and bureaucratic inefficiency. The FIRS drove this point home in a recent report, saying the NRS will boost revenue by cutting red tape and using tech to make compliance easier.
Nigerians have long questioned where their tax money really goes. Years of mismanagement have left most citizens convinced that only the political class benefits from tax revenues, a perception that continues to undermine reform efforts.
The changes hit certain industries harder than others, especially oil and gas companies accustomed to special treatment. The removal of the 10% withholding tax break on petroleum dividends marks a turning point, finally making the energy sector pay its fair share, some say. However, the hydrocarbon tax exemption for the development levy suggests a cautious approach, likely to avoid alienating foreign investors in a sector that accounts for over 80% of Nigeria’s export earnings.
For non-oil sectors, the reforms are largely seen as a boon. Slashing Company Income Tax (CIT) and exempting small businesses could spur a wave of corporate restructuring and fresh investments, especially in manufacturing and tech. Analysts project that the reforms may pull in an extra $5 billion in foreign investment by 2027. However, they also note that effective implementation will be key to realising these gains.
The sweeping tax reforms represent more than just fiscal adjustments. They are reshaping Nigeria’s social landscape. At the heart of this shift is a development levy specifically earmarked for education, healthcare, and critical infrastructure projects, reflecting Tinubu’s flagship Renewed Hope Agenda priorities. The policy took definitive shape in April 2024 when the President signed the student loans bill, partially bankrolled by the new levy. T
These ambitious plans face an uphill battle. Years of graft and financial mismanagement have left many Nigerians deeply sceptical about government initiatives.
Nigeria’s sweeping tax reforms mark a sharp turn in fiscal policy, aiming to take the country’s outdated revenue system into the 21st century. The changes look promising. Supporters argue that the slashed corporate taxes, sweeteners for small businesses, and a new development levy designed to spread the burden more fairly could finally fire up Nigeria’s struggling economy.
Scepticism runs deep, however. Past failures haunt the debate. Many ask if these measures will actually stick, or crumble under weak enforcement. Corruption scandals and botched rollouts have left many Nigerians wary of grand government promises.
