An Official Publication of the Alliance for Economic Research and Ethics LTD/GTE.

Abstract

The Nigeria Tax Act, 2025, signed into law in June 2025 and set for implementation on January 1, 2026, represents the most significant overhaul of the nation’s fiscal landscape in a generation. Enacted with the stated goals of modernizing the tax system, enhancing revenue, and aligning with global standards, the Act introduces a raft of profound changes. These include a threefold increase in the Capital Gains Tax (CGT) for companies to 30%, a new 4% Development Levy on profits, a 15% Minimum Effective Tax Rate (ETR) for large multinationals, and a fundamental revision of tax exemptions for Free Trade Zones (FTZs). This paper provides a critical analysis of these provisions, weighing their potential to achieve fiscal stability against the significant risks they pose to business competitiveness and investment attraction. While opportunities for streamlining and transparency exist, the cumulative effect of higher direct taxation and policy uncertainty threatens to erode Nigeria’s standing as a premier investment destination. In a stark contrast, regional peers like Ghana are abolishing taxes to ease business burdens, while Ethiopia is aggressively liberalizing trade under the AfCFTA. We conclude that without strategic recalibration, the 2025 Tax Act may function more as a constraint than a catalyst, and we offer targeted policy recommendations to balance Nigeria’s revenue imperatives with the urgent need for sustainable economic growth and foreign direct investment.

1. Introduction

Nigeria stands at a critical juncture. Faced with volatile oil revenues, mounting debt service obligations, and the pressing need to fund national development, the government has turned to comprehensive fiscal reform as a primary tool for economic stabilization. The culmination of this effort is the Nigeria Tax Act, 2025, a landmark piece of legislation that consolidates over a dozen previous tax laws into a single, sweeping statute. Its architects present it as a bold step towards creating a more efficient, transparent, and equitable tax system capable of broadening the nation’s revenue base and reducing its historic dependence on the petroleum sector. The explicit goals are laudable: to streamline administration, curb tax evasion, and ensure all sectors of the economy contribute their fair share to national progress.

However, policy, particularly fiscal policy, is judged not by its intentions but by its outcomes. As the January 1, 2026, implementation date approaches, a wave of apprehension is palpable across the Nigerian and international business communities. The Act’s core tenets—particularly the dramatic hike in Capital Gains Tax from 10% to 30%, the imposition of a new 4% Development Levy, and the ambiguous overhaul of the Free Trade Zone incentive regime—have been met with significant concern. These measures, while designed to fill government coffers, are perceived by many as direct assaults on profitability, capital formation, and investment incentives. They raise fundamental questions about Nigeria’s strategic direction, forcing a crucial debate between Taxation for Revenue vs. Taxation for Growth. Is the nation building a foundation for long-term, private sector-led growth, or is it erecting fiscal barriers that will stifle innovation and drive capital to more hospitable shores?

This analysis seeks to move beyond the headlines to provide a deep, evidence-based examination of the 2025 Tax Act. We will deconstruct its key provisions, critically evaluate its likely negative and positive impacts, and situate Nigeria’s new fiscal posture within the dynamic context of regional competition. As nations like Ghana, Ethiopia, and Rwanda aggressively reform their economies to attract investment and leverage the African Continental Free Trade Area (AfCFTA), Nigeria’s choices carry profound implications. This paper argues that while fiscal consolidation is necessary, the current architecture of the Tax Act risks prioritizing short-term revenue generation at the expense of the long-term investment and competitiveness that are the true engines of sustainable development. Ultimately, we will propose a series of actionable policy recommendations aimed at recalibrating the Act to promote a symbiotic relationship between government revenue and private enterprise, ensuring that Nigeria remains not just open for business, but a magnet for transformative investment.

2. Unpacking the 2025 Nigeria Tax Act: Key Provisions and Intended Goals

The 2025 Tax Act emerges from a complex history of repealed statutes and new frameworks. To understand its impact, one must first dissect its most significant components.

2.1 The Capital Gains Tax (CGT) Overhaul: From 10% to 30%

Perhaps the most contentious provision is the increase of the CGT rate for companies from a relatively competitive 10% to 30%, aligning it with the Companies Income Tax (CIT) rate. This tax applies to profits realized from the sale of capital assets, including stocks, real estate, and intellectual property. The government’s rationale is twofold: to generate substantial revenue from asset transactions in a growing economy and to create parity between income from operations (taxed at 30%) and income from capital appreciation. For individuals, capital gains will now be taxed at their applicable progressive income tax rates, reaching up to 25%.

2.2 Introduction of the 4% Consolidated Development Levy

The Act introduces a new 4% Development Levy calculated on the assessable profits of all companies operating in Nigeria. This levy replaces and consolidates several existing taxes, including the Tertiary Education Tax and the National Information Technology Development Levy. The stated goal is to simplify the tax structure, reducing the administrative burden on businesses of complying with multiple, smaller levies. The revenue generated is intended to be a dedicated funding stream for national development projects, thereby directly linking corporate profitability to public infrastructure and social services.

2.3 Aligning with Global Standards: The 15% Minimum Effective Tax Rate (ETR) In a move that mirrors the OECD’s Pillar II global tax agreement, the Act introduces a 15% Minimum Effective Tax Rate on the “net income” of certain large companies. This applies to Nigerian companies that are members of a multinational enterprise (MNE) group with a global turnover of €750 million or more, as well as large domestic companies with an annual turnover of NGN 50 billion or more. The clear intent is to combat aggressive tax planning and profit-shifting strategies employed by some large corporations, ensuring they contribute a baseline amount of tax in Nigeria regardless of available incentives or deductions.

2.4 Reforming Incentives: The Shift in Free Trade Zone (FTZ) Tax ExemptionsThe Act fundamentally alters the fiscal landscape for businesses operating within Nigeria’s Free Trade Zones. By repealing key sections of the Nigeria Export Processing Zones Authority (NEPZA) Act and the Oil and Gas Export Free Zone Authority (OGEFZA) Act, the legislation abolishes the long-standing blanket exemptions from federal taxes that FTZ entities enjoyed. This move has created significant uncertainty, as it opens the door for FTZ companies to be subjected to CIT, CGT, and potentially other state and local levies. The government’s aim appears to be a re-evaluation of the efficacy of these zones, seeking to ensure that tax incentives are properly targeted and do not create avenues for indefinite tax avoidance.

2.5 Personal Income Tax and Other Structural Reforms Beyond corporate taxes, the Act overhauls the Personal Income Tax structure, introducing more progressive rates that provide relief to low-income earners while increasing the burden on higher earners. It also explicitly brings gains from digital and virtual assets into the tax net. By repealing numerous outdated laws and consolidating them into a single Act, the reform aims to provide greater clarity, simplify compliance, and create a more modern and robust legislative foundation for Nigeria’s tax administration.

3. Critical Analysis of the Act’s Negative Impacts on Nigerian Businesses and Competitiveness While the objectives of simplification and revenue enhancement are sound, the mechanisms chosen in the 2025 Tax Act threaten to inflict significant economic damage.

3.1 Deterring Investment: The Chilling Effect of Increased Capital Gains Tax A 200% increase in the CGT rate is a seismic shock to the investment landscape. For foreign direct investors, private equity firms, and venture capitalists, the exit valuation is a primary determinant of investment decisions. Tripling the tax on exit proceeds drastically reduces the potential return on investment (ROI), making Nigeria a significantly less attractive destination compared to countries with more favourable CGT regimes. This provision directly disincentivizes long-term capital formation, mergers and acquisitions (M&A), and the vibrant startup ecosystem that relies on successful exits to fuel the next wave of innovation. The immediate negative reaction in the capital markets, which necessitated assurances from the Honourable Minister of Finance of a future review, is a clear harbinger of the capital flight and investment hesitancy that will follow if this rate is maintained or even reduced to 25%.

3.2 Eroding Profitability: The Burden of the New Development Levy Unlike income tax, which is levied on taxable profit after various allowable deductions, the 4% Development Levy on “assessable profits” represents a more direct and unavoidable cost. For businesses in sectors with historically thin margins, such as manufacturing, agriculture, and retail, this levy can be the difference between profitability and loss. It reduces the quantum of retained earnings available for reinvestment in expansion, technology upgrades, and job creation. By unilaterally increasing the effective tax rate for all profitable companies, the levy makes Nigerian businesses less competitive on both a regional and global scale, as it raises their cost base relative to international peers.

3.3 The Free Trade Zone Dilemma: Undermining a Key Investment Driver

Free Trade Zones are globally recognized instruments for attracting export-oriented FDI, promoting industrialization, and facilitating technology transfer. Their primary allure is a predictable, low-tax environment. The abrupt and ambiguous removal of blanket tax exemptions has shattered this predictability. The uncertainty alone—whether FTZ companies will now face the full 30% CIT, and if state and local governments will impose their own taxes—is profoundly toxic to investor confidence. Existing operators who made multi-million-dollar investment decisions based on the previous incentive structure now face a complete reversal of their business case. For prospective investors, the rationale for choosing a Nigerian FTZ over one in a competing jurisdiction has been severely undermined.

3.4 Heightened Compliance Costs and Administrative Burdens for Businesses The goal of simplification is paradoxically contradicted by the Act’s new complexities. The implementation of the 15% Minimum ETR for multinationals will require sophisticated and costly compliance systems to track and report income on a global basis. The stringent documentation requirements for property sales, while aimed at transparency, will increase transaction costs and timelines in the real estate sector. For all businesses, navigating the nuances of a completely overhauled tax code will necessitate significant investment in professional advisory services, diverting resources that could otherwise be used for productive purposes.

4. Potential Positive Impacts and Opportunities Arising from the Tax Reforms Despite the significant concerns, a balanced analysis must acknowledge the potential benefits embedded within the Act.

4.1 Leveling the Playing Field: The Minimum ETR for Multinational Corporations The introduction of a 15% Minimum ETR is a commendable step towards ensuring tax fairness. It aligns Nigeria with a global consensus aimed at curbing the excesses of corporate tax avoidance, where large MNEs sometimes pay little to no tax in jurisdictions where they generate substantial revenue. This provision could level the playing field for domestic companies that have historically competed against multinationals able to leverage sophisticated international tax planning. By ensuring a baseline contribution from the largest players, it enhances the legitimacy and equity of the entire tax system.

4.2 Streamlining for Simplicity: Consolidating Levies and Repealing Old Acts The consolidation of multiple smaller levies into a single 4% Development Levy, while burdensome in its rate, does represent a positive structural reform. It reduces the number of separate filings and payments businesses must manage, potentially lowering administrative compliance costs.  Similarly, repealing a host of antiquated tax laws and creating a single, comprehensive statute can, in the long run, provide greater legal clarity and make the tax code easier to navigate for both taxpayers and administrators.

4.3 Promotion of Domestic Growth: Incentives for Small Companies

The Act contains important exemptions that could nurture the growth of small and medium-sized enterprises (SMEs), which form the backbone of the Nigerian economy. The explicit exemption of small companies (defined by turnover and asset thresholds) from Companies Income Tax, Capital Gains Tax, and the new Development Levy provides them with crucial fiscal space. This allows emerging businesses to retain more of their early-stage earnings for reinvestment, potentially encouraging a more vibrant and resilient domestic private sector.

4.4 Enhancing Transparency and Long-Term Fiscal Stability If successfully implemented, the Act has the potential to create a more transparent and predictable revenue stream for the government. By broadening the tax base and closing loopholes, it can reduce fiscal volatility and provide a more stable foundation for national budgeting and development planning. Over the long term, a government with a robust and diversified revenue base is better positioned to provide the public goods—infrastructure, security, and a stable macroeconomic environment—that are essential for business success.

5. A Comparative Regional Analysis: Lessons in Tax Policy and Investment Attraction Nigeria’s fiscal reforms are not occurring in a vacuum. Across Africa, a fierce competition for capital is underway, and tax policy is a key weapon.

5.1 Ghana’s Pro-Business Stance: The Strategic Abolition of Nuisance Taxes In its 2025 budget, Ghana announced the abolition of several taxes, including the Electronic Transfer Levy and levies on emissions and certain VAT categories. This move is explicitly designed to ease the burden on households and businesses, increase disposable income, and stimulate economic activity. Ghana’s strategy presents a direct contrast to Nigeria’s: while Nigeria is adding new, broad-based levies, Ghana is strategically removing them to enhance its competitive posture.

5.2 Ethiopia’s Open-Door Policy: Embracing AfCFTA for Trade and Growth

Ethiopia is aggressively positioning itself as a hub for intra-African trade. In late 2025, it began implementing significant customs duty reductions with 24 AfCFTA member states, with a clear roadmap to eliminate tariffs on over 90% of goods. This policy sends a powerful signal to investors that Ethiopia is focused on market access and reducing the cost of doing business. By contrast, Nigeria’s reforms to its FTZs risk creating new barriers to trade at a time when its peers are dismantling them.

5.3 Rwanda’s Transformation: The Power of a Stable and Favourable Business Environment Rwanda’s economic success story is evidence of the power of policy consistency, regulatory efficiency, and a relentless focus on improving the ease of doing business. As noted in the World Bank’s Business Ready 2024 report, Rwanda excels in creating a predictable and investor-friendly environment. Its experience teaches a vital lesson: tax rates are only part of the equation. A stable, transparent, and efficient system is often more valuable to investors than any single incentive. Nigeria’s sudden and drastic policy shifts—such as the announcement and subsequent repeal of a 15% tax on imported fuel, and the immediate ban on shea butter nut exports without adequate local refining capacity—undermine this crucial element of stability.

5.4 Benchmarking Nigeria’s Competitiveness in the AfCFTA Era The African Continental Free Trade Area represents a monumental opportunity for Nigerian businesses to access a continent-wide market. However, to serve as a hub for this trade, Nigeria must be a competitive location for production and investment. A tax regime that imposes a 30% CGT and a 4% Development Levy, while creating uncertainty in its flagship FTZs, places Nigerian firms at a significant disadvantage compared to their counterparts in more fiscally nimble and trade-focused nations.

6. Policy Recommendations: Charting a Path Towards a Competitive and Investment-Friendly Nigeria To mitigate the negative impacts and harness the potential positives of the 2025 Tax Act, the government should consider the following strategic adjustments:

6.1 Reconsidering Punitive Tax Rates: A Phased Approach to CGT and Levies The 30% CGT rate should be immediately reconsidered. A more moderate, phased increase—perhaps to 15% initially, with a future review based on empirical data of its impact on investment flows—would be a far more prudent approach. Similarly, the 4% Development Levy could be tiered, with a lower rate for SMEs and export-oriented industries, to reduce its drag on growth sectors.

6.2 Redefining FTZ Incentives to Attract Targeted Foreign Direct Investment (FDI) Rather than a blanket removal of exemptions, the government should develop a new, modern FTZ incentive framework. This could include offering a reduced CIT rate (e.g., 10-15%) for a fixed period for businesses engaged in high-value activities such as advanced manufacturing, ICT development, and pharmaceuticals. Clarity is paramount: a new, clear, and legislatively-backed set of rules must be communicated swiftly to restore investor confidence.

6.3 Ensuring Seamless Implementation and Stakeholder Engagement

The transition to the new tax regime must be managed with extensive public-private dialogue. The Federal Inland Revenue Service (FIRS) should issue clear and comprehensive implementation guidelines well in advance of the January 2026 deadline. A grace period for compliance with the more complex provisions, such as the Minimum ETR, would allow businesses to adapt their systems without facing immediate punitive measures.

6.4 Leveraging AfCFTA: Aligning Domestic Tax Policy with Continental Trade Goals Nigeria’s tax policy must be explicitly aligned with its AfCFTA strategy. This means reviewing all taxes and levies for their impact on the competitiveness of Nigerian exports. Tax incentives should be designed to encourage investment in regional value chains and position Nigeria as a logical and cost-effective base for companies looking to serve the African market.

7. Re-evaluating the Domicile of the Single Window Trade Platform The enactment of the Single Window Trade Platform as part of the 2025 Tax Act has raised concerns about its placement within Nigeria’s regulatory framework. The purpose of a Single Window is to streamline and expedite trade logistics, a function most naturally aligned with trade and customs administration. Placing it within a tax law risks prioritizing revenue collection over the primary goal of trade facilitation. International best practices from leading nations like Singapore (TradeNet), Rwanda (ASYCUDA), and Kenya (KenTrade) show these platforms are domiciled within customs or trade promotion laws to ensure seamless integration with trade processes and clear governance structures. We recommend that the 2025 Tax Act be amended to realign the Single Window Trade Platform with Customs or Nigeria Investment Promotion laws, thereby ensuring its coherence, effectiveness, and focus on enhancing Nigeria’s competitiveness.

8. Driving Efficiency in Tax Administration Nigeria’s current 4% cost of tax collection is high when benchmarked globally. Peer nations like Rwanda and Kenya have leveraged digital systems to reduce collection costs to around 1-2%, while South Africa stands at approximately 1.2%. The global standard, set by countries like Singapore and Estonia, is even lower, at 0.5-1%. The 2025 Tax Act rightly stipulates the implementation of efficient digital systems, building on the successes of platforms like TaxPro Max. A concerted focus on full-scale digitization, enhanced taxpayer engagement, and streamlined administrative processes is critical for Nigeria to achieve its goal of reducing collection costs to a more sustainable 1.5%, freeing up more revenue for national development. 

Conclusion: The 2025 Nigeria Tax Act is a bold, ambitious, and high-stakes reform. It correctly identifies the need for fiscal modernization and revenue diversification. Provisions that promote tax fairness through the Minimum ETR and support SMEs through targeted exemptions are positive steps. However, the Act, in its current form, is a double-edged sword. The severe increase in the Capital Gains Tax, the imposition of a new Development Levy, the uncertainty cast upon the Free Trade Zones, and the unusual domicile of the Single Window Trade Platform threaten to cripple the very investment and business growth that Nigeria desperately needs to secure its long-term economic future.

As regional competitors like Ghana and Ethiopia demonstrate, the most effective path to sustainable revenue is through a pro-growth fiscal policy that attracts and retains capital, not one that risks driving it away. The challenge for Nigerian policymakers is not to choose between revenue and investment, but to design a system where both can thrive. By recalibrating punitive rates, providing clarity and stability in its incentive zones, and aligning its policies with the vast opportunities of AfCFTA, Nigeria can transform the 2025 Tax Act from a potential constraint into a true catalyst for a prosperous and competitive economic future.

We welcome the recent committee set up by Mr. President on the implementation of the 2025 Tax Act. At the Alliance, we offer to work with the Committee and the government for the successful and sustainable implementation of the Tax Act, one that will ensure there is a balance between taxation for growth and taxation for revenue. The time for thoughtful revision and strategic adjustment is now.

Hon. Dele Kelvin Oye
Chairman, Alliance for Economic Research and Ethics LTD/GTE
Chairman, Nigeria Turkiye Business Council
Hon. Life Vice-President & 22nd National President, NACCIMA
Past Chairman, Organized Private Sector of Nigeria (OPSN)**