Transforming Nigeria’s Tax Landscape: A New Dawn for SMEs
In June 2025, President Bola Tinubu signed into law four pivotal tax legislations after extensive nationwide consultations and debates. These reforms come at a critical juncture, addressing longstanding economic challenges since the current administration took office.
Overview of the New Tax Legislation
The newly enacted laws-the Nigeria Tax Act, Nigeria Tax Administration Act, Nigeria Revenue Service (Establishment) Act, and Joint Revenue Board (Establishment) Act-were ratified by the National Assembly. The presidency hailed these bills as “historic,” emphasizing their potential to revolutionize tax administration, enhance revenue collection, improve the business climate, and attract both domestic and foreign investments.
Fundamentally, these laws aim to consolidate Nigeria’s previously fragmented tax codes into a cohesive legal framework, streamlining tax operations across federal, state, and local governments.
The Role of Taxation in Nigeria’s Economic Growth
Taxation remains a cornerstone of economic development worldwide, serving as a primary revenue source for governments. Prior to these reforms, Nigeria’s tax system was riddled with overlapping levies, redundant regulations, and low transparency, which hampered efficiency and eroded taxpayer confidence.
The Federal Inland Revenue Service (FIRS), now restructured as the Nigeria Revenue Service (NRS), struggled with administrative inefficiencies that further diminished trust. Tax regimes such as Corporate Income Tax (CIT), Capital Gains Tax (CGT), and the newly introduced Development Levy disproportionately burdened small and medium-sized enterprises (SMEs), especially startups with annual turnovers below ₦100 million and fixed assets under ₦250 million. Consequently, Nigeria’s tax-to-GDP ratio remained among the lowest globally, stifling SME growth and discouraging formalization.
How the New Tax Laws Empower SMEs
The core objective of these reforms is to create a more inclusive tax environment that supports early-stage businesses through their growth phases, enabling them to contribute meaningfully to the national economy. Globally, SMEs are recognized as engines of economic progress and equitable development, particularly in emerging markets like Nigeria. They are labor-intensive, capital-efficient, and pivotal in job creation and poverty alleviation.
However, in Nigeria, the survival rate of small businesses is alarmingly low, with only 5-10% thriving beyond their tenth year. Challenges such as inadequate funding, poor infrastructure, bureaucratic hurdles, and multiple taxation layers have historically impeded their success.
By exempting SMEs with turnovers below ₦100 million and fixed assets under ₦250 million from CIT, CGT, and the Development Levy, the new tax framework allows these businesses to reinvest earnings into critical areas like talent acquisition and marketing, fostering sustainability and growth.
Impact on the Informal Sector and Formalization
Taiwo Oyedele, chairman of the Presidential Fiscal Policy and Tax Reforms Committee, recently revealed that approximately 97% of informal sector operators will be exempt from taxation under the new laws. Speaking at PwC’s Executive Summit themed “The New Tax Era: What Nigeria’s Tax Reform Means to Individuals and Businesses,” Oyedele highlighted that this exemption is designed to nurture growth among the vast majority of informal businesses.
This development is significant, as many informal enterprises avoid formal registration due to tax burdens, lack of funding, and regulatory complexities. Most informal businesses also lack formal contracts, employee benefits, and social protections. The tax reliefs are expected to encourage these businesses to formalize, unlocking access to government grants, financial services, and support programs that require Corporate Affairs Commission (CAC) registration and tax compliance.
Building Creditworthiness and Access to Capital
Tax-compliant SMEs stand to benefit from improved credit ratings with the NRS and financial institutions, facilitating easier access to loans and investment from venture capitalists, angel investors, and development finance institutions. This enhanced financial credibility is crucial for scaling operations and fostering innovation.
Looking Ahead: Challenges and Opportunities
While the new tax laws are not without criticism and implementation challenges, they represent a bold departure from previous policies that hindered SME growth. By addressing key obstacles such as overregulation, complex registration processes, and tax-related fears, the government is laying the groundwork for a more vibrant entrepreneurial ecosystem.
This shift not only supports small businesses but also promises to reduce unemployment and stimulate economic diversification, setting the stage for Nigeria’s next phase of development.
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