Nigerian Tax Reform 2025: What SMEs Must Know by 2026

1.1 Bigger Tax Exemption for Small Companies

Before, only companies earning ₦25 million or less per year enjoyed tax exemption. Now, that threshold has been raised to ₦100 million turnover and ₦250 million fixed assets.

• If your business falls below this, you won't pay Companies Income Tax (CIT), Capital Gains Tax (CGT), or the new Development Levy.
• For example: If Titi runs a tailoring shop with ₦80M turnover, she won't pay these taxes at all. That's more money left for staff salaries, new machines, and expansion.

1.2 Development Levy at 4%

For companies above the ₦100 million turnover mark, say Ahmed's Agro Trading at ₦150M, a new Development Levy of 4% applies on assessable profits. The good news is that this levy will replace multiple old taxes like Education Tax, Police Fund Tax, and others. So instead of paying plenty small levies here and there, you pay one consolidated levy. Less stress, more clarity.

1.3 VAT Reform - More Favour for the Small Guys

The VAT rate stays at 7.5%, but the reform changes how it's applied and refunded.

• Zero-rating on essentials like food, education, and medical supplies. No more hidden VAT charges sneaking into your garri or paracetamol.
• Easier VAT refunds: Instead of waiting years to get back excess VAT, refunds will now be faster, just like in countries like Rwanda and South Africa.
• Mandatory e-invoicing: Every registered business must issue VAT-compliant e-invoices. That means SMEs will need proper invoicing tools, not just paper receipts.

1.4 Capital Gains Tax and Company Tax Adjustments

• Capital Gains Tax (CGT) will now align with CIT at 30%, but if you're a small business under ₦100M turnover, you're exempt.
• Companies Income Tax (CIT) has been reduced from 30% to 25% for the first two years after implementation, giving mid-sized businesses breathing space.

1.5 Minimum 15% Tax on Multinationals

To stop global giants from shifting profits abroad, the law now requires a minimum effective tax of 15% on multinationals operating in Nigeria. For SMEs, this doesn't apply directly, but it levels the playing field—big players can't just dodge tax while smaller businesses suffer.

1.6 New Incentives for Growth

• If your business invests in equipment or infrastructure, you can now enjoy a 5% tax credit on qualifying capital expenditure for five years.
• Old pioneer status incentives are being scrapped. Instead, priority sector incentives will last up to 20 years for businesses that invest heavily in areas the government deems critical, like agriculture, renewable energy, or manufacturing.

1.7 Shake-Up in Tax Administration

• The Federal Inland Revenue Service (FIRS) will now become the Nigeria Revenue Service (NRS). Their mandate is broader, covering federal, state, and local government taxes.
• A new Tax Ombudsman has been introduced to help taxpayers resolve disputes without stress.

2.1 Relief for Small Hustlers

If your annual turnover is ₦100 million or less, you don escape plenty tax wahala. No Companies Income Tax, no Capital Gains Tax, no Development Levy. That means more cash stays in your hand.

Imagine Chika who runs a printing press in Aba with turnover of ₦70M. Before, she'd still dey calculate multiple levies and small taxes. From January 2026, she's free from those, and can use the money saved to buy new machines or hire more staff.

2.2 Better Cash Flow Through VAT

Many SMEs always complain about VAT being a one-way street, you pay input VAT on purchases but struggle to get refunds. The new law makes refund faster and smoother.

Take Uche, a salon owner in Port Harcourt. He buys imported dryers and chairs, paying VAT upfront. With the reform, Uche can now claim that VAT back quicker, giving him more working capital to buy hair products or expand his salon.

2.3 Digital Push - E-Invoicing Is Now Compulsory

Every SME will now need to issue electronic invoices that are VAT-compliant. Paper receipts or casual handwritten notes won't cut it anymore. This might feel like extra work at first, but it actually protects you. It ensures your business is properly recognized, gives you easier access to refunds, and prevents tax authorities from knocking your door with assumptions.

2.4 Medium-Sized Businesses Will Feel the 4% Levy

If your turnover is above ₦100M, you'll pay the new Development Levy. But here's the good news, it replaces a lot of scattered levies you used to pay. So instead of juggling Education Tax, Police Fund, NASENI Levy, etc., everything is consolidated into one. Less paperwork, less confusion.

For example, Ahmed's Agro Trading with ₦150M turnover will pay the levy. But compared to before, he'll actually save money because those multiple taxes are now gone.

2.5 Incentives Encourage Growth

The government wants businesses to reinvest. If you buy equipment, build new infrastructure, or expand, you can claim a 5% tax credit for five years. For SMEs thinking of scaling, this is free money on the table.

2.6 More Accountability in Tax Collection

With the Nigeria Revenue Service (NRS) centralizing collections, expect fewer random agencies knocking your gate with "taskforce" tags. This alone can reduce harassment of small businesses at state and local government levels.

Titi's Beauty Hub - The Sweet Spot

Titi runs a beauty salon chain in Ibadan. Her annual turnover is around ₦80 million. Under the old tax system, she still dey worry about VAT wahala, filing CIT returns, and wondering which small levy will show face next.

From January 2026, here's her reality:

• No Companies Income Tax.
• No Capital Gains Tax if she sells off old dryers and furniture.
• No Development Levy since she falls under ₦100M turnover.
• She can now reclaim VAT faster whenever she imports new salon chairs or hair dryers.

For Titi, this is freedom. With the money she saves, she can open a second branch in Bodija without tax stress chopping her profit.

Ahmed's Agro Trading - Bigger Hustle, Bigger Obligations

Ahmed runs a wholesale agro-trading company in Kano with annual turnover of ₦150 million. Because he's above the ₦100M mark, here's how the reform lands for him:

• He'll pay the new Development Levy of 4% on his profits.
• He still enjoys the reduction of CIT from 30% to 25% for the first two years, giving him some breathing space.
• Since he buys tractors and equipment, Ahmed can claim the 5% tax credit on his capital expenditure for five years.
• His company must switch fully to e-invoicing for VAT reporting, so Ahmed has to train his staff and adopt a proper digital invoicing tool.

At first, Ahmed dey vex about the 4% levy. But when he compares it to the plenty levies he used to settle before—Education Tax, Police Fund Levy, and all the rest, he realizes he's actually better off now.