TOKS OKORIE

In view of the wave of apprehension sweeping across Nigeria over the new tax regime which is to take effect from January 1, 2026, it is worth noting that the new tax laws may have actually been targeted at achieving a broad-based income redistribution, technically transferring wealth from the very rich to the very poor while seeking to protect the most vulnerable.

Taking an overview of the twin tax legislations of 2025, the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025, the cursory reader will observe that the new tax policy is designed specifically to give micro, small and medium business an elastic opportunity to not merely survive but flourish without having to grapple with taxes at all, an index which often has been identified as one key factor responsible for failure of businesses in the MSME bracket in Nigeria. It further shields low-income earners from the burden of direct taxation thereby allowing them the opportunity to maximize the money in their pockets. At the same time, the policy seeks to compel those blessed with extra riches and the big businesses to fund developmental activities of government which are eventually available for the benefit of both the poor and the rich. So, when government provides free medicals or free education for vulnerable groups, it does so with tax money received from the upper income brackets.  That is what income redistribution means.

Income redistribution is the process by which government, using fiscal policy instruments, typically taxation, shifts or transfers wealth and income from some groups (usually the rich) to others (usually the not-so-rich). Governments often use policies like progressive taxes, social security, welfare, and public services to reduce economic inequality and provide a safety net, ensuring basic living standards for all. The aim is usually to make income distribution more equal, often by taking more from the rich (progressive taxation) and giving to the poor through the provision of public goods and services to lower disparities in quality or standard of living. This is exactly what President Bola Ahmed Tinubu has done with the introduction of these new tax laws. For the first time in Nigeria, tax is no longer just a way of raising revenue for government but also a means of rebalancing the economy, shrinking the gap between the rich and the poor.

President Tinubu’s tax reforms, primarily contained in the Nigeria Tax Act (NTA), 2025 and the Nigeria Tax Administration Act (NTAA), 2025, introduce significant changes across Corporate Income Tax (CIT), Personal Income Tax (PIT), Capital Gains Tax (CGT), and Value Added Tax (VAT).

The key benefits of the new tax policy center on simplification, fairness, and revenue optimization within a consolidated legal and administrative framework. The reforms strategically restructure tax burdens to favour economic growth while enhancing government capacity.

The first point to note, for anyone who has taken time to peruse the Nigeria Tax Act and the Nigeria Tax Administration Act is the administrative efficiency and simplification of processes embedded, which is the core structural change in the new tax policy.  The unification of fragmented tax laws into a comprehensive set of Acts means that tax is no longer a complex and complicated irritant to businesses and individuals who, under the old regime, had to deal with complexities and complications of a confused tax regime.

For example, the previous system was characterized by over 60 separate pieces of tax legislations and multiple overlapping levies. Consolidating these into a single, coherent framework drastically reduces compliance costs for businesses and individuals, fostering a better business environment and attracting investment both foreign and local.

Moreover, establishing the Nigeria Revenue Service (NRS) to replace the FIRS and unifying administrative provisions across federal, state, and local governments have effectively addressed fragmentation and jurisdictional clashes. This is projected to significantly increase the Tax-to-GDP ratio (currently among the lowest globally) by reducing leakages and evasion. This means that there is now only one administrative body for all taxes including Local Government levies.

That is not all. The introduction of a Minimum Effective Tax Rate (METR) for large multinational groups (in line with the OECD/G20 Pillar Two rules) modernizes Nigeria’s corporate tax regime, ensuring that large, globally mobile companies pay their fair share of tax in Nigeria.

Now let us consider the question of who ultimately bears the burden of tax. The new policy deliberately shifts the incidence (the final economic burden) of various taxes to promote equity, support vulnerable groups, and incentivize specific economic behaviour. The policy, for example, aims to make the Personal Income tax (PIT) system more progressive and to relieve the burden on the working poor. Individuals earning N800,000 per annum or less are totally exempt from any form of direct tax. This effectively increases the disposable income of the poorest workers. There are many other reliefs for the indigent and vulnerable including rent relief (aimed at reducing the challenge of housing for low-income workers), which are actually too many for this space.

For businesses, the reforms are essentially pro MSMEs (Micro, Small and Medium Enterprises), which are the primary drivers of employment and therefore, the engines of economic growth. The threshold for annual turnover for exemption from Company Income Tax (CIT), Capital Gains Tax (CGT) and the new development levy has been significantly increased to N100 million. This effectively frees up capital for MSMEs to re-invest. In addition, the 1% minimum tax on total income for individuals which was chargeable even if you have not earned a chargeable income, has now been abolished. That is significant.

Value Added Tax (VAT)

Another very exciting dimension to the new tax regime is the subtle transition to fiscal federalism through the new VAT derivation Principle by which the originating state takes the larger percentage of distributable VAT. Of the amount allocated to states and Local Governments, the new formula increases the derivation component to a whopping 60% from 20% previously, effectively giving ownership to the deriving state and Local Governments. Meanwhile, derivation is based on actual consumption within the respective state and nowhere the manufacturing outfit is headquartered as was previously the case.

The introduction of a mandatory electronic system (e-invoicing and fiscal devices) for issuing invoices and recording VAT transactions is meant to enhance VAT collection efficiency and eliminate ambiguity in respect of derivation. Meanwhile, small businesses are exempt from registering for and filing monthly VAT returns. I think the President should be applauded for this.

My intention here is not to reproduce verbatim the new tax legislation or even lecture anyone on all the details of the laws. Instead, it is to disabuse the minds of fellow citizens who may have been buffeted by those who are determined never to see anything good or progressive about any government in Nigeria and especially the current one. I have not seen any justifiable reason for the palpable apprehension pervading the atmosphere over a new tax regime just because the January 1, 2026 effective date is around the corner.

Tinubu has surpassed expectations and has shut the mouth of gainsayers and naysayers by demonstrating that, not only does he have the grasp of economic policy, both fiscal and monetary to enable him navigate the country out of murky waters, he also has shown himself as humane and identifying with the plight of the poor and vulnerable.

Going forward, it is the big corporations and private jet owners that will fund infrastructural and other developmental activities and programmes, which will be made available for the use and benefit of all. They will do this by paying up to 25% of their income in taxes for that purpose. The poor and vulnerable are then allowed to maximize disposable income, which was hitherto subjected to multiple layers of taxation.

Putting this side by side the crashing food prices which is in itself a result of falling transportation cost, even professional government critics will have to give credit to President Tinubu for the sheer wisdom and ingenuity with which he has steered a nation in economic quandary. With more mega private refineries looking to come on-stream in 2026, the economic fortune of the average Nigerian will definitely experience a turnaround in 2026.

Merry Christmas.