The full implementation of Nigeria’s Tax Reform Acts ushers in a new era with serious implications for the private and public sectors. This analysis by OLUWAKEMI ABIMBOLA details the operational priorities for businesses seeking to avoid punitive measures
A source of relief for salary earners, particularly those earning below N800,000 per annum, is the expectation that their take-home pay may increase, albeit modestly, at the end of January, thanks to the new tax regime.
Secondly, Value Added Tax and Withholding Taxes must be applied and reported regardless of ongoing legal contentions. These aspects of the law have become top priorities for businesses and corporations in the country.
Overall, the new tax laws, including the Nigeria Tax Administration Act, the Nigeria Revenue Service (Establishment) Act, the Joint Revenue Board (Establishment) Act, and the Nigeria Tax Act, are forcing organisations and businesses to move beyond passive compliance into rapid operational recalibration.
According to the NTA, individuals earning N800,000 or less per annum are now exempt from tax on their income and gains, while higher-income earners will be taxed at progressively higher rates, up to 25 per cent. Regarding VAT, the law reforms the regime to allow input VAT incurred on services and fixed assets to be claimed against output VAT, not just on goods for resale or production. Additionally, the NTA mandates the implementation of an electronic fiscalisation system (e-invoicing) for VAT collection and reporting.
On WHT, entities responsible for withholding taxes must deduct and remit them promptly. Failure to comply can result in a 40 per cent penalty on the non-deducted amount, in addition to interest and potential criminal liability.
Speaking on the tax reforms and their implications for businesses, Kenneth Erikume, Partner, Tax Reporting and Strategy, PwC, highlighted payroll and the automation of VAT and WHT collection as key issues during the 2026 Nigeria Economic Outlook organised by FirstBank on Tuesday in Lagos. He noted that businesses face significant penalties if they breach the laws.
He said, “The most urgent and pressing area is payroll, because by the end of the month, you are required to pay your staff. This means the logic and rules within your payroll system must be updated to reflect the new tax provisions. There is now an exemption up to N800,000, after which the applicable tax rates begin to apply. Any portion of income above N50m is taxed at 25 per cent, making the structure a graduated scale. What we have observed is that, assuming no significant reliefs are claimed, anyone earning below N25m will see an increase in take-home pay due to reduced taxes. Conversely, anyone earning above N25m will experience higher taxes, resulting in a reduction in take-home pay.
“From a human capital perspective, this is not just a systems issue. You also need to consider how to manage this differential. Staff earning below N25m will retain the benefit, and that cannot be clawed back. However, for staff earning above N25m, the question becomes whether the company will absorb part of the increased tax burden through a payroll review aligned with this change. Fundamentally, payroll is the most urgent issue and must be addressed immediately.”
Erikume reiterated that transaction taxes, primarily WHT and VAT, were also priority areas for businesses. He said, “The most significant changes relate to VAT, and they present a major opportunity that companies need to be aware of and take advantage of. For every company in Nigeria today, costs can potentially be reduced by 7.5 per cent due to the expanded ability to claim VAT on expenses. Previously, this was limited mainly to manufacturers claiming VAT on goods purchased for resale or production. Now, all companies can claim VAT on costs related to fixed assets and overheads. When I conducted this analysis using PwC as an example, the annual benefit exceeded N500m. That value flows directly into the profit or loss account.
“However, systems must be updated to recognise this change. VAT on costs should no longer be expensed; instead, it should be recorded in the VAT account as an asset. When VAT is charged to customers, it can then be offset when filing VAT returns. This is the second urgent area and represents a significant benefit.”
The PwC partner also highlighted potential grey areas that may arise when dealing with vendors without a Tax Identification Number, noting how such transactions could lead to penalties.
“Beyond this, there are important process-related issues to address. One key rule states that if you transact with a party that does not have a TIN, you may be penalised up to N5m. This makes it necessary to update vendor validation processes to ensure that all suppliers provide a TIN during onboarding. A common question is what happens in situations involving roadside vendors, such as vehicle repairs, where staff seek reimbursement. In such cases, the vendor’s TIN must still be obtained; otherwise, the company is exposed to penalties. This effectively means organisations will need to prioritise artisans and vendors who have TINs over those who do not.
“Finally, there are significant penalties related to WHT errors, including failure to deduct correctly or apply revised rates. In such cases, the government can impose penalties of up to 40 per cent simply due to incorrect deduction or remittance. For this reason, processes affected by these new laws should be automated wherever possible,” Erikume said.
Offering a solution, the tax expert said that automation is key, particularly in areas with hefty sanctions. He said, “Automation is critical in areas where penalties are high. Getting it right the first time, without errors, is essential, and reliance on manual processes increases risk. This requires close collaboration between finance and IT teams to ensure that modern, reliable systems are used.
“As a final point, it is important to ensure that any logic being implemented is based on the final version of the law passed by the National Assembly, as multiple versions have circulated. Always confirm that you are working with the final version.”
Corporate and tech lawyer Nneoma Agwu-Okoro, breaking down business requirements regarding VAT and WHT in her Legal Bytes newsletter, emphasised that “every transaction subject to VAT must be calculated, collected, and remitted on time. Similarly, withholding taxes on payments to contractors, suppliers, or service providers must be properly deducted and remitted. Fintechs with high-volume transactions must implement automated systems to handle VAT and WHT, reducing the risk of penalties and cumulative liabilities that could outweigh actual profits.”
She also urged businesses to be proactive in bringing all their operations, even low-margin activities, into strict compliance with the tax reform acts. She said, “Businesses should maintain monthly reconciliations, backup documentation, and clear audit trails. The new system allows authorities to cross-check bank accounts, payment platforms, and TIN-linked records. Proactive review of profitability, expenses, and tax obligations ensures compliance even in low-margin operations.”
From PwC’s Nigerian Tax Reforms, 2025 Tax Insight Series and Sectoral Analysis, below are some actionable insights that businesses and individuals must implement to avoid breaching the law:
PwC said, “All taxable persons and entities must register for tax and obtain a TIN to avoid substantial initial and recurring penalties. Awarding contracts to unregistered persons now attracts a significant N5 million penalty. Ensure all tax returns are filed accurately and on time. Delays or inaccuracies trigger escalating monthly penalties, which can quickly accumulate to substantial amounts.
“Companies and individuals must keep and provide adequate records. Failure to do so results in immediate penalties and can hinder the ability to defend against further assessments or audits. Grant access for tax automation and use the prescribed fiscalisation systems for VAT and other taxes. Non-compliance leads to high daily penalties and additional interest on tax due. Respond promptly to all tax authority requests for information. Non-compliance now attracts significant daily penalties.”
Special attention is required for petroleum and mineral operators. “Operators in these sectors face some of the highest penalties for late filing and payment, including daily fines, interest at premium rates, and the risk of asset distraint or licence cancellation. Ensure all sector-specific obligations are met without delay. Interest accrual is substantial, interest on unpaid taxes is not a flat rate but is tied to prevailing financial benchmarks (CBN MPR or SOFR) plus a spread, compounding the cost of late payment.
This can significantly increase total liabilities over time.
“Taxpayers should implement robust compliance systems, including calendar reminders for all filing and payment deadlines, regular internal audits, and prompt responses to tax authority communications.”
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