From January 2026, the Nigerian government will resume the implementation of the new tax acts. There have been debates and arguments on it. Knowing the new tax laws means you understand the foundation. That is the Nigerian tax system. Let us discuss this.
What is the Nigerian tax system
The tax system is the structure of a country's taxation. The human body has several parts: head, hands, and legs. The Nigerian tax system includes tax policies, tax laws, and tax administration.
The system can be changed regularly. The three reasons why a tax system change is due to social, economic and political conditions. When the way people do things changes, it may be necessary to adjust the tax system to meet the changes.
For example, many people in Nigeria now earn income from freelancing and social media influence. This is a major shift in Nigerian culture. Where citizens earn from owning a business or as employees of a company.
The economic conditions in Nigeria, due to the regular fluctuations of the foreign exchange rate, led to the introduction of Windfall taxes. And the change in government, whose ambition is to restructure how taxes are collected, can impact the tax system. This is true of the current changes in tax laws in Nigeria.
A good tax structure must be equitable, fair, cost-effective, convenient, simple to understand and compute, and have a low compliance cost. Both the government, the tax authorities, and the taxpayers. Therefore, it should be a win-win situation.
Components of the Nigerian Tax System
The three components of a tax system are the tax policy, tax laws, and tax administration.
Tax Policy: It is the principle and guideline used in developing tax laws and improving tax administration. It can be synonymous with the head in the human body. Just as the head controls all parts of the body, the tax policy guides the other parts of the tax system.
The current government made changes to the Nigerian tax policy. Several changes have been implemented into new laws that cover tax computations, administrations, and compliance.
One of the best introductions to the current law is the simplification. The Nigerian tax laws are now written in simple English that can be understood by Nigerians with a minimum of a primary school certificate. This implies that as long as you can read and write you should be able to read and understand the new tax laws.
In addition, the new policy will reduce the tax payable by citizens. For example, companies that earn below 100 million Naira will not pay corporate tax. However, it plans to increase the tax nest. As a result, companies must use the FIRS E-invoicing platform in their invoicing software through the provided API. Also, more people will be added to the tax net. This includes freelancers and social media influencers.
Tax laws: The second component of the Nigerian tax system is the tax laws. Similar to the hands of a human body, the Acts made by the government are made to serve as the workings of the tax systems. It is from it that tax revenues are computed, compliances are decided, and administration is done. It is difficult for other parts of the body to carry out a task without the hands, so the tax system cannot perform any action without the tax Acts.
Before the new tax policy, the tax laws included:
- Personal Income Tax Act
- Company Income Tax Act
- Petroleum Income Act
- Capital Gains tax
- Value Added Tax Act
- Stamp duty
- And the Finance Act
With the new policy, laws are combined into the Nigerian Tax Act (NTA) 2025. So, there are sections for the above under the new NTA. Nigeria has three arms of government. The local and state governments are not allowed to create tax laws. This is the exclusive responsibility of the Federal government.
Tax administration: This is responsible for tax collection in Nigeria. They enforce the tax laws and punish defaulters. The Federal Inland Revenue Service (FIRS), State Internal Revenue Service (SIRS), and Local Government Revenue Committee.
The laws guiding the above tax administrators were the Federal Inland Revenue Establishment Act and the Personal Income Tax Act (PITA). Section 87 of PITA was established in SIRS, while Section 90 established the Local Government Revenue Committee.
The FIRS was renamed to the Nigeria Revenue Service (NRS) in the new tax law. The Nigeria Customs Authority will be merged with the FIRS to create the new NRS. The name change will take effect from January 2026.