Nigeria’s new tax law officially took effect on January 1, 2026. It harmonizes multiple taxes, reduces burdens for low-income earners and small businesses, and introduces higher rates only for very high earners. The government aims to raise tax-to-GDP from about 10% to 18% within three years.
Background of the New Tax Act
- Origins: The reform process began in 2024 under President Bola Ahmed Tinubu, who set up the Presidential Committee on Fiscal Policy and Tax Reforms led by Taiwo Oyedele.
- Legislation: The tax bill was signed into law on June 26, 2025, with implementation starting January 1, 2026.
- Goal: To simplify Nigeria’s tax system, eliminate overlapping “mushroom taxes,” and strengthen public finances.
Key Features of the 2026 Tax Reform
- Harmonisation of Taxes: Multiple levies and charges across states and local governments are consolidated into a streamlined system.
- Relief for Workers: PAYE (Pay-As-You-Earn) taxes reduced for most workers; low-income earners benefit from lighter tax obligations.
- Small Business Support: Removal of multiple taxes on SMEs, making compliance easier.
- High-Income Bracket: Higher tax rates apply only to very high earners.
- Exemptions & Reliefs: The law includes 50 exemptions and reliefs for individuals and businesses, covering essentials like healthcare, education, and agriculture.
- Tax-to-GDP Target: Government aims to raise Nigeria’s tax revenue share of GDP from ~10% to 18% by 2029.
Public Reaction
- Supporters: Government argues reforms will drive economic growth, equity, and inclusive governance.
- Critics: Opposition parties, student groups, and civil society warn that immediate implementation could worsen poverty.
- Clarifications: Despite viral claims, the law does not tax gifts, remittances, or bank transfers.
Comparison Table
| Aspect | Old System (Pre-2026) | New Tax Act (2026) |
|---|---|---|
| Tax Structure | Multiple fragmented taxes | Harmonised, streamlined |
| PAYE for workers | Higher burden across brackets | Reduced for most workers |
| Small businesses | Faced multiple levies | Simplified, fewer taxes |
| High-income earners | Similar rates | Higher rates applied |
| Tax-to-GDP ratio | ~10% | Target 18% by 2029 |
| Exemptions/Reliefs | Limited | 50 exemptions & reliefs |
Risks & Challenges
- Implementation hurdles: States may resist losing local levies.
- Public trust: Skepticism remains due to past misuse of tax revenues.
- Economic strain: Critics fear reforms could hit middle-class households if not carefully managed.
In summary Nigeria’s 2026 tax reform is a sweeping overhaul designed to simplify taxation, reduce burdens for ordinary citizens, and increase government revenue. While the government promises growth and fairness, opposition voices caution about potential hardship if implementation isn’t carefully managed.