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Look, we know tax talk makes you doze off faster than a boring church sermon. But this one actually matters for your wallet.
Here's the breakdown without the boring stuff.
TL;DR: The Quick Hits
If you earn under ₦800k yearly, you're tax-free (but plot twist: that's still below minimum wage)
Small businesses get a major break
Big earners (₦50M+) now pay 25%
One tax agency to rule them all (goodbye, multiple taxation chaos)
VAT stays at 7.5%, but states that generate more keep more
New taxes on betting and phone credit
After plenty of back-and-forth, closed-door meetings, and policy ping-pong, President Bola Tinubu has finally signed the much-talked-about Tax Reform Bill into law, and it's about to shake things up.
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The Backstory: Why We Needed This Mess Fixed
For years, Nigeria's tax system has been a hot mess: complicated, hard to navigate, and frankly, not pulling its weight.
Picture this: Nigeria has over 60 different taxes (yes, 60!), but let's be honest, only a few actually do any heavy lifting. It's like having 60 apps on your phone but only using 5.
In 2023, the IMF said our tax-to-GDP ratio was just 9.4% - one of the lowest in the world. To put that in perspective, South Africa sits at around 27%.
But here's some good news: amidst the tax reform policy rollout and a major shake-up in how non-oil revenue is collected, that number jumped to 13.5% in 2024. Not perfect, but definitely progress.
The real problems? Most people and businesses don't pay tax, especially in the informal sector (think your neighborhood mecho or the bole and fish seller). And honestly, many Nigerians just don't trust the system to work in their favor.
Plus, tax collection was scattered between federal, state, and local agencies, leading to multiple taxation and endless confusion. It's like paying entrance fees at three different gates to enter the same party.
Small businesses felt the heat the most. With oil money doing most of the heavy lifting, there was little urgency to clean things up. That's what this new tax reform bill is trying to change.
RELATED: ‘Only 10% of Nigerians pay tax’: FIRS launches comic-style book to educate children early
Your Wallet Changes: Personal Income Tax
The Poor Get a Break (Sort Of)
Earning less than ₦800k a year? You're officially tax-free.
But here's where the math gets weird: That ₦800,000 breaks down to about ₦66,667 per month, which is actually lower than Nigeria's new minimum wage of ₦70,000.
Yeah, we know - the math doesn't math. So technically, even a minimum wage earner doesn't qualify for the full exemption. This policy mainly benefits informal workers, part-timers, domestic staff, rural earners, and students hustling on the side. It's Tinubu's way of saying: "We will let the poor breafthhhh."
The New Tax Ladder: How Much You'll Actually Pay
Think of it like a staircase - the higher you climb (earn), the more you pay:
Under ₦800k: 0% (Tax-free zone)
₦800k - ₦3M: 15% (The "getting by" bracket)
₦3M - ₦12M: 18% (The "doing okay" bracket)
₦12M - ₦25M: 21% (The "doing well" bracket)
₦25M - ₦50M: 23% (The "doing very well" bracket)
Above ₦50M: 25% (The "you're rich, contribute more" bracket)
Real Example: If you earn ₦5 million yearly, you'd pay 0% on the first ₦800k, 15% on the next ₦2.2M, and 18% on the remaining ₦2M. Total tax: about ₦690k (roughly 14% effective rate).
Business Changes: Small Guys Win, Big Guys Pay More
Small Business Owners, Breathe Easy
If you're running a small business - think barbershops, bakeries, small-scale tech services, or that side hustle you've been grinding - you're now fully exempt from income tax. No more tax headaches for the hustlers keeping the economy moving.
What counts as "small business"? The bill doesn't spell out exact thresholds, but it's aimed at micro and small enterprises, not companies making millions.
Corporate Tax Gets a Haircut (Eventually)
Starting in 2026, medium and large businesses will see their Company Income Tax rate drop from 30% to 25%. It's like Tinubu saying: "We'll take a bit less if you promise to invest more and create jobs."
The System Overhaul: One Agency to Rule Them All
FIRS Gets a Rebrand and Superpowers
The Federal Inland Revenue Service (FIRS) is now officially the Nigeria Revenue Service (NRS). New name, same tax goals, but with way more coordination power.
Instead of running around to different agencies like you're collecting infinity stones, the NRS will now handle collections for bodies like Nigeria Customs, NUPRC, NPA, and NIMASA. Think of it as having one customer service number instead of calling 15 different departments.
What You Buy: VAT and New Taxes
The Good News: Essentials Stay Tax-Free
No VAT on basics like food, school fees, medical services, pharmaceuticals, or electricity. The government is keeping its hands off stuff people actually need to survive.
VAT Stays Put (For Now)
Originally, there was talk of hiking VAT from 7.5% to 12.5% (and even 15% by 2030). Lawmakers hit pause on that, so VAT stays at 7.5%. Before you celebrate too hard though, there's a twist in how VAT revenue gets shared between states.
The New Sharing Formula Drama
Here's where it gets spicy: Instead of just spreading VAT revenue equally or based on population, the plan was to shift more revenue (up to 60%) to states that actually generate it. Think Lagos vs other states. After plenty of pushback, that number got trimmed to 30%. Translation: States that hustle more get rewarded more.
EXPLORE: Governors back Tinubu's tax reform bills, propose new VAT-sharing formula
New Taxes on Your Entertainment
5% excise duty on lottery/gaming: That bet you placed? The government wants a slice.
5% excise duty on telecom services: Your airtime and data just got slightly more expensive.
The Investment Fund: Development Levy
There's now a 2%-4% Development Levy to fund key national institutions like NELFUND (student loans), TETFund (education), NITDA (tech development), and NASENI (engineering). Think of it as Tinubu's way of investing in the future - schools, tech, and innovation.
Timeline: When Does This All Happen?
Immediate: New tax brackets, small business exemptions, NRS launch
2026: Corporate tax drops to 25%
Ongoing: Development levy kicks in to fund national institutions
READ ALSO: Reforms have been hard, but we're seeing light at the end of the tunnel - Tinubu
What This Means for You
If You're a Student/Part-Timer/Informal Worker:
You're probably in the clear. Most of your hustle money stays in your pocket.
RELATED: How to save ₦50,000 in 3 months if you earn minimum wage
If You're a Regular Employee (₦100k-500k monthly):
You'll likely pay less tax overall thanks to the new progressive system.
If You're Doing Well (₦1M+ monthly):
You'll definitely feel the pinch, but hey, you're contributing to national development.
If You're a Small Business Owner:
This is your moment. No more income tax headaches - focus on growing your business.
If You're Rich (₦50M+ yearly):
The government wants you to contribute 25%. Think of it as your patriotic duty.
The Bottom Line
On paper, this reform brings clearer rules, less bureaucracy, and a push to fund schools, tech, and infrastructure without leaning so hard on oil money. Tinubu stayed somewhat true to his "let the poor breathe" promise - low-income earners keep more, small businesses can finally exhale, and there's now one-stop shopping for tax collection.
But as always, a shiny new law is only as good as its implementation. The real test? Whether this actually reduces the chaos or just creates new, fancier chaos. Only time (and your next tax experience) will tell.