Understanding Nigeria's 2026 Tax and Budget Reforms

As of January 1, 2026, Nigeria will undergo the most significant tax reforms the country has seen in decades. The four reform laws, being the Nigeria Tax Act (NTA), which produced a new administration structure, a new national tax authority, and a new inter-governmental revenue board, were signed into law on June 26th 2025, giving six months' runway for government, businesses, and households to prepare.

The reformers are not operating in a vacuum. Nigeria’stax-to-GDP ratio has historically lagged behind that of its peers, thereby relying heavily on debt to finance public goods and services. In short, the second-year economic plan of the Tinubu administration would not only seek to “remove the subsidies” and “fix the plumbing of the currency” but to fix the plumbing itself: less overlapping rules, clear incentives, efficient digital enforcement, and a better spread of the burden. This is argued by lawmakers and technocrats to, if properly implemented, increase revenues and lessen this cost burden for most households by zero-rating essentials and easing compliance burdens on small businesses. Critics respond that fiddling with VAT rates or providing formulas would exacerbate regional disparities or curtail demand.

 

What Exactly is Changing?

1. A Modern Legal Backbone-simpler, More Coherent Rules

As a result, the Nigeria Tax Act, 2025, which is intended to re-enact and update fundamental provisions regarding the taxation of income, profits, and gains, came into effect on January 1, 2026. Among the most impactful reforms within this are globally standardized measures: an additional tax to ensure a 15% global minimum for large multinationals and controlled foreign company compliance to tax specific untaxed earnings in foreign subsidiaries owned by Nigerian parent companies. Look for more uniform clarity in definitions and deadlines, as well as stipulations for digital record-keeping.

Other laws reorganize administrations; the most significant is the Nigeria Revenue Service (NRS) law, which renames the Federal Inland Revenue Service (FIRS) to NRS and consolidates the administration of federal taxes under one roof (while not abolishing the states' roles). The goal was to eliminate duplication, centralize processes, and serve better.

The goal is to eliminate redundancies, to consolidate processes, and to enhance service.

 

2. Personal Income Tax-more Progressive, Relief for Low Earners

The NTA updates bands and rates, making progressivity more distinct and exempting low-income Nigerians. Several commentaries on the final Acts highlight that those earning an annual income of ₦800,000 and below are now completely relieved of the burden of personal income tax – a deliberate move to safeguard the most vulnerable and support the new minimum wage agreement. (Also, an idea for an exemption for minimum wage jobs had been proposed in earlier versions of the legislation and remains in some capacity.) Marginal rates have been higher in the brackets for higher earners (around 25% if I’m not mistaken), and some of the thresholds for compensation/relief for job loss were increased.

In plain language, this means that if you earn less than ₦800k, you should pay zero PIT taxes, and if you earn above that, your rates are subject to your income brackets, whereby the top brackets are paying a little higher than before. PAYE calculations will have to be revised and details given to the employees, so keep the payroll tidy.

 

3. VAT-Protecting Essentials, Settling the Rate Debate

Some advisers early on in 2025 proposed a move towards 12.5% VAT along with comprehensive zero-rating on essentials (food, medicines) that comprise over 80% of household expenditure, arguing that not only would this be revenue positive, it would also help control inflation by removing taxes from essentials. Later, the House of Representatives retained a 7.5% base rate but extended exemptions on essentials and modified the method of distribution, one of many compromises that facilitated the bill's move forward. In short, for zero-rated/VAT-free items, the overall VAT rate in the passed package is 7.5%.

What is deemed “essential”? Public statements listed food, healthcare, education, public transport and accommodation as encompassing items that have no VAT or are zero-rated, with officials stressing rent and core services at various times.

NRS schedules and guidance can be expected to be published- businesses should process products into the appropriate VAT handling and update invoicing systems.

 

4. Who collects and how the Money is shared

These reforms incorporate all tax collection and administration into the NRS and modernize inter-governmental coordination through an updated Joint Revenue Board. In particular, revenue sharing from VAT became a flashpoint. While some reformers in the beginning advocated for increasing the importance of those states producing VAT, others cautioned against this as a potential widening of the north-south divide. This compromise then moved in the opposite direction from a move toward allocation based on contributions, to the known “equal share/population/contribution” mix. Look for a formal circular in advance of implementation that will reiterate the final formula.

 

5. Streamlined Business Levies and Global Compliance for Multinationals

Companies can anticipate a more efficient unification oftaxes (e.g. a development tax that replaces multiple duplicative taxes), a more defined oil/mining tax policy interface, and BEPS-type anti-avoidance and topping-up rules for large multinationals to make sure they pay at least the global minimum tax rate. Sector notes clarify that some legacy education/technology earmarks are being justifiable in the new levy, thus eliminating the necessity of dealing with various agencies to obtain similar charges.

 

Why Did Nigeria Do This?

There are three main reasons:

1. Generate sustainable revenue without stifling growth. Nigeria’s tax take, which is around 10-11% of GDP, is comparatively low in the region and has pushed the federation into debt. The efficiencies, the digitization and the broader base, coupled with relief on essentials, are intended to increase that ratio without increasing suffering.

2. Protect households while they adjust. The package attempts to mitigate the impact on families while it cleans up the system by zero-rating essentials and exempting the poor. The ‘VAT-on-luxuries, 0%-on-essentials’ model was defended by policy makers on the basis that it reduces average tax pressure on the consumption of everyday goods.

3. Be competitive and able to attract investment. Establishing clearer regulations and consistency with multinational minimum tax and CFC regimen decreases uncertainties for investors and base erosion games. Having one authority, the NRS, should also make service and dispute resolution easier.

 

What Should You Do Before January 1, 2026?

- Individuals: Know where you stand against the ₦800k exemption threshold; ensure your employer is updating PAYE; ensure documentation is kept for allowances and job-loss reliefs.

- SMEs: Align your products/services to VAT exempt/zero-rated vs. standard-rated, adjust your invoicing and POS accordingly, and check if you are below any small-business relief thresholds in the Acts and guidance notes.

- Large groups/multinationals: simulate the impact of global minimum and CFC laws on your effective tax rate; analyze intercompany arrangements; and get ready for top-up liabilities and increased reporting.

- A final note to all taxpayers: Look out for NRS circulars, FAQs, and the official VAT exemption schedules, and then run your own tests to ensure your billing, ERP, and e-invoicing processes are working accordingly.

 

Conclusion

Change is never just technical. The issue of the sharing of VAT also reopened the sensitivities between the North and the South, where northern leaders are arguing that allocating based on contributions would move revenues towards already richer states, while those in the South state that incentives to perform a good job are positive. The end product is compromise, and that compromise will determine follow-through in implementation of the rules, dispute resolution, and whether more tweaks will find their way back in 2026. There will be ongoing arguments, but also, note this: the start date- January 1, 2026 -has consistently been reconfirmed by financial officials to allow all to prepare.

- Items needed for daily living should not be subject to VAT to help keep the cost of living down. Watch your receipts; retailers are required to ensure that their POS systems are up to date with the correct VAT status.

- Low-income earners do not pay any PIT, and average middle to high-income earners have clearer and slightly steeper (at the top) brackets. The net take-home for minimum wage and more-than-minimum wage workers should increase.

- Fewer conflicting rules and agencies, more NRS as the clearer “front door” for federal tax purposes. Which hopefully translates into a more consistent service and a faster dispute resolution, assuming they live up to their ambition.

Nigeria’s 2026 tax reset is a bet on clarity, fairness and credibility. Also, it creates clarity by consolidating laws and empowering a single national authority, so taxpayers know who to deal with and what to expect. Equity, through zero-rating of the essentials, exemption for the poorest people, but asking more from those with the broadest shoulders and multinationals who could previously arbitrage the system. And credibility, through synchronization of international norms and digital enforcement, so that honest taxpayers aren’t preyed upon by tax evaders. If this promised implementation discipline follows through- predictable and timely guidance, consistent and reputable e-invoicing, professional and respectful audits, quick and trusted appeals- then these reforms might not just raise revenue, but actually build back citizens' trust in the state. Ultimately, it’s that trust – and not the laws – that will determine if the 2026 reform will engrave a positive mark on Nigeria’s financial journey or remain as one of the many episodes in the country’s lengthy tax saga.