How Nigeria’s New Tax Laws Will Affect Small Businesses

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On June 26, 2025, the Nigerian government enacted a set of new Tax  Laws, a comprehensive package of legislation that takes effect from January 1, 2026. These laws aim to simplify tax administration, improve compliance, expand the tax base, and enhance ease of doing business – particularly for Micro, Small, and Medium Enterprises (MSMEs), which form the backbone of Nigeria’s economy.

The reforms provide significant tax breaks for small businesses and offer them opportunities to thrive.  However, to be able to explore these opportunities requires business owners to properly organize and structure their businesses.  In other words, small businesses that are not well organized may not be in a position to enjoy the benefits of the new tax reforms.

In this article, we’ll explore the key provisions of the new tax laws, highlight the challenges and opportunities they present, and provide practical guidance on how Nigerian small business owners can position themselves to thrive in this new tax environment.

Understanding the Key Tax Changes for Small Businesses

Here are some of the fundamental changes in the new tax laws that can drive growth for small businesses in Nigeria

#1. Higher threshold for exemption from company taxes

The most impactful element of the reform for small businesses is the increase in tax exemption thresholds. Under the new law, businesses with an annual turnover of ₦100 million or less and total fixed assets not exceeding ₦250 million will now be exempt from Company Income Tax (CIT), Capital Gains Tax (CGT), and the newly introduced 4% Development Levy.

This is a significant increase from the previous ₦25 million turnover threshold for CIT exemption and helps protect smaller enterprises from undue tax burdens.

#2. Unified Tax Administration

In addition to higher thresholds, the new framework introduces a unified tax administration system. The Nigeria Revenue Service (NRS) will replace the Federal Inland Revenue Service (FIRS) and will work alongside state-level tax authorities through a centralized platform. Taxpayers will now register and file returns using a single taxpayer identification number, linked to their BVN or NIN. This digital integration aims to eliminate duplication, reduce administrative burdens, and provide a clearer overview of compliance obligations.

#3. Digitization of Tax Reporting

One of the most transformative aspects of the reform is the mandatory digitization of tax reporting. Businesses will now be required to adopt electronic invoicing systems, implement electronic fiscal devices (EFDs), and submit real-time VAT transaction reports, particularly for sales above ₦50,000.

In this regards, penalties for non-compliance are steep—starting at ₦1 million for the first month of default and increasing daily until the business complies.

#4. Higher Personal Income Tax (PAYE) Exempt Threshold

The reform also addresses the issue of employee taxation. Under the new Personal Income Tax framework, workers earning ₦1 million or less annually are now exempt from Pay-As-You-Earn (PAYE) tax.

For employers, especially small businesses that operate on lean payrolls – this measure reduces administrative responsibilities and improves staff morale by enhancing take-home pay.

#5. Tax Ombudsman

Another noteworthy addition is the creation of a Tax Ombudsman and a strengthened Tax Appeal Tribunal, which offer small businesses more transparency and support when facing tax disputes. These bodies are mandated to ensure fair hearing, quick resolution of tax-related conflicts, and protection from excessive or unjust assessments.

The Challenges Small Businesses May Face

Despite these pro-business provisions, the transition to the new tax regime is not without its hurdles. A major concern is the cost and capacity required to digitize business operations.

Many small enterprises, especially those in informal sectors or rural areas lack the resources to acquire electronic invoicing systems or train staff in digital tax compliance. The learning curve may be steep, and without adequate support, these businesses risk incurring penalties or being locked out of the new system.

Navigating the changes—from updating tax records and re-registering under the new NRS to understanding new reporting timelines and digital filing procedures – may be overwhelming for entrepreneurs who previously operated under simplified or informal structures.

There’s also the risk of missing critical deadlines, particularly given the stricter late filing penalties introduced by the new law.

For businesses that have not kept proper financial records in the past, compliance may prove especially difficult. The requirement for accurate electronic documentation and real-time reporting makes it more difficult to operate “under the radar.” Businesses that fail to adapt may face enforcement actions, including fines, audits, and even temporary suspension of operations.

Opportunities to Leverage Under the New Tax Regime

On the flip side, the reforms offer considerable opportunities for small businesses that take proactive steps in business organization, structuring and systemization.

First and foremost, the expanded tax exemption threshold provides immediate cost savings. By exempting more businesses from income and capital taxes, the law frees up capital that can be reinvested in operations, staff, or growth initiatives.

Businesses that previously struggled with the burden of tax compliance will now enjoy increased breathing room.

The introduction of a five-year Economic Development Incentive (EDI)—which offers a 5% annual tax credit on qualifying capital investments means businesses that invest in technology, machinery, or expansion can claim substantial reductions in future tax liabilities.

This creates a strong incentive for business owners to formalize and grow their operations.

Digital compliance also brings long-term benefits. By adopting electronic invoicing, businesses improve transparency, efficiency, and financial management. This can enhance credibility with lenders, investors, and even large corporate clients. In the long run, digitization helps MSMEs become more structured, audit-ready, and eligible for grants or institutional funding.

It is time for small business owners to start paying attention to organization structuring, put in place a good accounting system and proper record keeping for tax matters.  Fortunately, there are increasing number of cloud based software, some of which are free, small businesses can explore to keep proper records.

For employers, the restructured PAYE framework lowers the tax burden on lower-income workers, creating a happier and more productive workforce. Additionally, the new tax system’s formalization encourages more businesses to register their businesses and enter the mainstream economy, opening doors to bank loans, partnerships, and public procurement opportunities.

How Small Business Owners Can Position Themselves to Thrive

Here’re the steps you must take as an entrepreneur to ensure you prepare for the challenges ahead.  Weather you are a small business owner, a freelancer, consultant or professional providing paid services to businesses and individuals; these steps are essential.

#1. Register your business

To take full advantage of the new tax regime, small business owners must begin with formal registration and documentation. This includes registering their business with the CAC, acquiring the unified taxpayer identification number, and linking their NIN or BVN as required by the NRS. This step not only grants access to exemptions and incentives but also ensures legal protection and visibility in the formal economy.

#2. Set up and maintain a good record keeping system

It’s no longer optional but a necessity that business owners keep proper records.

This is because they need a good record system to be able to assess their annual turnover and asset base to be able to claim relevant exemptions under the new tax laws.

If your enterprise is approaching the ₦100 million turnover mark, it would be wise to plan ahead for future tax obligations. Engage an accountant or tax advisor to understand how best to structure your operations for tax efficiency.

#3. Adopt Technology

Time to increase your rate of technology adoption as a small business owner is now. Invest in technology infrastructure. This includes setting up basic accounting software, implementing e-invoicing systems, and training your team on how to manage and report VAT transactions digitally.

If funds are limited, explore affordable cloud-based tools or tap into MSME development programs that offer subsidies or support for digital transformation.

#4. Budgeting and Financial Planning

Businesses should review their capital expenditure plans to take advantage of the Economic Development Incentive.

This could mean upgrading your production equipment, adopting automation, or expanding into new locations. Because the EDI allows you to carry forward unclaimed credits for up to five years, even smaller annual investments can yield long-term tax savings.

#5. Employee Tax Planning

Another important step is to restructure payroll systems in line with the new PAYE reforms. Ensure that salaries are categorized correctly, and update staff records to reflect accurate earnings. This can help avoid over-taxation and position your business as a compliant employer.

Final Words

As has earlier highlighted, maintaining accurate and timely financial records is now non-negotiable. Businesses must keep digital copies of invoices, receipts, and tax filings. Doing so will not only prevent penalties but also make it easier to resolve disputes or apply for funding.

Lastly, business owners should stay informed and connected. Join small business associations, attend tax awareness clinics, and subscribe to updates from the Nigeria Revenue Service or the Ministry of Finance.

Engaging with these platforms provides timely updates, access to tools, and opportunities to participate in consultations that shape future policies.

If you’re a business owner looking to understand how these changes apply specifically to your enterprise, or if you need help setting up digital tax systems, feel free to reach out to me or consult with a tax advisor today.