A recent assessment by the Alliance for Economic Research and Ethics LTD/GTE has raised concerns over the potential economic impact of the Nigeria Tax Act, 2025, warning that several provisions could erode business profitability, deter investors, and weaken Nigeria’s competitiveness within Africa, according to Nairametrics.
The Act, signed into law in June 2025 and set for implementation on January 1, 2026, represents one of the country’s most extensive tax reforms in decades.
It consolidates more than a dozen tax laws into a single framework. “The severe increase in the Capital Gains Tax, the imposition of a new Development Levy, the uncertainty cast upon the Free Trade Zones, and the unusual domicile of the Single Window Trade Platform threaten to cripple the very investment and business growth that Nigeria desperately needs to secure its long-term economic future,” the report states.
The government’s stated objective is to modernize tax administration, block leakages, and boost public revenue amid falling oil income and rising debt obligations, aiming to “streamline administration, curb tax evasion, and ensure all sectors contribute their fair share to national progress.”
However, the report notes that businesses and investors are increasingly concerned about steep obligations introduced without adequate transitional measures.
Key changes in the Act include a sharp increase in Capital Gains Tax (CGT) for companies from 10% to 30%, aligning it with the corporate income tax rate. The Alliance describes this as “a seismic shock to the investment landscape,” with analysts warning it could reduce returns for private equity, venture capital, and foreign investors.
A 4% Development Levy on assessable profits replaces several existing levies, which, while intended to fund national development projects, could squeeze margins for manufacturers, retailers, and agribusinesses.
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In line with OECD guidelines, Nigeria has adopted a 15% minimum tax for multinationals with turnover above €750 million and domestic firms earning over N50 billion.
The Act also abolishes long-standing tax exemptions for Free Trade Zone (FTZ) operators, a change analysts describe as “abrupt and ambiguous,” potentially undermining a historically important investment incentive.
Additional provisions expand taxation on digital assets and introduce more progressive personal income tax bands.
The report highlights several economic risks, including the potential for the 200% increase in CGT to dampen long-term capital formation and discourage mergers, acquisitions, and startup investment.
“Private equity and venture capital ecosystems rely heavily on successful exits,” the report notes, warning the reform could slow innovation.
The 4% Development Levy may disproportionately impact sectors with thin profit margins, increasing cost pressures.
The removal of blanket tax incentives could push investors toward regional competitors such as Ghana, Rwanda, and Ethiopia, where business costs are declining and regulatory environments are stabilizing.
The minimum tax regime and other new rules are expected to increase administrative complexity for large corporations.
Despite these concerns, the analysis identifies potential opportunities. The 15% minimum tax could create fairer competition between multinationals and domestic firms.
Consolidating multiple levies into a single Development Levy may reduce administrative complexity, and SME exemptions remain intact, allowing smaller businesses to reinvest and grow.
If effectively implemented, the Act could broaden the tax base and improve fiscal transparency.
The report also compares Nigeria’s reforms with other African economies. Ghana has removed nuisance taxes to stimulate investment, Ethiopia has cut tariffs for AfCFTA members, and Rwanda has strengthened regulatory stability to attract foreign direct investment.
Analysts caution that Nigeria’s higher tax burden could weaken its position under AfCFTA as a regional manufacturing and export hub.
To balance revenue generation with economic growth, the Alliance recommends moderating the CGT increase through a phased approach beginning at 15%, redesigning FTZ incentives rather than scrapping them, issuing clear implementation guidelines via the Federal Inland Revenue Service, and aligning tax reforms with AfCFTA goals to improve competitiveness.
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Image Credit: Nairametrics
