Effects Of The Tax Law On Small And Medium Scale Businesses In Nigeria -By Ishie-Johnson Emmanuel Esq.

ABSTRACT

The Nigeria Tax Act (NTA) 2025, alongside the Nigeria Tax Administration Act (NTAA) 2025, Nigeria Revenue Service Act (NRSA), and Joint Revenue Board Act (JRBA)—all effective January 1, 2026—seeks to streamline revenue generation, foster economic growth, and ease business operations. This article analyzes their impact on small and medium enterprises (SMEs) in Nigeria, evaluating both benefits and challenges. It explores key implications, including exemptions, compliance burdens, and effects on investment.

INTRODUCTION

The Nigerian government has enacted sweeping tax reforms through the Nigeria Tax Act (NTA) 2025, Nigeria Tax Administration Act (NTAA) 2025, Nigeria Revenue Service Act (NRSA), and Joint Revenue Board Act (JRBA). These measures aim to simplify compliance, eliminate multiple taxation, and strengthen administration. SMEs, which drive substantial employment and economic output in Nigeria, stand to experience profound effects from this regime.

HISTORICAL REVIEW OF TAXATION IN NIGERIA

Nigeria’s tax system has evolved through successive reforms, from pre-colonial tributes to contemporary statutes. The following outlines key phases:

Pre-Colonial Era: Traditional rulers imposed levies and tributes on subjects, forming the basis of early revenue collection.

Colonial Era (1914–1960): The British introduced modern taxation via the Income Tax Ordinance of 1917. Companies faced taxation under the Companies Income Tax Ordinance of 1939.

Post-Independence Era (1960s–1980s): Post-1960 reforms included the Petroleum Profits Tax Act of 1959 and Companies Income Tax Act of 1961. Taxation shifted toward corporate and high-income earners as primary revenue sources.

Structural Adjustment Programme (SAP) Era (1980s–1990s): SAP-driven changes introduced Value Added Tax (VAT) in 1993. The Federal Inland Revenue Service (FIRS) was established that year to centralize administration.

Recent Reforms (2000s–2024): Key enactments comprised the Companies Income Tax Act 2007 and Value Added Tax Act 2007. FIRS advanced e-filing and payment systems to enhance compliance.

2025 Tax Reforms: The Nigeria Tax Act 2025, Nigeria Tax Administration Act 2025, Nigeria Revenue Service Act, and Joint Revenue Board Act consolidate the regime, emphasizing efficiency, transparency, and accountability.

This trajectory underscores Nigeria’s progression from fragmented traditional systems to a unified, technology-enabled framework.

EFFECTS OF THE NEW TAX LAWS

The Nigeria Tax Act 2025 and related statutes yield both benefits and challenges for small and medium enterprises (SMEs) in Nigeria. Key effects include exemptions, compliance shifts, and fiscal pressures.

Positive Effects

1. Tax exemptions: SMEs with annual turnover below ₦100 million and total assets under ₦250 million qualify for exemptions from Companies Income Tax (CIT) and Capital Gains Tax (CGT).

2. Simplified compliance: Streamlined filing processes and audit exemptions lower administrative costs.

3. Enhanced cash flow: Retained profits enable reinvestment, spurring business expansion.

Negative Effects

1. Elevated tax burdens: Higher CGT rates and a 4% Development Levy on assessable profits strain eligible SMEs.

2. Rising compliance costs: Expenses for tax software, professionals, or training offset some gains.

3. Administrative hurdles: Complex regulations demand time-intensive navigation.

Mitigating Strategies

• Proactive tax planning: Leverage exemptions and reliefs to minimize liabilities.

• Robust record-keeping: Maintain detailed, verifiable records for audits and filings.

• Expert consultation: Engage tax advisors to optimize compliance and incentives.

While exemptions foster growth for qualifying SMEs, others face heightened burdens—necessitating strategic adaptation for competitiveness.

CHALLENGES IN IMPLEMENTING THE NEW TAX LAWS

Implementation of the Nigeria Tax Act 2025 and companion statutes, effective January 1, 2026, confronts hurdles in capacity, infrastructure, and adaptation across stakeholders.

Challenges for Tax Authorities

1. Capacity gaps: Shortages in skilled staff and technology impede enforcement of electronic fiscal systems (EFS) and real-time reporting.

2. Infrastructure deficits: Inadequate offices, equipment, and IT systems, including unreliable ITAS platforms, hinder operations.

3. Resistance to change: Entrenched practices slow adoption of centralized Nigeria Revenue Service (NRS) processes.

Challenges for Taxpayers

1. Regulatory complexity: Overhauled rules on e-invoicing and tracking foster confusion and non-compliance risks.

2. Awareness deficits: Limited outreach leads to penalties from unawareness of exemptions or digital mandates.

3. Administrative loads: Time-intensive filings and record-keeping strain resources, especially amid digital divides.

Challenges for SMEs

1. Resource constraints: Lack of personnel, tech, and credit limits EFS adoption and ERP integration.

2. Elevated compliance costs: Investments in software, training, and advisors burden cash flows.

3. Uncertainty: Volatile interpretations and VAT refund delays complicate planning.

MITIGATING IMPLEMENTATION CHALLENGES

1. Targeted interventions can address rollout barriers for the Nigeria Tax Act 2025 and related reforms.

2. Training and capacity building: Deliver programs for tax officials and taxpayers on e-invoicing, EFS, and NRS protocols to boost understanding and enforcement.

3. Public awareness campaigns: Deploy nationwide education via media, workshops, and portals to highlight exemptions, benefits, and deadlines.

4. Regulatory simplification: Streamline rules, such as unified VAT thresholds and phased EFS mandates, to curb complexity.

5. Technological upgrades: Invest in scalable platforms like upgraded ITAS and SME subsidies for ERP/compliance tools to ease burdens.

These measures enable seamless adoption, fostering voluntary compliance and revenue goals.

CLAIMING SME TAX EXEMPTIONS: STEP-BY-STEP GUIDE

SMEs with turnover under ₦100 million and assets below ₦250 million can claim CIT and CGT exemptions under the new regime by following these steps:

1. Verify eligibility: Confirm turnover/assets via audited accounts; exclude public companies or multinationals.

2. Register with NRS: Enroll via the new portal (replacing FIRS ITAS) with CAC certificate, BVN, and financials.

3. Maintain records: Track revenues/assets digitally for three years, compliant with e-invoicing rules.

4. File self-assessment: Submit annual returns by due dates (e.g., June 30), declaring exemption status without payment.

5. Apply for confirmation: Request formal exemption letter from NRS post-filing; appeal denials via tribunals.

CIT EXEMPTION PROCESS

Small and medium enterprises (SMEs) qualifying under the Nigeria Tax Act 2025—annual turnover ≤ ₦100 million and total assets ≤ ₦250 million—can claim Companies Income Tax (CIT) exemption via these steps:

1. Verify eligibility: Confirm turnover and assets through audited financials; exclude public companies or quoted entities.

2. Register with Nigeria Revenue Service (NRS): Secure Tax Identification Number (TIN) via the NRS portal, replacing FIRS processes.

3. File annual returns: Submit nil CIT returns by the statutory deadline (e.g., June 30), declaring exemption.

4. Retain documentation: Maintain financial statements, ledgers, and returns for audits.

VAT EXEMPTION PROCESS

SMEs with turnover ≤ ₦100 million qualify for VAT exemptions:

1. Verify eligibility: Assess turnover against threshold using verifiable records.

2. Confirm registration status: Register for VAT if turnover exceeds prior thresholds; NRS handles post-2026.

3. Issue compliant invoices: Denote VAT-exempt status clearly on all sales documents.

4. Maintain transaction records: Log sales, purchases, and exemptions for compliance verification.

GENERAL COMPLIANCE REQUIREMENTS

1. Accurate record-keeping: Document all financials, returns, and transactions for at least six years.

2. Full regulatory adherence: File all required returns and remit non-exempt taxes promptly.

RECOMMENDED DOCUMENTS AND PURPOSE

1. TIN certificate: for proof of registration

2. Certificate of incorporation: entity verification

3. Audited financial statement: turnover/assets substantiation

4. Filed tax return: exemption declaration history

5. VAT registration (if applicable): threshold compliance

BEST PRACTICES FOR EXEMPTION CLAIMS

• Consult tax professionals: Engage chartered accountants or tax advisors to navigate NRS requirements and optimize claims.

• Conduct regular reviews: Periodically assess turnover, assets, and obligations to sustain eligibility amid business growth.

These practices, paired with meticulous records, enable SMEs to securely leverage exemptions under the Nigeria Tax Act 2025.

RECOMMENDATIONS FOR EFFECTIVE IMPLEMENTATION

The following stakeholder-specific measures promote seamless rollout of the 2025 tax reforms.

For Government

1. Capacity building: Fund training for NRS officials on EFS, audits, and digital enforcement.

2. Public awareness: Roll out multimedia campaigns highlighting SME exemptions and compliance benefits.

3. Regulatory simplification: Consolidate overlapping rules and set clear SME thresholds.

4. Technological investment: Upgrade portals for seamless e-filing and real-time tracking.

For Tax Authorities

1. Risk-based auditing: Prioritize high-risk entities, exempting compliant SMEs from routine scrutiny.

2. Taxpayer education: Offer free webinars and guides on new processes.

3. Process streamlining: Automate approvals and reduce paperwork via unified platforms.

For Taxpayers

1. Professional guidance: Consult experts to exploit incentives and avoid pitfalls.

2. Precise record-keeping: Digitize financials for instant NRS access.

3. Timely filings: Meet deadlines to evade penalties (e.g., 10% monthly interest).

For SMEs

1. External support: Partner with associations like NASME for collective advocacy.

2. Robust documentation: Use affordable software for automated tracking.

3. Incentive maximization: Apply exemptions proactively to boost reinvestment.

4. Collaborative adoption ensures reforms deliver revenue gains without stifling SME vitality.

CONCLUSION

The Nigeria Tax Act 2025 and companion statutes, effective January 1, 2026, consolidate Nigeria’s tax regime to enhance efficiency, transparency, and accountability—offering SMEs exemptions from CIT and CGT alongside streamlined compliance, tempered by stricter penalties.

While fostering economic growth, these reforms challenge taxpayers, especially SMEs, with capacity gaps and administrative loads. Success hinges on collaborative mitigation: capacity building, awareness campaigns, simplification, and technology to curb evasion, boost compliance, and elevate revenue.

KEY TAKEAWAYS

• Reforms grant SMEs (turnover ≤ ₦100 million, assets ≤ ₦250 million) pivotal exemptions while simplifying filings.

• Proactive stakeholder action—training, education, streamlining—maximizes gains over hurdles.

• Technology and simplification promise reduced burdens, amplifying SME contributions to development.

REFERENCES

Books

• Okafor, B. O. (2020). Taxation in Nigeria: Principles and Practice. Lagos: Deolu Publications.

• Ogbonna, G. N. (2019). Nigerian Taxation: Theory and Practice. Enugu: ICAN.

• Soyode, L. (2018). Taxation in Nigeria: A Comprehensive Approach. Ibadan: University Press.

Articles

• “Nigeria’s 2025 Tax Reforms: Key Implications.” The Guardian Nigeria (2025).

• “SME Impacts from New Tax Regime.” Business Day Nigeria (2026).

• “Navigating the NTA 2025.” The Punch Nigeria (2026).

Journals

• Adebayo, O. (2025). “Evaluating NTA 2025: SME Opportunities.” Journal of Taxation and Economic Development, 12(1).

• Eze, C. (2025). “Tax Reforms and Growth Post-2025.” Journal of Economics and Finance, 15(2).

• Ibrahim, A. (2026). “New Tax Laws and Nigerian SMEs.” Journal of Business and Entrepreneurship, 8(1).

• Okeke, J. (2020). “Taxation and Growth: Literature Review.” Journal of Economic Studies, 45(3).

• Musa, R. (2019). “Reform Effects on Revenue.” Journal of Taxation and Economic Development, 10(2).

• Nwosu, E. (2018). “Tax Burdens on SMEs.” Journal of Business and Entrepreneurship, 6(4).

Ishie-Johnson Emmanuel Esq. Writes from Ishie-Johnson and Associates

Email: emmajohnsonace@gmail.com

Phone No: 08033816237, 08023186281