A new economic assessment by the Alliance for Economic Research and Ethics LTD/GTE has raised significant concerns over the Nigeria Tax Act, 2025, warning that several provisions in the newly enacted law could weaken business competitiveness, dampen investor confidence, and reduce Nigeria’s attractiveness as an investment destination in Africa.
Signed into law in June 2025 and scheduled for nationwide implementation on January 1, 2026, the Nigeria Tax Act represents one of the most extensive attempts at tax reform in the country’s recent history. It consolidates more than a dozen existing tax laws into a unified framework aimed at modernizing tax administration, boosting transparency, and expanding government revenue amid persistent fiscal pressures.
A Major Restructuring of Nigeria’s Tax Framework
According to the Alliance’s analysis, the government’s stated objectives include reducing tax leakages, tightening compliance, curbing evasion, and ensuring that all sectors of the economy contribute equitably to national development. The reforms are also intended to stabilize revenue inflows in the face of declining oil earnings and rising public debt.
However, the report notes growing unease among businesses, investors, and industry stakeholders, many of whom believe the scale of the changes—and the speed of implementation—could impose severe financial and administrative burdens. Analysts argue that the absence of adequate transitional arrangements may disrupt business planning, heighten uncertainty, and increase the cost of doing business in Nigeria.
The Alliance summarized its concerns succinctly: “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.”
Key Provisions Drawing Criticism
One of the most contentious elements of the Act is the sharp increase in Capital Gains Tax (CGT) for companies, from 10% to 30%. This aligns CGT with the corporate income tax rate—a shift that analysts describe as unprecedented in modern Nigerian tax policy. According to the report, the move represents “a seismic shock to the investment landscape,” as higher CGT could reduce investor returns, discourage mergers and acquisitions, and diminish venture capital and private equity activity.
Another significant change is the introduction of a 4% Development Levy on assessable profits. While the government argues that consolidating multiple small levies into a single charge will improve efficiency, experts warn that the new levy could strain companies operating on thin margins, including manufacturers, retailers, agribusiness firms, and logistics operators.
The Act also introduces a 15% minimum tax rate for multinational corporations with turnover above €750 million, as well as for large domestic companies earning over N50 billion annually. Though aligned with global OECD standards, the requirement is expected to increase compliance costs and administrative workload for affected corporations.
Equally controversial is the removal of longstanding tax incentives for Free Trade Zone (FTZ) operators. Previously considered a cornerstone of Nigeria’s investment promotion strategy, FTZ incentives attracted manufacturers, exporters, and logistics firms to Nigeria. The report describes their abrupt abolishment as “ambiguous and destabilizing,” warning that Nigeria may lose investors to regional competitors offering more predictable incentives.
The Act also expands taxation on digital assets, updates personal income tax bands to become more progressive, and centralizes several administrative functions under a Single Window Trade Platform—a decision the report says lacks clarity on governance structure.
Potential Economic Risks Identified
The Alliance warns that the cumulative effect of the new measures could have far-reaching consequences for Nigeria’s economy. The 200% CGT increase, for instance, is projected to slow long-term capital formation, discourage startup investment, and weaken the deal-making environment essential to innovation-driven growth.
Similarly, the 4% Development Levy may worsen inflationary pressures, particularly for sectors already facing high energy and logistics costs.
Removing FTZ incentives, analysts argue, could redirect investment flows to emerging African markets such as Ghana, Rwanda, and Ethiopia, which are currently lowering business costs and simplifying regulatory frameworks to attract foreign direct investment (FDI).
Large corporations will also face increased reporting obligations under the minimum tax regime, raising compliance costs and potentially reducing operational efficiency.
Opportunities Amid the Concerns
Despite the criticisms, the report acknowledges that the Tax Act contains provisions that could improve long-term fiscal sustainability. The 15% minimum tax may help level the playing field between multinational firms and domestic competitors. Consolidating several levies into a single Development Levy simplifies the tax system, while existing exemptions for SMEs ensure that micro and small enterprises retain room for reinvestment and growth.
If effectively implemented, the reforms could expand Nigeria’s tax base, reduce leakages, and strengthen public-sector accountability.
Regional Competitiveness Under AfCFTA
The report compares Nigeria’s tax direction with ongoing reforms in other African economies:
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Ghana is removing nuisance taxes to attract investment.
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Ethiopia is cutting tariffs for AfCFTA members.
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Rwanda continues to prioritize regulatory stability to attract FDI.
Analysts warn that Nigeria’s heavier tax burden could erode its competitiveness under the African Continental Free Trade Area (AfCFTA), particularly as manufacturing and export-oriented firms seek lower-cost bases across the continent.
Recommendations and Conclusion
To mitigate risks, the Alliance recommends moderating the CGT increase through a phased approach beginning at 15%, redesigning FTZ incentives rather than abolishing them, issuing comprehensive implementation guidelines through the Federal Inland Revenue Service (FIRS), and aligning tax reforms with AfCFTA competitiveness goals.
Ultimately, the report cautions that if strategic adjustments are not made, the Nigeria Tax Act, 2025 may “function more as a constraint than a catalyst” for economic growth. With other African markets aggressively improving their business environments, Nigeria must carefully recalibrate its approach before the Act takes effect in January 2026.
