With few weeks to the January 1 rollout of the 2025 Nigeria Tax Act, there is growing concern among the nation’s business community, industry experts, and other stakeholders that the new tax regime could trigger unprecedented capital flight and undermine Nigeria’s investment climate.

The Act, signed into law in June 2025, introduces sweeping changes to Nigeria’s fiscal framework in decades, including increase in the Capital Gains Tax (CGT) for companies from 10% to 30%, a new 4% Development Levy on profits, a 15% Minimum Effective Tax Rate (ETR) for large multinationals, and a fundamental revision of tax exemptions for Free Trade Zones (FTZs). 

Chairman, Alliance for Economic Research and Ethics LTD/GTE and Chairman, Nigeria Turkiye Business Council, Hon. Dele Kelvin Oye, who noted that the tax reforms represent the most significant overhaul of the nation’s fiscal landscape in a generation, said the new system threatens to cripple the very investment and business growth that Nigeria desperately needs to secure its long-term economic future.

Oye, who is also the Life Vice-President & 22nd National President, NACCIMA, while describing the tripling of CGT by 200 percent as the most explosive provision of the act, said the new rate drastically reduces potential returns, making Nigeria significantly less attractive than regional competitors.

His words: “Nigeria stands at a critical juncture. Faced with volatile oil revenues, mounting debt service obligations, and the pressing need to fund national development, the government has turned to comprehensive fiscal reform as a primary tool for economic stabilization. 

“The culmination of this effort is the Nigeria Tax Act, 2025, a landmark piece of legislation that consolidates over a dozen previous tax laws into a single, sweeping statute.

“Its architects present it as a bold step towards creating a more efficient, transparent, and equitable tax system that can broaden the nation’s revenue base and reduce its historic dependence on the petroleum sector.

“The explicit goals are laudable: to streamline administration, curb tax evasion, and ensure all sectors of the economy contribute their fair share to national progress.

“However, policy, particularly fiscal policy, is judged not by its intentions but by its outcomes. As the January 1, 2026, implementation date approaches, a wave of apprehension is palpable across the Nigerian and international business communities.

“The Act’s core tenets, particularly the dramatic hike in Capital Gains Tax from 10% to 30%, the imposition of a new 4% Development Levy, and the ambiguous overhaul of the Free Trade Zone incentive regime, have been met with significant concern.

“These measures, while designed to fill government coffers, are perceived by many as direct assaults on profitability, capital formation, and investment incentives. They raise fundamental questions about Nigeria’s strategic direction, forcing a crucial debate between Taxation for Revenue vs. Taxation for Growth.

“Is the nation building a foundation for long-term, private sector-led growth, or is it erecting fiscal barriers that will stifle innovation and drive capital to more hospitable shores?”

Further according to him, “This analysis seeks to move beyond the headlines to provide a deep, evidence-based examination of the 2025 Tax Act. 

“We will deconstruct its key provisions, critically evaluate its likely negative and positive impacts, and situate Nigeria’s new fiscal posture within the dynamic context of regional competition.

“As nations like Ghana, Ethiopia, and Rwanda aggressively reform their economies to attract investment and leverage the African Continental Free Trade Area (AfCFTA), Nigeria’s choices carry profound implications. 

“This paper argues that while fiscal consolidation is necessary, the current architecture of the Tax Act risks prioritizing short-term revenue generation at the expense of the long-term investment and competitiveness that are the true engines of sustainable development.”

Oye, who is also the immediate past Chairman of the Organized Private Sector of Nigeria, added, “Ultimately, we will propose a series of actionable policy recommendations aimed at recalibrating the Act to promote a symbiotic relationship between government revenue and private enterprise, ensuring that Nigeria remains not just open for business, but a magnet for transformative investment.”

According to him, “The 2025 Tax Act emerges from a complex history of repealed statutes and new frameworks. To understand its impact, one must first dissect its most significant components.

“Perhaps the most contentious provision is the increase of the CGT rate for companies from a relatively competitive 10% to 30%, aligning it with the Companies Income Tax (CIT) rate.

“This tax applies to profits realized from the sale of capital assets, including stocks, real estate, and intellectual property. The government’s rationale is twofold: to generate substantial revenue from asset transactions in a growing economy and to create parity between income from operations (taxed at 30%) and income from capital appreciation. For individuals, capital gains will now be taxed at their applicable progressive income tax rates, reaching up to 25%.

“The Act introduces a new 4% Development Levy calculated on the assessable profits of all companies operating in Nigeria. This levy replaces and consolidates several existing taxes, including the Tertiary Education Tax and the National Information Technology Development Levy.

“The stated goal is to simplify the tax structure, reducing the administrative burden on businesses of complying with multiple, smaller levies. The revenue generated is intended to be a dedicated funding stream for national development projects, thereby directly linking corporate profitability to public infrastructure and social services.

“In a move that mirrors the OECD’s Pillar II global tax agreement, the Act introduces a 15% Minimum Effective Tax Rate on the “net income” of certain large companies.

“This applies to Nigerian companies that are members of a multinational enterprise (MNE) group with a global turnover of €750 million or more, as well as large domestic companies with an annual turnover of NGN 50 billion or more.

“The clear intent is to combat aggressive tax planning and profit-shifting strategies employed by some large corporations, ensuring they contribute a baseline amount of tax in Nigeria regardless of available incentives or deductions.”

He further noted that, “The Act fundamentally alters the fiscal landscape for businesses operating within Nigeria’s Free Trade Zones. By repealing key sections of the Nigeria Export Processing Zones Authority (NEPZA) Act and the Oil and Gas Export Free Zone Authority (OGEFZA) Act, the legislation abolishes the long-standing blanket exemptions from federal taxes that FTZ entities enjoyed.

“This move has created significant uncertainty, as it opens the door for FTZ companies to be subjected to CIT, CGT, and potentially other state and local levies. The government’s aim appears to be a re-evaluation of the efficacy of these zones, seeking to ensure that tax incentives are properly targeted and do not create avenues for indefinite tax avoidance.

“Beyond corporate taxes, the Act overhauls the Personal Income Tax structure, introducing more progressive rates that provide relief to low-income earners while increasing the burden on higher earners. It also explicitly brings gains from digital and virtual assets into the tax net. 

“By repealing numerous outdated laws and consolidating them into a single Act, the reform aims to provide greater clarity, simplify compliance, and create a more modern and robust legislative foundation for Nigeria’s tax administration.

“While the objectives of simplification and revenue enhancement are sound, the mechanisms chosen in the 2025 Tax Act threaten to inflict significant economic damage.

“A 200% increase in the CGT rate is a seismic shock to the investment landscape. For foreign direct investors, private equity firms, and venture capitalists, the exit valuation is a primary determinant of investment decisions.

“Tripling the tax on exit proceeds drastically reduces the potential return on investment (ROI), making Nigeria a significantly less attractive destination compared to countries with more favourable CGT regimes.

“This provision directly disincentives long-term capital formation, mergers and acquisitions (M&A), and the vibrant startup ecosystem that relies on successful exits to fuel the next wave of innovation.

“The immediate negative reaction in the capital markets, which necessitated assurances from the Honourable Minister of Finance of a future review, is a clear harbinger of the capital flight and investment hesitancy that will follow if this rate is maintained or even reduced to 25%.”

He continued: “Unlike income tax, which is levied on taxable profit after various allowable deductions, the 4% Development Levy on, “assessable profits” represents a more direct and unavoidable cost. For businesses in sectors with historically thin margins, such as manufacturing, agriculture, and retail, this levy can be the difference between profitability and loss. 

“It reduces the quantum of retained earnings available for reinvestment in expansion, technology upgrades, and job creation. By unilaterally increasing the effective tax rate for all profitable companies, the levy makes Nigerian businesses less competitive on both a regional and global scale, as it raises their cost base relative to international peers.

“Free Trade Zones are globally recognized instruments for attracting export-oriented FDI, promoting industrialization, and facilitating technology transfer. Their primary allure is a predictable, low-tax environment. The abrupt and ambiguous removal of blanket tax exemptions has shattered this predictability. 

“The uncertainty alone, whether FTZ companies will now face the full 30% CIT, and if state and local governments will impose their own taxes, is profoundly toxic to investor confidence. Existing operators who made multi-million-dollar investment decisions based on the previous incentive structure now face a complete reversal of their business case. For prospective investors, the rationale for choosing a Nigerian FTZ over one in a competing jurisdiction has been severely undermined.

“The goal of simplification is paradoxically contradicted by the Act’s new complexities. The implementation of the 15% Minimum ETR for multinationals will require sophisticated and costly compliance systems to track and report income on a global basis.

“The stringent documentation requirements for property sales, while aimed at transparency, will increase transaction costs and timelines in the real estate sector.

“For all businesses, navigating the nuances of a completely overhauled tax code will necessitate significant investment in professional advisory services, diverting resources that could otherwise be used for productive purposes.

“Despite the significant concerns, a balanced analysis must acknowledge the potential benefits embedded within the Act.

“The introduction of a 15% Minimum ETR is a commendable step towards ensuring tax fairness. It aligns Nigeria with a global consensus aimed at curbing the excesses of corporate tax avoidance, where large MNEs sometimes pay little to no tax in jurisdictions where they generate substantial revenue.

“This provision could level the playing field for domestic companies that have historically competed against multinationals able to leverage sophisticated international tax planning. By ensuring a baseline contribution from the largest players, it enhances the legitimacy and equity of the entire tax system.

“The consolidation of multiple smaller levies into a single 4% Development Levy, while burdensome in its rate, does represent a positive structural reform. It reduces the number of separate filings and payments businesses must manage, potentially lowering administrative compliance costs.

“Similarly, repealing a host of antiquated tax laws and creating a single, comprehensive statute can, in the long run, provide greater legal clarity and make the tax code easier to navigate for both taxpayers and administrators.

“The Act contains important exemptions that could nurture the growth of small and medium-sized enterprises (SMEs), which form the backbone of the Nigerian economy. The explicit exemption of small companies (defined by turnover and asset thresholds) from Companies Income Tax, Capital Gains Tax, and the new Development Levy provides them with crucial fiscal space.

“This allows emerging businesses to retain more of their early-stage earnings for reinvestment, potentially encouraging a more vibrant and resilient domestic private sector.

“If successfully implemented, the Act has the potential to create a more transparent and predictable revenue stream for the government.

“By broadening the tax base and closing loopholes, it can reduce fiscal volatility and provide a more stable foundation for national budgeting and development planning. Over the long term, a government with a robust and diversified revenue base is better positioned to provide the public goods, infrastructure, security, and a stable macroeconomic environment that are essential for business success.”

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