The Federal Inland Revenue Service (FIRS) has moved to clarify widespread public concerns regarding Nigeria's newly enacted tax legislation, insisting the reforms are designed to enhance economic competitiveness and fiscal stability.
Decoding the 4% Development Levy
Addressing one of the most debated aspects, the FIRS stated that the four per cent Development Levy on imported goods is not a new or additional tax burden. Instead, the agency explained it is a streamlined consolidation of several existing levies that businesses previously paid separately.
These consolidated charges include the Tertiary Education Tax, the NITDA Levy, the NASENI Levy, and the Police Trust Fund Levy. According to the tax authority, this move is intended to reduce compliance costs, eliminate unpredictability, and end the era of multiple agency-driven charges. The new law also provides exemptions for small businesses and non-resident companies to protect vulnerable firms.
Free Trade Zones and Minimum Tax Rules Clarified
The FIRS also provided crucial clarifications on the treatment of Free Trade Zones (FTZs), countering fears that the government was rolling back critical incentives. The reforms maintain the tax-exempt status of FTZ enterprises but introduce clearer guidelines.
Under the new rules, FTZ companies can now sell up to 25 per cent of their output into the domestic Nigerian market without losing their tax exemptions. A three-year transition period has been established to allow for smooth adjustment. Officials stated this aims to curb past abuses where companies used FTZ licenses to evade domestic taxes while competing locally.
Another significant reform is the introduction of a 15 per cent minimum Effective Tax Rate (ETR) for large multinational and domestic companies. The FIRS notes this aligns Nigeria with a global tax agreement endorsed by over 140 countries under the OECD/G20 framework. Without this, Nigeria risked losing revenue through the "Top-Up Tax" mechanism to other nations.
Incentives for Investment and Closing Loopholes
The new tax framework, comprising the Nigeria Tax Act (NTA) and the Nigeria Tax Administration Act (NTAA), also overhauls capital gains taxation—now termed "chargeable gains." It introduces several investor-friendly measures.
A key innovation is the reinvestment relief provision. This allows investors who sell shares and reinvest the proceeds into another Nigerian company within the same year to avoid tax on the gains. Experts believe this will unlock capital for startups and private equity. The law also modernises capital loss treatment and exempts low-value transactions to protect small investors.
Simultaneously, the reforms close loopholes that previously allowed companies to disguise ordinary business income as capital gains. The government maintains that the overall package introduces much-needed structure, clarity, and competitiveness into Nigeria's tax environment, aiming to strengthen investor confidence and secure sustainable revenue for development.
