Nigeria's manufacturing landscape is poised for a significant transformation following the enactment of the Nigeria Tax Act 2025. According to insights from the accounting firm Kreston Pedabo, these sweeping reforms present a dual-edged sword, offering substantial relief from long-standing tax burdens while introducing new implementation risks.
Key Incentives for Manufacturing Growth
The new legislation introduces a suite of incentives designed to stimulate local production and industrial capacity. Kehinde Folorunsho, Partner in Tax Services at Kreston Pedabo, highlighted that companies in designated priority sectors, including manufacturing, can now apply for Economic Development Incentive Certificates.
These certificates provide a five per cent annual tax credit on qualifying capital expenditure for up to five years. Firms that reinvest their profits may benefit from even longer incentive periods. Additionally, the Act exempts certain manufacturing-related instruments from stamp duties, simplifying transactions.
Other critical provisions include enhanced capital allowances, allowing for more efficient recovery of costs on plant and machinery, and a new research and development deduction. Manufacturers can deduct up to five per cent of their turnover from taxable profits to promote innovation and technological advancement.
Support for Agriculture and Indirect Tax Simplification
Manufacturers involved in agriculture and agro-processing stand to gain further. The Act offers income tax exemptions for the first five years of operation, zero-rated VAT on locally produced animal feeds and fertilisers, and duty exemptions on imported agricultural machinery.
On indirect taxes, the Value-Added Tax regime is simplified, retaining the rate at 7.5 per cent while exempting essential locally-produced goods like agricultural products and medical supplies. Clearer rules on input VAT credits aim to reduce disputes and the risk of multiple taxation on raw materials.
Implementation Risks and the Broader Fiscal Vision
Despite the potential benefits, Folorunsho cautioned that the success of this unified tax regime hinges on its implementation. Poor execution could negatively impact manufacturers, undermining the reforms' objectives.
Echoing the need for a structural shift, Joseph Tegbe, Chairman of the National Tax Policy Implementation Committee, clarified that the reforms aim to rebuild Nigeria's broken fiscal architecture, not merely generate revenue. In a recent article, Tegbe, a fellow of the Institute of Chartered Accountants, argued that decades of over-reliance on volatile oil revenues have crippled the system.
"Nigeria's fiscal failure has never been the absence of wealth. It has been the absence of structure," Tegbe stated. He emphasized that the core objective is to reconnect the economy to the state through improved visibility and a broader, fairer tax net.
The reforms also prioritize protecting low-income earners and small businesses. The new tax threshold for individuals is now N800,000 yearly, up from N300,000, with zero tax liability. "One does not tax the seed, one nurtures it to blossom," Tegbe said, explaining the philosophy behind fostering formal sector growth.
A move towards a fully digital tax system is central to the reforms, promising greater efficiency, transparency, and reduced compliance costs. "Investors, businesses and households do not fear taxes as much as they fear uncertainty," Tegbe noted, advocating for a rules-based system to deter arbitrariness and boost investment.
The combined effect of these measures, if well-implemented, could significantly improve manufacturers' cash flow and profitability, enabling reinvestment in expansion and technology upgrades, ultimately strengthening Nigeria's industrial base.
