What Tax Laws Offer Manufacturers

Following the implementation of the new tax laws since January 1, 2026, the Presidential Committee on Fiscal Policy and Tax Reform unbundled the gains the new tax regime offers the manufacturing sector, writes Dike Onwuamaeze

Over the decades, the issue of burdensome taxation has remained one of the top challenges militating against the competitiveness of the Nigerian manufacturing sector. During these decades the manufacturing sector has been encumbered by nearly innumerable number of taxes. When the Manufacturers Association of Nigeria (MAN) carried out a survey to determine the number of taxes its members were paying, it was discovered that the number ranged between 90 and 197 taxes depending on what part of the country the manufacturer is operating in.

Recently, the President of MAN, Mr. Francis Meshioye, said that Nigerian manufacturers are drowning in taxes, levies and charges from federal, state and local governments. He declared “the uncoordinated and punitive tax structure in Nigeria is unsustainable and a major deterrent to private investment.”

The manufacturing sector, he added, is also constrained with litany of charges and levies from regulatory agencies, which have made operating in the Nigerian industrial landscape akin to jogging in the jungle.

Meshioye said: “The outcome of inclement macroeconomic environment, policy failure, regulatory tyranny, inconsistent implementation, weak enforcement and inadequate protection of local industry” is that “our factories are not closing by accident; they are victims of a system that implicitly favours import over domestic production.”

With the dawning of a new tax regime that is birthed by the coming into effect of four brand new tax laws, the manufacturers’ association last week invited the Chairman of the Presidential Committee on Fiscal Policy and Tax Reform, Mr. Taiwo Oyedele, to a hybrid stakeholders’ engagement in Lagos with the theme: “From Legislative Assembly to Factory Floor: What the New Tax Laws Mean for Nigerian Manufacturers.”

Addressing inequity

Oyedele told the gathering of the cream of Nigerian industrial elites that the new tax regime would address inequity, promote shared prosperity and mend the country’s broken tax system. According to Oyedele, the old tax regime was fragmented, complex, unconducive for growth, regressive, and marred by high tax burden on Nigerians and businesses, especially the manufacturing sector.

He explained that the objectives of the tax reform included the attainment of fairness, harmonisation of the prevailing multiple taxations, and enthroning efficiency, ease of doing business, transparency, and economic development.

He assured that the new tax regime that has come into effect from January 1, 2026, means liberation for the manufacturing sector because it is designed to achieve equity, competitiveness and simplicity.

He defined manufacturing “as a process by which a commodity is finally produced, including assembling, bottling, mixing, blending, grinding, cutting, bending, twisting, joining or any other similar activity.”

Oyedele explained that the definition is necessary so that pretenders would not avail themselves the benefits the new tax regime is offering the manufacturing sector.

He said that some of the changes in the new tax system were introduced to to support manufacturing because “industrialisation is critical to job creation, economic development and self-sufficiency.”

Some of the exemptions in the new system covered locally manufactured sanitary towels, pads or tampons and assistive devices and disability-related products. Its zero-rated supplies (0%) include fertilizers, locally produced agricultural chemicals, veterinary medicine, and animal feeds.

In addition, input VAT on taxable supplies, including services and fixed assets, may be deducted from the output VAT payable. But the input tax must be incurred for making taxable supplies. However, the portion relating to nontaxable supplies is not deductible.

Similarly there is a deduction for research and development (R&D) expenditure, capped at 5.0 per cent of the turnover for that year.

Oyedele said: “As a manufacturer, you spend a lot of money on assets to buy equipment and vehicles because your sector is capital intensive. These assets that you buy, as well as paying for consultancy services and softwares, are yiur input. In the old tax system, you bore the VAT on them. Under the new tax laws those VATs are 100 per cent recoverable.”

He explained that the provision for tax refund in the new laws has been strengthened. Before, taxes were collected and shared by governments and when businesses have tax refund it will be difficult to get. But under the new laws, governments must set aside the money for paying refund to tax payers before they would share the balance.

“For VAT, the law says that refund must be paid within 30 days. What this will do for manufacturers is to help them manage their cash flow,“ he clarified

One of the biggest advantage the new system offered manufacturers is the input VAT claim on assets and services.

Economic development incentives

The new tax system also contains economic development incentive scheme for priority sectors like manufacturing and others. Under these scheme, sectors that are specifically listed are entitled to some incentives, including exemption from taxes between five to 10 years because their businesses require time to mature.

Therefore, “we have many of your products that are enjoying VAT exemptions. We have many that are zero-rated supply status. These are some of the things that form inputs into your products. In addition, VAT on diesel has been suspended,” Oyedele said.

Another incentive for manufacturers under the new tax regime is the allowance for a manufacturing firm to dedicate 5.0 per cent of its annual turnover to research and development (R&D) without incurring taxes. This followed government’s realisation that manufacturers required  R&D to develop products and improve their production process.

He said, “Before this time your ability to invest in R&D was constrained because you were made to pay tax. Under this new tax system the scope to invest in R&D has been expanded. You can spend up to 5.0 per cent of your turnover in R&D and get tax reduction because government recognises that the only way to grow tomorrow is to do research today.”

Oyedele stated that it would not make sense to implement a tax reform that could not make noticeable positive impacts on the manufacturing sector.

He explained that the reform is necessary because we had a system that is no longer working for us. The previous system was taxing capital, investment and made Nigeria to have one of the highest corporate taxes in the world.

“Ironically, the manufacturing sector bears even a proportionately higher tax burden than other sectors. When manufacturers move goods around either as inputs or outputs they have to deal with multiplicity of taxes whether legal or illegal everywhere they turn from state and non-state actors,” he said.

Oyedele told manufacturers that the tax reform would achieve fiscal equity by ensuring that firms in the same line of business pay the same taxes.

Secondly, the tax reform would rationalise wasteful incentives and remove discretionary powers to grant waivers.

It would also end the advantages manufacturers operating in Free Trade Zones (FTZs)  by selling in Nigeria’s domestic market.

“The FTZ is meant to be an area to produce and export without paying corporate taxes so that manufacturers will be better placed to compete globally. Therefore, they should not sell in the Nigerian domestic market where they will compete with local manufacturers who are paying taxes. That is not a level playing ground,” he said.

Cross validation of expenses

Another challenge the new tax regime will addressed is the issue of tax evasion.  It will curb evasion through cross validation of expenses, fiscalisation and e-invoicing, tax intelligence and Tax ID harmonisation. This is important because some manufacturers pay their taxes fully while others do because they could play around.  This placed those doing the right thing at a disadvantage when it comes to competition.

The current tax system is addressing multiple taxations by ensuring that manufacturer would less than 10 taxes. This would be achieved through harmonisation of taxes charged by federal, state and local governments. At least, multiple taxations are gone at the federal level while state governments are enacting what is known as “Harmonised Tax Laws” that is drafted by the fiscal committee and the Joint Tax Board (JTB).

Currently, states like Anambra, Ekiti, Kano, Zamfara and Kwara have enacted this law while other states are in different stages of doing so.

The harmonised tax laws would ensure that manufacturers, businesses and individual would pay their taxes in the state they are operating and this would be sufficient to clear them as they travel and move their goods in different parts of the country.

“We are very hopeful about the future and the particular implication it will have on manufacturing. These new laws are not introducing new taxes. Rather they are harmonizing them to reduce the burden of tax on businesses and manufacturers in particular,” he said.

The President of MAN, Francis Meshioye, had urged state governments to fully domesticate and enforce the new tax laws. “It will provide a new business environment in terms of tax reform and give more confidence in government policy. When businesses do more, governments will earn more from a larger volume of activity rather than higher rates,” he said.

Meshioye argued that a supportive tax environment would unlock multiple benefits, including employment generation, higher output and stronger value chains across manufacturing and services.

“It is a win-win. The more viable the business environment, the more revenue the government will generate from expanded economic activities,” he said.

Manufacturers Applauds FG

In the same vein, the Director-General of MAN, Mr. Segun Ajayi-Kadir, stated that the members of the manufacturers’ association are happy state governments are aligning with the federal framework. This will help eliminate nuisance taxes and illegal collection practices that have long been the bane of manufacturers.

“Now that states are passing these laws on their own, it bodes well for manufacturers and for the sustainability of the tax reform agenda,” he said.