Nigeria’s tax reforms set lowest VAT rate among African peers

…to ease food, healthcare, transport costs from 2026 – Oyedele

Nigeria’s sweeping tax overhaul will leave Africa’s most populous economy with the lowest Value-Added Tax (VAT) rate among its key regional peers while easing pressure on household budgets for essentials such as food, healthcare and transport from 2026, according to Taiwo Oyedele, chairman of the Presidential Fiscal Policy and Tax Reforms Committee.

Speaking Monday in Abuja at a national stakeholders’ discourse hosted by the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC), Oyedele said the Tax Act 2025 is designed to make the system fairer, simpler and more growth-friendly, countering perceptions that the government is piling new levies on citizens. Instead, the reforms combine lower rates, exemptions and repeals with tighter administration and broader compliance, he emphasised.

Under the new laws which take effect January 1, 2026, Nigeria’s VAT rate will remain at 7.5%, below Kenya’s 16% and Ghana and South Africa’s 15%, while the top personal income tax rate is capped at 25%, compared with 35% in Kenya and Ghana, and as high as 45% in South Africa. The tax laws also impose zero tax on airtime same as in South Africa, compared with 15% in Kenya and 5% in Ghana.

Small companies will face a zero corporate income tax rate, also same as South Africa, as against 3% of turnover in Kenya and Ghana. Large firms will see rates of 30%, though one of the highest globally.

Read also: Can State governors turn VAT gains into tangible results

The reforms also target everyday spending that dominates household budgets. From Jan. 1, 2026, food and basic consumables will be zero-rated for VAT, while healthcare services, medicines, education services and passenger road transport will be VAT-exempt.

Rent on accommodation will also be exempt, alongside targeted relief for tenants. Baby products, sanitary pads, fuel products, renewable energy equipment and key agricultural inputs such as fertiliser and seeds will either be exempt or zero-rated.

Oyedele said these categories account for a large chunk of spending for the average Nigerian and nearly all consumption for low-income earners, meaning the measures should have a tangible impact on living costs.

Beyond households, the reforms seek to overhaul business taxation by eliminating minimum tax on capital, harmonising dozens of levies and simplifying returns.

Companies will be allowed to claim input VAT on assets and services, backed by a refund system, while capital gains tax is folded into the income tax regime with thresholds that exempt smaller transactions.

A new, independent tax ombudsman – already apppinted by President Bola Tinubu – will act as an arbiter between taxpayers and authorities, while withholding tax rates are cut and exemptions widened to ease cash-flow strains.

The government is also betting that investor-friendly rules will revive confidence after recent market volatility. Oyedele recalled the sharp selloff he dubbed “Black Tuesday” in November, when the benchmark equity index fell more than 5% and market capitalisation plunged by about N4.6 trillion, fuelled by fears and misinformation around the Capital Gain Tax.

He said clarifying capital gains rules and broadening exemptions — including for mergers and acquisitions, bonus shares and state government bonds — would help avoid distortions driven by fears of an unfavourable tax regime. “All investors are tax exempt — 99% unconditionally,” he said, referring to capital market transactions.

Officials argue the reforms address long-standing flaws, including multiple taxation, archaic laws and a fiscal structure that assigns about 85% of national resources to states and local governments.

Oyedele said the focus should be on optimising revenue sources rather than creating new taxes, noting that personal income tax contributes less than 8% of total tax take in Nigeria versus a global average of about 30%. “Power to regulate does not mean power to tax,” he said.

The tax man also recalled several controversial levies already repealed, reversed or suspended by President Bola Tinubu, including proposed excise taxes on airtime and data, a cybersecurity levy on transfers, a carbon tax on single-use plastics and additional import duties on food and pharmaceuticals.

The expected payoff, Oyedele said, is a more competitive tax regime that supports growth, improves revenue mobilisation and restores trust between citizens, businesses and the state.

“When we say the economy is improving, it must mean something to households and businesses; macro gains must translate into micro outcomes,” he said.

The event brought together government agencies, regulators, the private sector, and development partners to align strategies for implementing Nigeria’s new tax framework.

Declaring it open, Mohammed Bello Shehu, Chairman RMAFC said it was timely ahead of the next month’s implementation of the new Tax Act.

“One critical fiscal matter that has elicited and continues to attract public discourse is the Nigeria Tax Act, 2025,” Shehu said, noting that the legislation follows extensive federal consultations and represents a major step toward strengthening Nigeria’s fiscal architecture.

The Act, he added, harmonises previously fragmented tax laws, removes duplications and obsolete provisions, and improves the ease of doing business.

Shehu emphasised the commission’s role under the 1999 constitution to advise all tiers of government on fiscal efficiency and revenue mobilisation. Highlighting recent gains, he said growth in federation account inflows reflects stronger audits, digital tracking, and better coordination among revenue agencies.

Bashir Adewale Adeniyi, Comptroller-General, Nigeria Customs Service, speaking through a representative, said the reforms signal a more equitable tax landscape.

He added that the measures create a fairer system for businesses to grow, while underscoring the need for inter-agency collaboration and technology-driven implementation.

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