Nigeria’s tax reforms: 7 common misconceptions debunked

In recent months, conversations about tax in Nigeria have been all over the internet. From rumours about increased tax burdens to warnings that the government can now debit accounts at will for tax.

This anxiety is tied to Nigeria’s tax reform laws, which have recently taken effect.

While the reforms aim to improve revenue mobilisation, protect low-income earners and modernise tax administration, misinformation has distorted public understanding of what the laws actually do.

Below are some of the most common misconceptions surrounding the reforms and what the law actually says:

Myth: Every bank inflow will now be taxed …

Many Nigerians believe that the government will tax every inflow into their bank accounts, including gifts, loans, POS transactions, deposits and withdrawals.

The truth is that there is no provision in Nigeria’s new tax laws that imposes tax on every single inflow. Section 3 of the Nigeria Tax Act (NTA) 2025 makes it clear that salaries, business profits, rental income and investment gains remain taxable, as they always have been, but simply transferring money to relatives or friends is not taxed.

The confusion appears to come from a misunderstanding of stamp duty provisions. Stamp duties apply to specific legal instruments and certain qualifying transactions, not everyday banking activity. They are also not new and have existed in Nigerian law for decades.

Myth: VAT has been increased …

There has been widespread speculation that the Value Added Tax rate has been raised, making goods and services more expensive.

In reality, the VAT rate remains at 7.5 percent and has not been increased under the reform.

In addition, the reforms expand the list of zero-rated items, meaning more essential goods and services now attract zero percent VAT. These include basic food items, medical products and services, educational materials, books, public transportation and residential electricity.

Myth: Small businesses will be crushed by new taxes …

People generally associate tax reforms with higher tax burdens, especially for micro, small and medium enterprises (MSMEs) that are already under pressure.

However, small businesses are among the biggest beneficiaries of the reforms. Under the NTA 2025, a small company is defined as a business with a gross turnover of N100 million or less per annum and total fixed assets not exceeding N250 million.

Section 22(4) of the Nigeria Tax Administration Act (NTAA) provides that VAT provisions do not apply to small businesses. In addition, qualifying small companies are exempt from the new 4 percent Development Levy, Capital Gains Tax and several other charges.

Myth: Everyone will pay more tax …

It is believed that the government is increasing taxes across the board to raise its revenue, which is untrue because the reforms introduce a more progressive personal income tax structure that provides significant relief for low- and middle-income earners.

Section 58 of the NTA 2025 exempts individuals earning N800,000 or less annually from personal income tax. This effectively removes minimum-wage earners, artisans and low-income earners from the tax net.

For middle-income earners, tax is applied in brackets. Higher rates only apply to income above specific thresholds, not to total earnings.

While high-income earners will pay more, this aligns with the principle of ability to pay and global best practice.

Many taxpayers misunderstand how progressive taxation works, assuming that moving into a higher bracket means their entire income is taxed at the higher rate.

Others confuse gross income with taxable income, leading to inflated estimates of tax liability.

Read also: Nigeria targets 18% tax-to-GDP ratio through legal, digital restructuring

Myth: The government can now debit bank accounts…

Some Nigerians fear that the new tax laws give authorities the power to debit bank accounts at will.

There is no such provision in any of the Tax Reform Acts. Existing powers to debit accounts in cases of proven tax offences remain subject to due process and court approval, as they have always been.

In fact, the reforms strengthen taxpayer protections by establishing a Tax Ombudsman, providing an independent channel for resolving disputes between taxpayers and tax authorities.

Myth: Cryptocurrency and digital assets are not taxed …

Another common misconception is that cryptocurrencies and other digital assets operate outside the tax system.

Section 34 of the NTA 2025 states that all forms of property are chargeable assets, whether situated in Nigeria or not. This explicitly includes digital and virtual assets.

Section 201 of the NTA 2025 defines digital assets to include crypto assets, utility tokens, security tokens, non-fungible tokens and other similar digital representations of value.

Profits from cryptocurrencies, NFTs and related digital assets are therefore taxable. Tax applies to realised gains, when assets are sold or exchanged at a profit, not to mere ownership.

Gains from trading, staking rewards and similar activities are treated like other forms of investment income.

Myth: Certain bank narrations can be used to evade or avoid tax …

There has been a growing trend of vendors telling customers to use narrations such as “family support” or “gift” when making transfers in the belief that such descriptions will keep the transaction out of the tax net. Tax professionals say this practice is legally meaningless. Bank narrations are mainly used for internal record-keeping and reconciliation and do not determine whether a transaction is taxable.

According to Andersen, in their article title debunking the myths, Tax authorities would evaluate the substance of a transaction in line with business operation and not necessarily only the wording on a transfer receipt.

The panic over Nigeria’s tax reforms has eased, especially as many salaried taxpayers saw their January salaries reflect lower deductions under the new PAYE structure.

This has helped clear some of the fears around higher taxes and arbitrary government access to personal accounts.

Understanding the actual provisions of the law empowers Nigerians to navigate the reforms confidently and take full advantage of the benefits intended for individuals and businesses alike.

Chioma Nwangwu is a Tax Reporter at BusinessDay, covering Nigeria’s tax policies, regulatory reforms, and compliance trends. She reports on how evolving tax rules impact businesses, investors, and the economy, translating complex fiscal regulations into clear, actionable insights.

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