In our analysis at the close of 2023, we at Agusto & Co. framed comprehensive tax reform not as a mere policy choice, but as a fundamental imperative for Nigeria’s fiscal survival. Our research laid bare a broken system plagued by multiple taxation, rock-bottom tax morale, rampant evasion, and a low tax-to-GDP ratio of 13.5% in 2024 – compared to Kenya (14.9%) and South Africa (24.5%) – steering the nation into a perilous debt cycle. Despite notable improvements in recent years, Nigeria’s tax-to-GDP ratio continues to lag behind that of its African peers and the regional average of approximately 16%. The question we posed then was not if, but when and how, Nigeria would confront this challenge.

Figure 1: Peer Comparison – Tax-to-GDP Ratio (%)

Source: OECD Data, FIRS, Zawya.com, Sars.com.za, Ghana Ministry of Finance, World Bank

The government’s response has been emphatic. The imperative we highlighted has been met with arguably the most audacious and sweeping fiscal overhaul in the nation’s history with the signing into law of a series of tax reform bills. The stated ambition is clear: to simplify Nigeria’s convoluted tax laws, enhance transparency, modernise revenue collection and, crucially, raise Nigeria’s tax-to-GDP ratio to 18% by 2026. On the surface, it is a definitive step towards fiscal sustainability; the litmus test, however, lies in its execution. With a debt stock ballooning to ₦149.4 trillion as at Q2 2025, and the proposed debt servicing of ₦16.3 trillion equating to 44.8% of projected revenue in 2025, the country’s fiscal space is severely constrained, limiting capital investment and social spending, perpetuating economic vulnerabilities and inequality.

From Punitive to Progressive: A New Philosophy of Taxation

For decades, Nigeria’s tax system has been perceived by its own citizens as an antagonist. The framework, a patchwork of outdated, pre-colonial laws and a confusing tangle of overlapping levies, bred deep and pervasive mistrust. Business owners and entrepreneurs felt the system was punitive, designed to stifle rather than support growth. This sentiment was not without merit. Citizens questioned the value of their contributions when they still had to personally fund basic amenities, from electrification to road repairs. The result was a system that was perceived by many to discourage success and the creation of an environment where registering a business felt like inviting financial penalty.

The new reforms tackle this foundational rot by introducing a radical new philosophy: to tax “the fruit, but not the seeds.” Before detailing the specific reliefs, it is critical to recognise the structural solution to the problem of multiplicity. A central pillar of the reform is the harmonisation of taxes, collapsing the myriad of levies (over 60) into a single, streamlined and coherent statute. This is complemented by the consolidation of collection under a principal agency, the new Nigerian Revenue Service (NRS), aiming to end the era of businesses being hounded by multiple bodies. This principle shifts the focus from taxing investment, capital, and production to taxing income, consumption, and returns. It is a strategic pivot designed to allow businesses to invest, grow, and prosper before the state shares in their success, fostering a symbiotic relationship rather than a parasitic one.

Figure 2: Key Highlights of Recent Tax Reform

Source: Presidential Media Centre

The Architecture of Relief and Growth

The tangible application of this new philosophy is where the reforms truly come to life, offering concrete relief to virtually every segment of the economy. For the most vulnerable, the changes are particularly significant. The income tax exemption threshold has been dramatically raised, meaning individuals earning up to ₦800,000 annually are now exempted from the personal income or pay as you earn (PAYE) tax. This injects disposable income directly into the hands of over 90% of low-income earners, stimulating consumption and grassroots economic activity.

Small and Medium-sized Enterprises (SMEs), long hailed as the backbone of the economy, have received their most significant support in decades. Businesses with an annual turnover of up to ₦50 million are now exempt from Company Income Tax (CIT), Value Added Tax (VAT), and withholding tax. We believe this is a powerful incentive for formalisation and growth, freeing up vital capital for reinvestment, expansion, and job creation. For larger corporations the headline corporate tax rate is set to drop from 30% to a more competitive 25%, signalling to both domestic and international investors that Nigeria is serious about improving its business climate. Furthermore, the explicit removal of VAT from essential goods and services – including food, educational items, healthcare, rent, and public transport – directly addresses the cost-of-living crisis and eases the burden on all citizens.

Figure 3: Key Highlights of Recent Tax Reform

Source: Presidential Media Centre

Beyond Collection: A Smarter, Fairer Revenue Strategy

While the reliefs are substantial, the core objective remains a dramatic increase in revenue. The government’s strategy to achieve this is not, however, predicated on higher tax rates, but through smarter, fairer, and more efficient collection. The first pillar is a direct assault on tax evasion, powered by a sophisticated national tax intelligence system. By harmonising data from the BVN, NIN, and CAC registries, the system aims to create a 360-degree view of taxpayers, making discrepancies between declared income and actual spending far more difficult to conceal. The second involves a systematic dismantling of the opaque and often wasteful tax incentives and waivers that have historically drained the treasury. The final, and perhaps most crucial, pillar is to generate revenue through organic economic growth. The underlying thesis is that by simplifying the tax code and reducing the compliance burden, the reforms will unlock investment and spur latent economic potential. As the economy expands, the tax base should, in theory, grow with it.

Rebuilding the Social Contract: The Human Element of Reform

The Presidential Committee on Fiscal Policy and Tax Reforms under Taiwo Oyedele – the architects of these reforms – understood that the legislative process was only half the battle. The journey to passing these laws required navigating a minefield of public scepticism, a feat achieved through extensive dialogue and stakeholder engagement. This process of building consensus was critical in a nation with such low levels of public trust. Now, the focus shifts to strengthening that trust. The reforms introduce structural safeguards against corruption and abuse, such as limiting human interaction in tax collection through technology and establishing a Tax Ombudsman to protect taxpayers’ rights. This new office will serve as a crucial advocate for citizens and businesses, ensuring they are treated fairly and have a channel for recourse. Ultimately, the long-term success of this new fiscal regime hinges on rebuilding the social contract. The government must demonstrate unwavering transparency and accountability in the use of tax revenues. When citizens see their contributions translating into better roads, schools, hospitals, and security, the deep-seated reluctance to pay taxes will begin to erode, replaced by a sense of civic partnership.

The Road Ahead is Long

The passage of these laws, while historic, is merely the starting line. The true reform, as many have noted, lies in effective implementation. This will require a massive undertaking in training tax officials, digitalising administrative processes, and continuing the campaign of public education and engagement. The journey from a punitive, distrusted system to a progressive one will not be completed overnight. However, for the first time in a generation, Nigeria has laid a credible, comprehensive, and courageous foundation for a sustainable and prosperous fiscal future. The imperative has been answered; the next chapter of Nigeria’s economic reform has truly begun.