AfriPulse
According to FIRS in a statement on Wednesday, one of the most misunderstood elements of the new tax framework is the four per cent development levy. The agency explained that the levy replaces a range of fragmented charges, such as the Tertiary Education Tax, NITDA Levy, NASENI Levy and Police Trust Fund Levy, that businesses previously paid separately.
Key Clarification: The 4% Development Levy
One of the most debated provisions is the four per cent development levy on imported goods. According to FIRS, this is not a new tax but a consolidation of existing charges previously collected separately, including:
Tertiary Education Tax
NITDA Levy
NASENI Levy
Police Trust Fund Levy
By merging these fragmented levies, the government aims to:
Reduce compliance costs for businesses
Eliminate unpredictability in tax obligations
End multiple agency-driven collections
Importantly, small businesses and non-resident companies are exempt, protecting firms most vulnerable to economic shocks.
Free Trade Zones (FTZs): Incentives Preserved
Concerns had surfaced that the reforms might erode incentives for Free Trade Zone enterprises. FIRS clarified that:
FTZ companies retain tax-exempt status.
They may sell up to 25% of their output into Nigeria’s domestic market without losing exemptions.
A three-year transition period allows firms to adjust.
Officials say the changes target abuses where companies used FTZ licences to evade domestic taxes while competing locally. Nigeria’s model now aligns with global practices in countries such as the UAE and Malaysia, where FTZs function primarily as export hubs.
Minimum Effective Tax Rate (ETR)
The law introduces a 15% minimum Effective Tax Rate for large multinational and domestic companies. While controversial, FIRS notes this aligns with the OECD/G20 global tax agreement endorsed by over 140 countries.
Without adopting the rule, Nigeria risked losing revenue through the “Top-Up Tax” mechanism, where a multinational’s home country collects the difference if the host country charges below 15%. By localising the rule, Nigeria ensures tax revenue from multinational operations stays within its borders.
Extending the ETR to large domestic firms also:
Creates a level playing field
Discourages profit-shifting practices
Strengthens fiscal stability
Capital Gains Reform
The laws overhaul capital gains taxation, now termed “chargeable gains.” Key innovations include:
Reinvestment relief: Investors who sell shares and reinvest in another Nigerian company within the same year avoid tax on gains.
Capital loss modernisation: Losses can be treated more flexibly.
Exemptions for low-value transactions: Protecting small investors.
Closing loopholes: Preventing companies from disguising business income as capital gains.
Analysts say these measures could unlock capital for startups, private equity, and emerging enterprises, while boosting investor confidence.
Broader Impact
Taken together, the reforms aim to:
Simplify compliance
Protect incentives
Strengthen Nigeria’s investment environment
Secure a sustainable revenue pipeline for national development
Government officials insist the new tax regime is not punitive but strategic, balancing investor incentives with national revenue needs and positioning Nigeria as a more predictable and attractive destination for global capital.
Bottom Line: Nigeria’s new tax laws consolidate fragmented levies, preserve Free Trade Zone incentives, adopt global tax standards, and modernise capital gains rules. For businesses and investors, the reforms signal a shift toward a more transparent, coordinated, and competitive fiscal environment.
Source: RipplesNigeria | Read the Full Story…
