By Sanusi Munirat
Introduction
Nigeria’s economy continues to be rooted on small and medium-sized businesses (SMEs), which promote innovation, job
growth, and economic diversification. According to the National Bureau of Statistics, SMEs account for 48% of Nigeria GDP as well as generating 80% of the jobs in Nigeria. Recognising their crucial function, the Nigerian government passed the Nigeria Tax Administration Act of 2025 and the Nigeria Tax Act of 2025, modernising and combining tax laws. The Acts defined small companies and specific tax incentives to encourage expansion, registration, and reinvestment which are the major goal of the tax act. Before the 2025 Nigerian tax law, a general SMEs designation was employed, which was unclear and inconsistent. However, under the new tax act there is a clear structure on what a small company is, these are companies whose entire profits are taxed at 0% under Section 56(a) of the Nigeria Tax Act, 2025 within the corporate taxation system. Further definition is provided in Section 147 of the Nigeria Tax Administration Act, 2025, which defines a small business as one that does not provide professional services and has total fixed (non-current) assets below ₦250,000,000 and an annual gross turnover of no more than ₦50,000,000. This definition removes any uncertainty from earlier laws, allowing exemptions to be applied fairly and improving policy targeting for legitimately small companies.
Exemptions and incentives for Small Companies
The 2025 Act grants several key exemptions and incentives to small companies, easing their tax burden:
- Companies Income Tax (CIT): Small companies are completely exempt from paying income tax. This means they can use their profits to grow instead of paying a large portion to the government.
- Development Levy: Normally, companies pay a 4% development levy on assessable profits. Under Section 59 [Nigeria Tax Act, 2025] small companies do not have to pay this levy, giving them more space for growth.
- Capital Gains Tax Relief: Sections 54–55 provide relief on certain asset sales. This helps small companies reinvest their profits without losing part of their capital to taxes.
- VAT Relief: According to Section 22(4) of the Nigeria Tax Administration Act, 2025, small businesses are not required to register for VAT or file monthly VAT returns unless they choose to. This reduces their paperwork and compliance stress.
The ultimate goal of this exemption is to promote company incorporation, as many small companies avoid incorporating their company due to complex taxation; these exemptions make incorporation more appealing. It encourages capital formation and reinvestment. By reducing taxes on profits and gains, small companies can allocate more resources to growth, equipment, hiring, and innovation.
Compliance Requirements and Implications
Even though small companies enjoy many tax breaks, they still have certain responsibilities under the law. All companies, whether exempt or not, must register for a Taxpayer Identification Number (TIN) and file annual self-assessment returns (Nigeria Tax Administration Act, 2025, Sections 4–11). Small companies can file a simple statement of accounts instead of a full audit, but they still need to keep proper financial records for at least six years. These requirements help the government track growth and prevent misuse of tax exemptions. These reforms have many benefits. They free up cash for small businesses, encourage entrepreneurship, and make it easier for informal businesses to register officially. In the long run, this could help Nigeria expand its tax base and create more jobs. However, there are also risks. Some companies might underreport income or split their operations to stay under the ₦50 million threshold. Others might slow down their growth to avoid losing exemption status. The government will need good digital tracking and strict enforcement to stop this from happening. Having a tax compliance officer in a different local government, for instance, would help identify the various businesses in that area and guarantee compliance within the company.
Conclusion
The Nigeria Tax Act, 2025 brings a substantive shift in Nigeria’s tax Policy by introducing a clear definition of a “small company” classification. Through exemptions from development levy, companies income tax, capital gains tax, the law offers meaningful relief designed to stimulate growth, reinvestment, and formalization. At the same time, compliance obligations remain in place to safeguard against abuse and ensure transparency. The success of these reforms will depend on effective implementation, careful oversight, and periodic adjustment to evolving economic conditions.
References
- Nigeria Tax Act, 2025 (No. 7). (2025). Official Gazette No. 117, Vol. 112. Lagos: Federal Government Printer.
- Nigeria Tax Administration Act, 2025 (No. 5). (2025). Official Gazette No. 117, Vol. 112. Lagos: Federal Government Printer.
- PwC Nigeria. (2025, July 21). Nigeria tax reform 2025: Tax insight series and sectoral analysis. https://www.pwc.com/ng/en/publications/nigeria-tax-reform-2025.html
- MyTax Nigeria. (2025, October 7). Nigeria Tax Act, 2025 | Nigerian tax laws 2025. https://mytax.com.ng/tax-laws/nigeria-tax-act
- MyTax Nigeria. (2025, October 7). Nigeria Tax Administration Act, 2025 | Nigerian tax laws 2025. https://mytax.com.ng/tax-laws/nigeria-tax-administration-act