How will the new tax reforms impact small and medium enterprises in Nigeria?

Based on the Nigeria Tax Act 2025 (signed into law in June 2025 and effective January 1, 2026), the "Small" and "Medium" enterprises are now split.

The new reforms create a sharp divide. Small businesses (turnover ≤ ₦100 million) are the biggest winners, effectively becoming tax-exempt. Medium businesses (turnover > ₦100 million) face a challenging tax hike as the "medium" category has been abolished, pushing them into the standard corporate tax bracket.

1. Impact on Small Enterprises (Winners)

• 0% Corporate Income Tax (CIT): The threshold for a "Small Company" has been increased from ₦25 million to ₦100 million. If your annual turnover is ₦100 million or less, you pay 0% CIT.
• VAT Exemption Expanded: You are not required to charge or remit VAT if your turnover is below ₦100 million
• Abolition of Minimum Tax: The controversial provision requiring loss-making companies to pay tax on turnover has been abolished for SMEs. You no longer pay tax if you do not make a profit.

2. Impact on Medium Enterprises (Challenges)

• Tax Rate Increase (The "Cliff Edge"): The specific "Medium Company" category (formerly taxed at 20%) has been eliminated.
  • If your turnover exceeds ₦100 million, you are now classified alongside large corporations.
  • New Rate: You will likely face a standard CIT rate of 30%, rather than the previous 20%. This is a significant tax increase for businesses earning between ₦50m and ₦100m.
• Development Levy: Companies that are not "Small" (i.e., turnover > ₦100m) must now pay a consolidated 4% Development Levy on assessable profits. This replaces the old Tertiary Education Tax (2.5%–3%) and IT Levy (1%), but it is a mandatory cost for medium-sized firms.

3. Operational & Cash Flow Impacts

• Input VAT Recovery (Huge Opportunity): A major win for all registered businesses is the ability to claim Input VAT on services and assets. Previously, you could only claim it on goods sold. This effectively lowers your operational costs if you are VAT registered.

Mandatory Digital Compliance: The Nigeria Tax Administration Act 2025 mandates the use of a Tax Identification Number (TIN) for opening bank accounts and strictly enforces electronic filing. Manual tax processing is effectively dead.