A new assessment by the Alliance for Economic Research and Ethics LTD/GTE has raised red flags over the potential economic fallout of the Nigeria Tax Act, 2025, warning that several provisions could erode business profitability, deter investors and weaken Nigeria’s competitiveness within Africa.
The Act, signed into law in June 2025 and slated for implementation on January 1, 2026, represents one of the country’s most extensive tax reforms in decades.
The Nigeria Tax Act, 2025 consolidates more than a dozen tax laws into a unified structure.
“The severe increase in the Capital Gains Tax, the imposition of a new Development Levy, the uncertainty cast upon the Free Trade Zones, and the unusual domicile of the Single Window Trade Platform threaten to cripple the very investment and business growth that Nigeria desperately needs to secure its long-term economic future,” the report says.
Major overhaul of Nigeria’s tax framework
According to the analysis, the government aims to modernize tax administration, block leakages, and boost public revenue amid falling oil income and rising debt obligations.
The stated objective is to “streamline administration, curb tax evasion, and ensure all sectors contribute their fair share to national progress.”
However, the report says businesses and investors are increasingly expressing concern over what they describe as steep obligations introduced without adequate transitional measures.
Key changes in the Act
According to the report, one of the most controversial updates is the increase in Capital Gains Tax (CGT) for companies from 10% to 30%, aligning it with the corporate income tax rate. The Alliance describes the change as “a seismic shock to the investment landscape,” with analysts warning of reduced returns for private equity, venture capital, and foreign investors.
- A 4% Development Levy on assessable profits replaces several existing levies. While government officials say the levy will fund national development projects, experts warn it may squeeze margins, particularly for manufacturers, retailers and agribusinesses.
- In line with OECD guidelines, Nigeria has adopted a 15% minimum tax rate for multinationals with turnover above €750 million and domestic firms earning over N50 billion.
- The Act abolishes long-standing tax exemptions for Free Trade Zone (FTZ) operators, a move analysts describe as “abrupt and ambiguous,” potentially undermining one of Nigeria’s historical investment magnets.
Additional provisions expand the taxation of digital assets and introduce more progressive personal income tax bands.
Potential economic risks highlighted
The report says the 200% increase in CGT is expected to dampen long-term capital formation and discourage M&A transactions and startup investment.
“Private equity and venture capital ecosystems rely heavily on successful exits,” the report notes, arguing the reform could slow innovation.
The Alliance warns that the 4% levy may disproportionately impact sectors operating on thin margins, worsening cost pressures.
The removal of blanket tax incentives may push investors toward regional competitors such as Ghana, Rwanda and Ethiopia, where business costs are falling and regulatory environments are stabilizing.
The minimum tax regime and other new rules will require complex reporting processes, increasing administrative costs for large corporations.
Areas of opportunity
Despite concerns, the analysis acknowledges potential long-term benefits:
- The 15% minimum tax could create fairer competition between multinationals and domestic firms.
- Consolidating multiple levies into a single Development Levy may reduce administrative complexity.
- SME exemptions remain intact, enabling smaller businesses to reinvest and expand.
- If well implemented, the Act could broaden the tax base and boost fiscal transparency.
Nigeria vs. regional competitors
The report also compares Nigeria’s reforms with policy directions in other African economies:
- Ghana: Removing nuisance taxes to stimulate investment
- Ethiopia: Cutting tariffs across AfCFTA members
- Rwanda: Strengthening regulatory stability to attract FDI
Analysts caution that Nigeria’s higher tax burden could weaken its position under AfCFTA as a regional manufacturing or export hub.
Recommendations for policymakers
The Alliance proposes several measures to balance revenue generation with economic growth: Moderate the CGT increase through a phased approach beginning at 15%.; Redesign FTZ incentives rather than scrapping them entirely; Issue clear implementation guidelines through the Federal Inland Revenue Service; Align tax reforms with AfCFTA goals to improve competitiveness.
Conclusion
The report warns that without strategic adjustments, the Nigeria Tax Act, 2025 could “function more as a constraint than a catalyst” for investment and growth.
With competing African markets aggressively lowering business costs, Nigeria may risk losing ground unless it recalibrates its approach ahead of the 2026 implementation date.
