2026 Outlook: Can tax reforms raise revenue without deepening hardship?

As Nigeria prepares for the first year of implementation of its tax overhaul, questions are emerging over whether the new framework will increase public revenue without adding pressure on households and businesses amid a weak economic environment.

The reforms consolidate multiple tax laws into a single framework and introduce administrative and compliance changes.

While supporters argue that simplification and base expansion could increase non-oil revenue, critics warn that the measures could add to cost pressures, even as inflation shows signs of easing.

According to Zacch Adedeji, executive chairman of the Federal Inland Revenue Service (FIRS), the reforms are aimed at improving efficiency rather than imposing additional burdens.

“The new tax laws set to take effect in January 2026 consolidate multiple tax laws into a single document, simplify compliance, and make food, education, shared transport, and agriculture VAT-free,” he said. He added that small businesses with an annual turnover below N50 million would be exempt from tax, while the framework would strengthen revenue collection.

The legal basis for the reforms comes from the Nigerian Tax Reform Acts signed into law in June 2025. It amends existing tax statutes and repeals over a dozen federal tax laws, replacing them with a consolidated Nigeria Tax Act, a Nigeria Tax Administration Act, the Nigeria Revenue Service establishment Act, and the Joint Revenue Board establishment Act from 2026.

Key provisions include the introduction of a 4 percent Development Levy on company profits to replace several sector-specific levies, the taxation of digital and virtual asset gains under capital gains tax, and the expansion of excise duties to services, including telecommunications, at rates to be set by presidential order.
The reforms also expand non-resident taxation, requiring offshore digital suppliers to remit VAT on Nigeria-connected transactions and increasing the scope of foreign company operations subject to tax in Nigeria.

Adedeji said the reforms were structured to support compliance while limiting the impact on smaller businesses. “Small businesses with turnover below N50 million will be exempt from tax, while the framework will support revenue collection efficiency,” he said.

Government estimates suggest the reforms could increase non-oil revenue by about 30 percent over the medium term, aligning with broader fiscal targets. Total federal government revenue is projected at N36.35 trillion in 2025, up from N25.9 trillion in the 2024 budget. FIRS has set a revenue target of N25.2 trillion for 2025, after collecting N21.6 trillion in 2024, exceeding its target of N19.4 trillion.

Macroeconomic data provide context for the 2026 outlook. Headline inflation eased to 14.45 percent in November 2025, according to the National Bureau of Statistics, while year-on-year food inflation declined to 11.08 percent. However, the 12-month average inflation rate remained at 20.76 percent. On a month-on-month basis, food prices rose by 1.13 percent, driven by higher costs of items such as dried tomatoes, cassava, and eggs.

Nigeria’s tax-to-GDP ratio rose to about 13.5 percent in 2025 from below 10 percent in previous years. While this reflects improved revenue mobilisation, it also increases sensitivity around tax expansion at a time when household purchasing power remains constrained.

Taiwo Oyedele, chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, said the reforms would reduce costs for most households. “On the majority of consumption by the majority of households, they will see a decline in their prices because the VAT is being taken out,” he said, adding that lower VAT exposure should reduce costs for essential goods and services.

As implementation begins in 2026, the impact of the reforms is expected to be assessed through revenue performance, inflation trends, and consumption patterns, with outcomes depending on compliance levels and enforcement capacity.

With budget assumptions already under scrutiny from institutions, the balance between revenue mobilisation and economic strain will remain a central test of Nigeria’s new tax framework in the year ahead (BusinessDay)