Abuja, Nigeria – June 30, 2025
The Federal Government has officially unveiled sweeping tax and Value Added Tax (VAT) reforms, set to take effect in 2026, aimed at reducing the tax burden on low-income earners, increasing transparency in financial transactions, and restructuring VAT distribution across the three tiers of government.
The reforms, announced through the Office of the Federal Inland Revenue Service (FIRS), are part of ongoing fiscal policy adjustments under President Bola Ahmed Tinubu’s Renewed Hope Agenda.
Key Features of the 2026 Tax Reform
1. Higher Exemption for Low-Income Earners
Individuals earning up to ₦800,000 per annum (₦66,667 monthly) will be exempt from personal income tax, up from the previous ₦500,000 threshold. This policy is designed to provide financial relief to Nigeria’s working poor and promote voluntary compliance within the informal sector.
2. Mandatory Reporting of High-Value Transactions
Under Section 30, commercial banks will be required to report any account with monthly transactions of ₦5 million and above to the tax authorities. This aims to strengthen tax intelligence and ensure high-net-worth individuals are within the tax net.
3. Tax Relief for Capital Gains and Compensation
Two significant exemptions include:
No capital gains tax on profits from the sale of a primary residence (Section 31).
Tax-free compensation up to ₦10 million for job loss, personal injury, or libel claims (Section 50).
New VAT Revenue Sharing Formula
Effective from 2026, the Federal Government has approved a revised VAT allocation formula favouring state governments and reflecting actual consumption:
Federal Government: 10% (down from 15%)
State Governments: 55% (up from 50%)
• 50% shared equally among states
• 20% based on population
• 30% based on VAT consumption
Local Governments: Remain at 35%
The adjustment shifts Nigeria’s VAT model from a derivation-based system to a consumption-based structure, promoting equitable distribution and encouraging consumption-driven growth.
These policy reforms are expected to foster inclusive development, increase state-level accountability, and enhance economic resilience across the federation.
