Across Africa, governments are modernising tax systems, tightening enforcement and updating legislation to reflect changing economic realities. Nigeria’s Tax Act 2025 is one of the most significant recent developments in this trend.
Yet a surprisingly basic question has already generated debate among practitioners and taxpayers alike: when did the Act actually take effect?
The official position from the Nigeria Revenue Service (NRS) is straightforward. The Nigeria Tax Act (NTA) applies from 1 January 2026. That date has been widely communicated by government and appears in earlier versions of the legislation.
However, the Act was signed and gazetted on 26 June 2025, which introduces potential ambiguity around how the law applies to transactions and income that occurred during the transition period.
In practice, the answer is not as simple as a single date. The timing question plays out differently depending on the type of tax involved.
Below we unpack the key areas where interpretation matters most.
Transaction Taxes: A Relatively Clear Transition
For transaction-based taxes, the position appears largely uncontroversial.
Taxes such as:
- VAT
- PAYE
- Withholding tax
- Stamp duty
Generally, follow the rule that transactions occurring on or before 31 December 2025 remain governed by the previous legislation, including the Companies Income Tax Act, Personal Income Tax Act, the VAT Act, and the Stamp Duty Act.
Transactions occurring from 1 January 2026 onward fall under the Nigeria Tax Act.
For VAT in particular, this means expanded input tax recovery rules only apply to expenses incurred or assets acquired on or after 1 January 2026, even if the related VAT return is filed in 2026.
There is, however, one puzzling comment in the NRS guidance suggesting that stamp duty should always be determined under the NTA regardless of transaction date. From a legal standpoint, that interpretation is difficult to reconcile with the principle that tax law should apply according to the legislation in force at the time the transaction occurred.
Remuneration and Investment Income
For employment income, the dividing line is also relatively straightforward.
- Services performed before 1 January 2026 remain taxable under the Personal Income Tax Act.
- Services performed from 1 January 2026 onward fall under the Nigeria Tax Act.
Investment income follows the “current year” basis of taxation. Dividends, interest and royalties arising in the year ended 31 December 2025 are therefore taxed under the previous regime.
Capital Gains: Higher Rates and New Exposure
Capital gains are more interesting.
If an asset is disposed of on or after 1 January 2026, the gain is determined under the Nigeria Tax Act, rather than the former Capital Gains Tax Act.
This has two important consequences:
- Higher tax rates may apply, depending on the circumstances.
- The NTA may bring certain indirect disposals into the Nigerian tax net.
The difficult question concerns the base cost of assets that were acquired before 2026 but disposed of afterwards.
There had been some expectation that assets would be rebased to their market value on 1 January 2026, ensuring that only gains arising after the new regime took effect would be taxed.
That would have been a common and practical approach used when introducing capital gains taxation in other jurisdictions.
Unfortunately, there appears to be no clear legislative support for such rebasing in the NTA.
The practical implication is that the entire gain, including value increases that occurred before 2026, may be taxed at the new rates once the asset is disposed of. While arguably harsh, this outcome follows the principle that capital gains tax is triggered by the disposal event, which in these cases occurs under the new law.
Business Profits: Where the Real Complexity Lies
The most complicated issue arises with business income.
Under the Nigeria Tax Act, business profits are assessed on a preceding year basis. This means profits from the accounting year ended 31 December 2025 are typically taxed in the 2026 tax year.
The Nigeria Revenue Service has suggested that the NTA should therefore apply to any tax return filed on or after 1 January 2026, even if the profits being reported arose during 2025.
That interpretation produces a potentially retroactive outcome: profits earned before the new law came into force could end up being taxed under the new rules.
Historically, Nigerian courts have been cautious about this type of retrospective application.
In Accugas Ltd v FIRS, the court ruled that the Finance Act 2019 could not apply to income earned in 2019 when the law only came into force in January 2020. The court held that tax legislation cannot apply retrospectively unless the law explicitly provides for it.
Applying the same logic, one could argue that profits from accounting periods ending on or before 31 December 2025 should remain governed by the previous legislation, even if the tax return is filed in 2026.
Another court decision also shapes the discussion. In Shell Closed Pension Fund Administrators v FIRS, the court held that a financial year cannot be split so that different tax rules apply to different parts of the same year.
This means that if a company has an accounting year ending 31 March 2026, the entire year’s profits could fall under the NTA, even though part of that period occurred during 2025.
Why the Effective Date Matters
At first glance, this may seem like a technical issue.
In reality, the effective date of the legislation affects multiple areas, including:
- the tax rate applied to gains and profits
- eligibility for exemptions or deductions
- the scope of indirect disposal rules
- compliance obligations under the new system
For businesses with cross-border investments or complex corporate structures, the financial implications could be significant.
There is also a broader policy question. If the government communicated that the Nigeria Tax Act would take effect from 1 January 2026, taxpayers could reasonably expect that the law would not be applied retrospectively.
Whether that expectation ultimately prevails may depend on further administrative guidance or potentially litigation.
A Transitional Period Worth Watching
Nigeria’s tax reforms are part of a broader trend across the continent toward modernised tax administration, expanded tax bases and stronger enforcement frameworks.
The Nigeria Tax Act 2025 represents a major step in that direction. But as with many large reforms, the practical application of the law will likely evolve as guidance emerges and real-world cases are tested.
For businesses operating in or investing into Nigeria, understanding how these transitional rules apply is essential to managing compliance risk and avoiding unintended tax exposure.
Speak to Our Team
If your business has operations, investments or transactions connected to Nigeria, the commencement of the Nigeria Tax Act may affect how profits, gains and cross-border transactions are taxed.
Our team at Regan Van Rooy regularly advises international groups and investors on African tax developments and cross-border structuring.
If you would like to discuss how Nigeria’s tax reforms may impact your business, please feel free to get in touch with us.
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