Nigeria’s New Tax Reforms: Food, Education, Transport, and Agriculture Exempted from VAT

Nigeria is entering a new fiscal era as the Federal Inland Revenue Service (FIRS) announces sweeping tax reforms that exempt essential sectors such as food, education, shared transportation, and agriculture from value-added tax (VAT).

The reforms, set to take effect in January, are regarded as the most ambitious overhaul of Nigeria’s tax system since independence. The aim is to ease the financial burden on citizens and businesses while boosting government revenue and ensuring long-term economic stability.

A New Direction for Taxation in Nigeria

The Executive Chairman of FIRS, Zacch Adedeji, revealed the details during an interview marking his two years in office. He noted that the initiative fulfills President Bola Tinubu’s campaign promise to simplify tax compliance and eliminate hurdles for taxpayers.

“With these new laws, food, education, transport, and agriculture will be VAT-free,” Adedeji stated. “This reform is the most impactful transformation in Nigeria’s fiscal ecosystem since 1960.”

The reforms consolidate multiple tax laws into a unified code, reducing the number of tax categories to single digits and providing relief for smaller enterprises. Businesses with an annual turnover below ₦50 million will now be exempt from tax, while adjustments to personal income tax thresholds are designed to protect low-income earners.

Legislative Backbone of the Reform

On June 26, 2025, President Tinubu signed into law four major bills:

• The Nigeria Tax Act
• The Nigeria Tax Administration Act
• The Nigeria Revenue Service Establishment Act
• The Joint Revenue Board Establishment Act

Collectively referred to as the “Tax Acts Quartet,” these laws seek to broaden the tax base, improve compliance, and ensure greater transparency across all tiers of government.

To further strengthen fiscal policy, the President appointed Taiwo Oyedele, a renowned Fiscal Policy Partner at PricewaterhouseCoopers, to head the Presidential Committee on Fiscal Policy and Tax Reforms. The committee—comprising private and public sector experts—played a central role in designing the reforms.

Growing Revenue and Debt Reduction

Adedeji disclosed that Nigeria’s tax-to-GDP ratio has climbed from 10% to 13.5% in just two years, with a target of 18% by 2027. In August alone, the federation account disbursed a record ₦2 trillion, with nearly 70% of allocations funded by taxes collected through FIRS.

This revenue boost has allowed 30 states to repay ₦1.85 trillion in debts over the past 18 months. Debt servicing costs, which previously consumed 90% of government income, have dropped to about 50%. External reserves have also strengthened due to improved fiscal stability.

Rebranding FIRS for Broader Authority

As part of the reforms, the FIRS will be rebranded as the Nigeria Revenue Service (NRS). According to Adedeji, the new name better reflects its mandate as the central revenue collection agency for all tiers of government—not just the federal level.

“The word ‘federal’ gave the impression that we only collect for the federal government. In reality, 90% of VAT collections belong to the states,” he explained.

Balancing Short-Term Pain with Long-Term Gains

Adedeji admitted that the reforms may bring temporary hardship but likened it to “the pain of a woman in labour.” He highlighted interventions such as compressed natural gas buses and crude-for-naira arrangements for local refiners as measures already cushioning the effects.

Fuel prices, he noted, are showing signs of decline following broader economic policies such as subsidy removal and exchange rate unification. These decisions, he said, have strengthened the federation account by eliminating bogus subsidy claims.

Stronger Compliance and Simpler Tax Filing

The new framework restructures how taxes are collected and monitored. Taxpayers are now grouped into small, medium, and large categories, with one-stop shops created for easier filing and payments.

“We are service providers to taxpayers, not just an enforcement agency,” Adedeji emphasized. “When companies grow and prosper, the government benefits from their expansion.”

Clarification on Petrol Surcharge

Addressing concerns about a potential petrol surcharge included in the new tax code, Adedeji clarified that it would not take effect automatically. “It will only be activated through a ministerial order and must be published in the official gazette,” he explained.

Looking Ahead

Nigeria’s tax reforms mark a turning point in economic governance, with a clear focus on increasing revenue while supporting citizens and businesses. By exempting essential sectors from VAT, restructuring tax laws, and introducing a fairer system, the government hopes to create a more sustainable fiscal future.