FG cuts corporate tax, frees N1.4trn for companies next year

The federal government is set to forfeit about N1.4 trillion in revenue next year by slashing the corporate income tax rate from 30% to 25% as contained in the New Tax Act 2025 that becomes operational from January 1, 2026.

The move is part of a new tax reform framework designed to boost economic growth rather than squeeze businesses with higher levies.

The Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele, revealed the plan at the weekend during a media workshop explaining the new tax laws. He said the reduction is deliberate, aiming to make it easier for companies to invest, create jobs, and expand their operations.

“If you do the maths, taking away 5% out of 30% translates to around N1.4 trillion. So this is the government giving N1.4 trillion to businesses next year,” Oyedele explained.

The move comes on the back of data from the Federal Inland Revenue Service (FIRS), which shows that corporate income tax collections totaled about N8.6 trillion in 2024. While the cut will reduce revenue in the short term, Oyedele argued that a thriving economy will ultimately produce more sustainable revenue than higher tax rates ever could.

“The fastest and most sustainable way to generate revenue is to allow the economy to grow. If I’m unemployed, you can have the best personal income tax law in the world, but you can’t collect tax from me,” he said.

The new tax laws are designed to remove bottlenecks, lower the cost of doing business, and expand opportunities for companies without introducing new levies.

The reforms go beyond corporate tax. Oyedele said businesses would also benefit from updates to the Value Added Tax (VAT) system starting January 2026. Companies will now be able to claim input VAT credits on assets, overheads, and services, expenses that were previously excluded.

“You’ve never been able to claim any input credits for VAT because the law says you can’t. From January next year, you become eligible to claim input credits. Like you will get money in your bank accounts,” Oyedele said.

Currently, certain essentials like bread are VAT-exempt. Bakers do not charge VAT on sales, but they cannot recover VAT paid on sugar, butter, equipment, vehicles, or utilities.

These hidden costs are passed on to consumers. Under the new law, bread and other essentials like food, education, and healthcare will be zero-rated. This allows businesses to charge 0% VAT while reclaiming the VAT they paid on production inputs, lowering the cost of production.

“What that means is the cost of producing bread will come down,” Oyedele said, adding that the same principle will apply across sectors considered essential to households.

Oyedele acknowledged that the reforms will reduce government revenue initially but emphasized that the sacrifice is intentional. By lowering taxes and easing business costs, the government expects more investment, job creation, and economic activity that will broaden the tax base over time.

The comprehensive tax overhaul is anchored on four new tax reform acts, collectively taking effect on January 1, 2026. The reforms aim to simplify Nigeria’s tax system, widen the tax base, and create a more business-friendly environment for individuals and companies alike.

To oversee the rollout, President Bola Tinubu has approved the creation of the National Tax Policy Implementation Committee, chaired by respected tax expert Mr. Joseph Tegbe, a Fellow of both the Institute of Chartered Accountants of Nigeria and the Chartered Institute of Taxation of Nigeria. The committee will ensure that the new laws are implemented smoothly and effectively.