Yemisi Izuora
Tax expert and a senior partner at ALX, Theo Muewa,has carried out a postmortem examination of Nigeria’s new Economic Development Incentive, introduced under the Nigeria Tax Act 2025, pointing that it marks a significant shift in the country’s investment policy, replacing the long-running Pioneer Status Incentive with a performance-based tax credit regime aimed at rewarding actual capital deployment rather than granting blanket tax holidays.
According to him, the broader tax overhaul is also unfolding against an increasingly assertive revenue drive.
Nigeria’s revenue service, which collected N20.3 trillion in 2025, is targeting N40.7 trillion this year and Muewa said he believes the target is achievable and potentially beatable, but he framed the shift less as aggressive enforcement and more as improved sophistication.
Speaking with CNBC Africa, he noted that the key change is that the tax authority is no longer waiting passively for taxpayers to come forward.
Instead, it is becoming more proactive in identifying businesses, using technology and digital profiling tools to track commercial activity, spot companies that may not be filing, and compare reported tax positions against visible business operations.
Muewa addressed the revised VAT sharing formula between the federal and state governments.
He said the federal government has effectively ceded 5 percentage points, with states receiving an additional 5 percentage points. But he also flagged signs that VAT growth may be softening.
After rising from more than N6 trillion in 2024 to just over N8 trillion in 2025, first-quarter collections this year came in below the N2 trillion quarterly pace implied by last year’s figures.
That slowdown, combined with wider input VAT deductions, could mean the VAT pool is not poised for the kind of rapid expansion some policymakers may be expecting.
Taken together, the reforms suggest Nigeria is moving toward a more rules-based, investment-linked and technology-enabled tax system. But as Muewa indicated, much will depend not just on the text of the law, but on how far authorities go in implementation and whether the broader business environment improves enough to make the incentive framework truly effective.
Muewa, said the change reflects a broader rethink of Nigeria’s tax framework as authorities seek to modernize collection, align incentives more closely with measurable investment, and expand the tax net in an increasingly digital economy.
The reform comes amid wider scrutiny of Nigeria’s fiscal strategy, especially following recent changes in economic leadership and the push to improve non-oil revenue generation. While the new law has sparked debate over the taxation of foreign income, Muewa said the issue requires careful interpretation.
According to him, the law appears to expand the concept of tax residence for individuals.
Under the new framework, a person resident in Nigeria may be taxed on worldwide income, but residence is defined broadly enough to include not only physical presence, but also factors such as domicile, a permanent place of residence, or family ties in Nigeria. That means some Nigerians living abroad could, at least on a literal reading, fall within the tax net if they maintain a family home or habitual domestic base in the country.
Still, Muewa cautioned that the true scope of the provision will depend on how the law is implemented. He suggested that while the wording may appear far-reaching, actual enforcement may be narrower than the text implies.
On the corporate side, he said the more consequential development is Nigeria’s attempt to tax economic activity that takes place across borders without a physical local presence.
In the digital era, businesses can sell goods or services into Nigeria online, generate meaningful revenue from Nigerian consumers, and yet avoid the traditional tax nexus that historically depended on factories, offices, or other brick-and-mortar operations.
Tax authorities globally have sought to address that mismatch, and Nigeria is following the same path by asserting taxing rights over certain online transactions and offshore business activity linked to the domestic market. Muewa noted that defining the scope of such taxation will remain a key issue as the rules are applied in practice.
Asked whether Nigeria’s infrastructure is prepared for this new phase of tax administration, he argued that legal reform must come first, followed by the systems needed for implementation. In his view, the law creates the basis for enforcement, after which authorities can determine whether current administrative tools are sufficient or need strengthening.
Beyond cross-border taxation, the interview highlighted implications for business competitiveness in sectors such as telecoms, oil and gas, and financial services. Muewa said the headline corporate tax burden for domestic businesses is not changing materially in the near term, with the rate still at 30 per cent, although it is expected to decline to 25 per cent eventually.
One potentially important operational change, however, lies in value-added tax treatment. Previously, businesses in many service-heavy sectors could not deduct input VAT paid on overhead costs such as electricity, telecoms, internet services, and similar expenses, unless the purchases qualified as raw materials.
That structure effectively favored manufacturers over service-oriented businesses. Under the new rules, broader input VAT deductibility is expected to reduce that distortion.
That may offer relief to service industries, but it could also have an unexpected consequence for the government: lower VAT receipts in some areas as more companies claim allowable deductions. Muewa said that risk has not been fully appreciated in public discussion of the reforms.
The centerpiece of the interview, though, was the replacement of the Pioneer Status Incentive. Under the previous regime, qualifying companies could enjoy full income tax exemptions for three to five years. The new Economic Development Incentive instead ties benefits to the amount of real investment made, a model that appears designed to encourage substantive, capital-intensive projects rather than provide broad-based holidays.
Muewa said this structure is likely to be most attractive to sectors where large upfront capital outlays are necessary, while businesses that require limited physical investment, particularly many service companies, may find it less beneficial.
He also emphasized that tax incentives alone rarely determine investment flows. In his view, international investors place greater weight on infrastructure, including electricity, water supply, and transport logistics. If those fundamentals are weak, even a zero-tax regime may fail to make a project commercially viable.
On the question of avoiding a global “race to the bottom” in tax incentives, Muewa pointed to the growing importance of minimum tax rules.
He said Nigeria has incorporated principles similar to the OECD’s Pillar Two framework into its domestic law, even though it did not formally sign on to the OECD arrangement. The result is that companies with an effective tax rate below 15 per cent may now face a top-up tax in Nigeria, effectively setting a floor beneath which total taxation should not fall.