VAT & Nigeria 2025 Tax Reforms: Key Changes and Implications for Businesses
Over three decades after the introduction of Value Added Tax (VAT) in Nigeria, the tax has become one of the government’s most significant non-oil revenue sources. However, persistent structural inefficiencies, compliance challenges, low input VAT recovery on services and capital expenditure, and long-standing legal ambiguities have constrained its optimal operation .
Recognising these gaps, the National Assembly passed two pivotal pieces of legislation — the Nigeria Tax Act (NTA) 2025 and the Nigeria Tax Administration Act (NTAA) 2025 (together, “The Acts”) — which repeal the former VAT Act and introduce a more modernised VAT administration framework . These reforms, effective 1 January 2026, are intended to streamline processes, enhance compliance, strengthen revenue generation, and better align VAT practices with prevailing economic realities .
For businesses across all sectors, these changes represent both opportunities and new compliance obligations. This article examines Nigeria’s 2025 VAT reforms, highlighting key changes, compliance rules, and business impacts across sectors .
1. VAT Rate Remains 7.5%
Although the Presidential Committee on Fiscal Policy & Tax Reforms initially proposed a phased increase to 15% by 2030, consultations with the Nigeria Governors’ Forum and other stakeholders resulted in the retention of the existing 7.5% VAT rate . This decision aims to balance the government’s revenue needs with the need to avoid placing additional burdens on businesses and consumers during a period of inflation .
This places Nigeria with the lowest VAT rate among its key regional peers, compared with Kenya’s 16% and Ghana and South Africa’s 15% .
2. Expanded Input VAT Recovery on Services and Fixed Assets
Perhaps the most significant change for businesses is the expansion of recoverable input VAT. Under the NTA 2025, input VAT incurred by a registered person on any taxable supply—including services and fixed assets—may be offset against output VAT, but only to the extent the input VAT is attributable to the use, consumption or supply of taxable outputs .
Previously, only VAT on goods sold and materials used in producing taxable supplies was creditable. This expansion significantly enhances input VAT recovery for manufacturers and traders and, importantly, allows service providers—who previously expensed all input VAT—to offset such VAT against output VAT collected .
Practical examples highlighted by tax experts include:
Hotels claiming VAT on generator or air-conditioning repairs
Manufacturers claiming input VAT on engineering consultancy services
Generating companies (GENCOs) claiming VAT on all taxable supplies they receive
Important conditions:
Input VAT can only be claimed on taxable supplies made from 1 January 2026
Where a cost relates to both taxable and exempt activities, the input VAT must be apportioned
Claims must be made within five years of the relevant tax period
3. Reclassification: Exempt vs Zero-Rated Supplies
One of the most significant changes is the reclassification of many essential goods from VAT-exempt to zero-rated . While both categories result in no VAT being charged to the customer, the critical difference lies in input VAT recovery. Unlike exempt supplies, zero-rated supplies allow businesses to claim input VAT on production costs .
Zero-Rated Items (Input VAT Recoverable)
The following items are now zero-rated, meaning businesses can reclaim input VAT on production costs :
| Category | Items |
|---|---|
| Food | Basic food items; water (except when sold in restaurants, hotels, eateries, cafes, and similar settings—where VAT applies) |
| Medical | All medical and pharmaceutical products, including medicinal herbal products; medical services; medical equipment |
| Education | Educational books and materials; tuition relating to nursery, primary, secondary, or tertiary education |
| Agriculture | Fertilizers; locally produced agricultural chemicals, veterinary medicine, and animal feeds; live cattle, goats, sheep, poultry; agricultural seeds and seedlings |
| Power | Electricity generated by GENCOs and supplied to the national grid; electricity transmitted by TCN to DISCOs |
| Exports | Exported goods (excluding oil and gas); exported services; exported incorporeal property |
| Vehicles | Electric vehicles; parts and semi-knockdown units for EV assembly |
Why this matters: This shift means businesses involved in producing and supplying these zero-rated items can now claim input VAT incurred in production, thereby reducing production costs, preventing price hikes, and improving cash flow efficiency .
Exempt Supplies (Input VAT NOT Recoverable)
The following supplies remain exempt from VAT—businesses cannot recover input VAT on related costs :
Oil and gas exports
Baby products
Locally manufactured sanitary towels, pads or tampons
Military hardware, arms, ammunition
Shared passenger road-transport service
Agricultural equipment (purchase, hire, rental, lease of tractors, ploughs)
Land or buildings, including interest in land or buildings
Money or securities, including interest in money or securities
Government licences
Assistive devices and disability-related products (hearing aids, wheelchairs, braille materials)
Goods or services supplied to diplomatic missions
Petroleum products; renewable energy equipment (suspended); CNG; LPG; other gaseous hydrocarbons (subject to Ministerial order)
4. VAT Payment as a Condition for Expense Deductibility
A major shift introduced under section 21(p) of the NTA is the requirement that VAT must be charged and paid on all taxable supplies before the underlying expense can qualify as allowable for income tax purposes .
Key implications:
Expenses on which VAT is due but not charged are not deductible for tax purposes
Expenses relating to imported items for which applicable import duty or levy has not been paid are also not deductible
For capital assets, failure to charge VAT, or pay the applicable import duty, renders such assets ineligible as qualifying capital expenditure, preventing businesses from claiming capital allowances
This change strengthens accountability by discouraging practices where companies delay VAT remittances while still benefiting from deductions. Businesses are encouraged to self-charge VAT on all vatable expenses or assets if vendors do not include it .
5. Mandatory E-Invoicing and Fiscalisation
The Acts mandate full adoption of the electronic fiscalisation system prescribed by the Service. This system may include approved electronic devices, software solutions, or secure data-transfer systems for recording and reporting taxable supplies .
The Nigeria Revenue Service has deployed the Merchant Buyer Solution (MBS), a digital e-invoicing platform aimed at:
Improving transaction reporting
Reducing revenue leakages
Migration is phased:
Beginning with large taxpayers (₦5 billion turnover and above)
Enforcement for this category is scheduled between April and June 2026
Timelines for medium and emerging taxpayers to follow
Penalties for non-compliance are significant:
| Offence | Penalty |
|---|---|
| Denial of access to deploy technology (first day) | ₦1,000,000 |
| Each subsequent day of denial | ₦10,000 |
| Failure to process taxable supplies through the system | ₦200,000 + 100% of tax due + interest at CBN Monetary Policy Rate |
6. Clearer VAT Refund Framework
The former VAT framework provided no clearly defined refund mechanism, often making refunds impractical . Under the Acts:
Where input VAT exceeds output VAT, the excess becomes a credit
Unused credits qualify for a refund, provided the taxpayer submits a request within 12 months
The NRS must process refunds within 30 days
Refunds may be set off against any type of tax liability (not just VAT)—a positive development that assists manufacturing companies with accumulated input VAT on capital assets
7. Small Business VAT Exemption Threshold
The Acts introduce a more generous exemption threshold for small businesses . A small business is defined as one with:
Annual gross turnover of ₦100 million or less
Total fixed assets not exceeding ₦250 million
Professional service providers are not eligible for this classification
This represents a significant departure from the ₦25 million revenue threshold introduced under the Finance Act 2019 .
Key provisions:
Businesses meeting this threshold are not required to register, charge VAT, pay, or submit monthly returns to the Service
However, businesses below the threshold must still maintain proper records
Small businesses may, subject to written notice addressed to the Service, opt out of the exemption if they wish to charge VAT
Where a company ceases to be a small company, it must file monthly VAT returns
Important caveat: The exemption of small businesses from VAT obligations does not imply blanket tax exemption for contracting parties. Taxable persons dealing with small businesses are required to self-charge and remit VAT on receipt of taxable supplies from small businesses . This can create a compliance bottleneck when large businesses transact with small exempt entities.
8. Digital Economy and VAT Expansion
The reforms also significantly expand VAT coverage of the digital economy. About 22.3% of all VAT in Q2 2025 came from foreign sources from digital services to foreign companies selling to Nigerians, representing an untapped potential for more revenue .
Key digital economy VAT provisions:
Businesses must now charge VAT on SaaS subscriptions, digital tools, and online services
Foreign companies with significant economic presence (such as Netflix, Meta, Google) must charge VAT to Nigerian users
Marketplaces must charge VAT on commissions, service fees, delivery charges, ads, and promotions
Any fee on digital transactions is now vatable (applicable only to service fees)
Failure to file VAT returns now attracts:
₦100,000 penalty for the first month
₦50,000 for each subsequent month
9. 5% Surcharge on Fossil Fuels
The NTA introduces a 5% surcharge on chargeable fossil fuel items produced or supplied in Nigeria, subject to certain exemptions .
Exemptions include:
Clean or renewable energy products
Household kerosene
Compressed natural gas
Cooking gas
The Minister of Finance may issue an order specifying the commencement date for applying the 5% surcharge on other fossil fuel products .
10. Compliance Deadlines and Penalties
VAT Remittance Deadlines:
VAT withheld at source must be remitted to the NRS no later than the 14th day of the following month
VAT collected by registered businesses must be remitted by the 21st day of the following month
VAT Refund Claims:
Claims must be submitted within 12 months after the relevant transaction
Approved refunds must be issued within 30 days
Key Penalties:
| Offence | Penalty |
|---|---|
| Non-compliance by VAT agents | 150% of amount not collected + 5% interest above CBN Monetary Policy Rate |
| Failure to register for TIN (non-resident) | Doubled withholding tax rate |
| E-invoicing non-compliance | ₦1,000,000 first day + ₦10,000 subsequent days |
| Late VAT filing | ₦100,000 first month + ₦50,000 subsequent months |
How Qeeva Advisory Helps Businesses Navigate VAT Reforms
At Qeeva Advisory, we understand that navigating the NTA 2025 VAT reforms can be complex. Our team of experienced professionals specializes in helping Nigerian businesses understand their VAT obligations and develop strategies for compliance.
Our Core VAT Services
Advisory Services Nigeria – Our advisory professionals help you understand your VAT obligations under the NTA 2025, classify your supplies correctly (exempt vs zero-rated), and develop strategies to maximize your input VAT recovery while ensuring full compliance.
Tax Strategies and Planning – We help you structure your business to optimize your VAT position, identify zero-rated supplies that qualify for input VAT recovery, and ensure you do not lose money on exempt supplies.
Regulatory Compliance – We ensure your business meets all filing requirements, including timely VAT remittance, and stays in good standing with the Nigeria Revenue Service. We help you navigate the complex web of VAT regulations and avoid costly penalties.
Bookkeeping Services – Accurate records are essential for VAT compliance and input VAT recovery. Our bookkeeping services ensure your financial records are accurate and complete, properly separating VAT collections from revenue, and accurately tracking input VAT for claims.
Risk Management – We help you identify and manage risks associated with VAT compliance, audits, investigations, and disputes.
Frequently Asked Questions
Q: What is the new VAT rate under the NTA 2025?
A: The VAT rate remains at 7.5%. Although a phased increase to 15% by 2030 was initially proposed, the rate was retained at 7.5% following stakeholder consultations .
Q: Can I now claim input VAT on services and fixed assets?
A: Yes. The NTA 2025 expands input VAT recovery to include services and fixed assets, provided they relate to making taxable supplies .
Q: What items are now zero-rated under the NTA 2025?
A: Zero-rated items include basic food items, medical and pharmaceutical products, educational books and materials, electricity generated by GENCOs, medical services, tuition, exported goods and services, medical equipment, and electric vehicles .
Q: What is the e-invoicing requirement under the new law?
A: The Acts mandate full adoption of an electronic fiscalisation system. The NRS has deployed the Merchant Buyer Solution (MBS), a digital e-invoicing platform .
Q: Are small businesses exempt from VAT registration?
A: Yes. Businesses with annual turnover of ₦100 million or less and total fixed assets not exceeding ₦250 million are exempt from VAT registration and filing. However, professional service providers are not eligible .
The Bottom Line
The NTA 2025 and NTAA 2025 represent the most significant overhaul of Nigeria’s VAT system in decades. For businesses, these reforms offer both opportunities and new compliance obligations.
Key opportunities:
-
Expanded input VAT recovery on services and fixed assets
-
Zero-rated essential goods allowing input VAT claims on food, medical, and education supplies
-
Clearer VAT refund framework with 30-day processing requirement
-
Higher SME exemption threshold (₦100 million turnover)
Key compliance obligations:
-
E-invoicing mandates with significant penalties for non-compliance
-
VAT payment as condition for expense deductibility
-
Stricter remittance deadlines (14th and 21st of following month)
-
Digital economy VAT expansion
The fintechs and businesses that treat compliance as architecture—built in from the foundation, not bolted on later—will be stronger, more fundable, and harder to disrupt. The regime is more demanding than before, but also more predictable. That predictability is an asset. Use it.
Your job is to be prepared. Understand the new rules. Classify your supplies correctly (exempt vs zero-rated). Claim your input VAT recovery. Maintain proper documentation. Implement e-invoicing. Seek professional guidance.
With the right approach and the right partner, you can turn VAT compliance from a regulatory headache into a competitive advantage.
Suggested Reading from Our Blog
VAT Exempt vs Zero-Rated Supplies in Nigeria 2025 – Learn the critical distinction and how it affects your business
VAT Is Not Your Money – Understand why VAT is government revenue held in trust
Regulatory Compliance In Nigeria – Comprehensive overview of tax compliance requirements
Tax Planning and Compliance – Structure your business to optimize your tax position
Reference Links / Sources
Lexology – New Legislation Includes Important Changes to VAT Rules – Comprehensive analysis of NTA 2025 VAT provisions
Forvis Mazars – VAT & Nigeria 2025 Tax Reforms: Key changes and implications for businesses – In-depth examination of key VAT changes and business impacts
BusinessDay – Nigeria bets on digital payments VAT for more revenue – Analysis of digital economy VAT expansion
Mondaq – Examination of VAT Provisions Under NTA 2025 – Detailed review of exempt and zero-rated items
Baker McKenzie – VAT/GST Rates & Thresholds Nigeria – Summary of rates, exemptions, and zero-rated items
Forvis Mazars – VAT Compliance Thresholds and Reclassification – Analysis of small business exemptions and supply reclassification
BusinessDay – Nigeria’s VAT overhaul tilts power to states – Overview of reform impact on households and businesses
Tribune Online – GenCos can now claim Input VAT – Sector-specific analysis of power sector changes
Let’s Talk About Your VAT Compliance Needs
Navigating VAT compliance under the NTA 2025 can feel complex. At Qeeva Advisory, we understand the challenges businesses face in understanding VAT obligations, claiming input VAT recovery, and complying with the new rules.
Whether you need help with VAT classification, input VAT recovery, compliance monitoring, or filing support, we are here to support you.
📞 Call us: (+234) 802 320 0801, (+234) 807 576 5799
📧 Email: info@qeeva.com
📍 Visit us: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria
Contact us today to schedule a consultation. Let us help you navigate VAT compliance with confidence.
Your journey to VAT compliance starts with a conversation. Let’s talk.
