Thousands of Nigerian businesses may be paying less tax than necessary as a combination of new incentives, deductions, and compliance provisions opens up legal avenues to reduce tax liabilities under the country’s new tax regime.
Tax advisers say interest in tax planning has increased since the implementation of the reforms, with businesses reviewing expenses, investment decisions, compensation structures, and tax credits to ensure they are not leaving legitimate savings unclaimed.
“Companies are restructuring, merging with complementary businesses, adjusting branch operations, and reorganising record-keeping to meet tax incentives eligibility requirements,” said Marvis Oduogu, lead, taxation at Stren & Blan Partners.
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The trend comes as the government intensifies efforts to improve tax collection. Nigeria’s tax-to-GDP ratio has climbed to about 13 percent from below 10 percent in previous years, though it remains below the African average of around 16 percent, underscoring the gap policymakers are trying to close.
For businesses, however, the reforms are creating a different conversation: how to comply with tax laws while taking full advantage of reliefs built into the system.
Tax planning is extending beyond corporate restructuring. A publication by SME Mall on legal tax planning strategies noted that many businesses fail to claim deductions, tax credits, and incentives they are already entitled to, resulting in higher tax bills than necessary.
The publication argues that taxpayers who understand available reliefs, maintain proper records, and plan major financial decisions ahead of filing periods are often better positioned to reduce tax liabilities without falling foul of the law.
Claim every legitimate business deduction
One of the most overlooked tax-saving opportunities is the proper claiming of allowable business expenses.
Under Nigerian tax laws, companies are permitted to deduct expenses that are wholly, exclusively, necessarily, and reasonably incurred in generating taxable income. These include rent, salaries and wages, loan interest, and repairs and maintenance costs, among others.
Yet tax advisers say many small businesses either fail to maintain adequate documentation or mix personal and business expenses, making it difficult to claim legitimate deductions.
The result is that businesses often pay tax on profits that are artificially inflated because allowable expenses were not properly recorded.
For many entrepreneurs, improving bookkeeping may be one of the simplest ways to reduce tax liabilities without changing business operations.
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Capital allowances offer relief beyond traditional assets
The reforms have also drawn attention to capital allowances, which allow businesses to recover the cost of certain investments over time through tax relief.
Traditionally, qualifying assets included machinery, equipment, furniture, vehicles, and buildings used for business purposes.
However, recent reforms expanded qualifying expenditures to include software development and electronic applications, creating additional opportunities for technology firms and businesses investing in digital infrastructure.
For startups and growing businesses, this means investments in technology may generate benefits beyond operational efficiency by reducing future taxable income.
Tax practitioners note that many small businesses remain unaware of the extent of assets that qualify for capital allowance treatment.
The hidden value of withholding tax credits
Another area attracting increased attention is withholding tax credits.
Businesses often have withholding tax deducted from payments received from customers or contracting entities. While these deductions are intended as advance tax payments, many businesses fail to track and utilise them effectively.
According to SME Mall, businesses can significantly reduce their final company income tax liabilities by properly documenting withholding tax certificates and applying them against future obligations.
Industry practitioners say thousands of naira are lost annually because businesses fail to reconcile these credits during tax filing.
Employee compensation is becoming a tax planning tool
The new personal income tax framework is also influencing how businesses structure employee compensation.
Rather than focusing solely on salary levels, employers are increasingly examining the tax treatment of allowances and benefits.
Transportation allowances, meal allowances, and other employment benefits may receive different tax treatment than basic salary, creating opportunities to structure compensation more efficiently.
With personal income tax rates now ranging from 0 percent to 25 percent depending on income levels, compensation design is becoming an increasingly important consideration for both employers and employees.
Why record-keeping may become more important
As tax authorities increasingly rely on digital verification and data-driven compliance systems, experts expect record-keeping to become a key determinant of who benefits from tax incentives.
Receipts, invoices, contracts,, and payment records are increasingly essential for supporting deduction claims and defending positions during tax reviews.
SME Mall identifies poor documentation as one of the primary reasons businesses fail to maximise available tax reliefs.
The shift from tax avoidance to tax planning
As Nigeria’s tax system becomes more sophisticated, experts say taxpayers are gradually moving away from searching for loopholes and towards understanding incentives intentionally built into the law.
Research and development deductions, capital allowances, withholding tax credits, industry-specific incentives, and efficient business structures are all provisions designed to encourage investment and economic activity.
The challenge, experts say, is not the absence of opportunities but the lack of awareness among many taxpayers.
For businesses navigating the country’s evolving tax landscape, the biggest savings may not come from finding ways around the system but from understanding the provisions already available within it.