Rent relief limitations, forex deduction restrictions, other may hinder new tax act implementation, says Oye

The Chairman of the Alliance for Economic Research and Ethics (AERE), Dele Kelvin Oye, has said the rent relief, which caps deductible rental expenses at N500,000 per year and the restrictions on forex deductions, preventing businesses from deducting actual foreign exchange losses when sourcing funds in Nigeria’s volatile currency market, are among hurdles that could hinder the successful implementation of the Tax Act 2025.

According to him, while the reform is the most significant legislative change to the Nigerian income tax environment since the return to democracy, there are structural ‘glitches’ that demonstrate a disconnect from Nigerian reality.

Oye, who is the immediate Past Chairman of the Organised Private Sector of Nigeria (OPSN) and chairman of the Nigeria-Türkiye Business Council (NTBC), spoke in a paper titled, “The Nigeria Tax Act 2025: A Critical Examination Of Consolidation, Implementation Challenges, And Institutional Identity Crisis.”

He said, “Perhaps the most criticized clause in the new Act is the limit on relief for individual taxpayers. The Act decrees that taxpayers will be allowed to deduct rental expenses capped at N500,000 per annum. Considering Nigeria’s primary economic hubs, including Lagos, Abuja and Port Harcourt, this figure is embarrassingly low.

“Given the inflationary and devaluationary pressures on property values, NGN 500,000 per annum is a drop in the bucket versus the actual rent expense of most average urban professionals and small business owners.

“The “Rent Relief Paradox” is emblematic of a failure to properly index tax benefits to inflationary realities. By establishing fixed, static, and extremely low thresholds, the government progresses towards a “decorative doormat” as opposed to a safety net. For many taxpayers, the time and effort needed to collect documentation and submit for relief expenses may outweigh the aggregate tax savings.

“In fact, the policy may simply be emblematic of the purpose in theory, as it allocates benefits to persons above the threshold because it available to them, while providing no tangible benefit in the real world. Rent Relief, like other costs, would actually better serve the purpose in a meaningfully inflationary environment if tied to something regional like averages or a minimum wage.”

 “The Act is imposing a ‘Double Jeopardy’ tax assessment, creating a situation where businesses cannot deduct the measure of the actual forex cost to conduct normal business operations, such as importing raw materials or servicing foreign debt. The Act implicitly requires taxpayers to conduct puthy business without any measure of expense deduction, which creates a “Forex Fiasco” scenario, where profit margins shrink to a depressing state for manufacturing and service industries. Many businesses will ultimately choose to create capital flight in search of a more realistic fiscal environment.”

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He continued: “Coming behind the “guilt by association” progeny with the VAT compliance, is likely the most unpopular provision in the NTA 2025. Specifically addressed in Section 21(p), a business may have an expense denied deduction solely if their supplier failed to charge for VAT or remit the associated charge to the NRS. Simply put, every corporate accounting department in Nigeria, would now need to act as a full-time private contractor, evaluating their entire supply chain for compliance.

“The government needs to be concerned with fundamental injustice of this policy. A compliant taxpayer is penalized for the limitations of third parties, over whom they and their process have no legal right. In a complex economy, that is entirely unrealistic to construct evidence that every vendor from large utility providers to landscape or janitorial service contractors, are in good standing with their respective tax collections. The obvious unintended consequence is that the government has implemented a compliance rule that would impact domestic supply chains, because larger firms will have to limit or refuse the business with SMEs that cannot provide ironclad proof that these were remitted to the government.

“Rather than outsourcing the enforcement responsibility to the private sector, the NRS, in its modernized digital capabilities, should simply track and penalize those suppliers directly, as they are already remitting tax. The NTA 2025 is a big leap toward regulating fiscal affairs, but these embedded mistakes suggest that the “landing” of the reform will be bumpy for the Nigerian economy. The Alliance for Economic Research and Ethics supports periodic reviews of these particular provisions to ensure that the law enables rather than stifles the businesses that it seeks to regulate. The spirit of consolidation must be matched with the spirit of economic realism if the Nigeria Tax Act of 2025 is to reach its transformative potential.”

Oye further stated, “The Nigeria Tax Act (NTA) 2025 brings significant changes to Nigeria’s fiscal architecture, most notably, the establishment of the Nigeria Revenue Service (NRS) as the successor to the Federal Inland Revenue Service. While there appears to be rebranding in the service used to administer taxes, the legislation suggests an expansion of the mandate of the revenue authority into investment policy. The growth of power is an institutional identity crisis where the primary purpose of revenue extraction is likely to eclipse the nuanced task of attracting investment. “Historically, investment incentives were the responsibility of specialized agencies who were better positioned to assess fiscal costs against long term economic benefits; the NTA 2025 crops up the center of gravity of incentives into a single revenue authority. The risk is a transformation of the fiscal ecosystem into a “Procrustean Bed” within which an investment policy must fit the prescriptive demands of generating revenue immediately.”

According to him, “The Nigeria Tax Act 2025 is a monumental reform representing the Nigerian Government’s commitment to fiscal modernisation and revenue sustainability. Consolidating numerous tax laws into a single and cohesive framework represents a long-awaited opportunity to address legislative chaos and provide further clarity to both domestic and international investors.

“Along with the intent to achieve a “single digit” tax environment, aligning with global standards such as OECD Pillar 2 are important steps to make Nigeria a more competitive capital destination. But as this appraisal has sought to demonstrate, the probabilities for success in implementing represent significant institutional and practical challenges, which cannot be ignored.

“Perhaps the greatest structural risk is the ambiguous “institutional identity crisis” deriving from the concentration of investment powers in the NRS. A single revenue service provides administrative efficiencies, but it cannot come at the risk of removing the focus agencies like the NIPC and NEPZA have in their specialized expertise or “attraction” mandates. The Government has to be careful that the “Cashier” for the State does not become the “Architect”, since generating a budget are competing efforts with either a short-term revenue extraction focus versus long-term sustainable industrial growth. Key to economic reform success is providing balanced autonomy to investment promotion entities, while integrating them into a newly modernized fiscal framework.

He added, “Moreover, the “implementation maze” is another real risk towards successfully enacting the Act’s objectives. The challenges of taxing digital assets, tech burdens to SMEs, and enduring friction in receiving VAT refunds, could all mitigate the “Marie Kondo” effect of tax law consolidation. If the NRS is unable to promote the “digital divide” and cash flow constraints from the private sector, the Act may end up increasing the cost of doing business and promoting non-compliance. As the Act promotes fiscalization of supplies and tax implications of virtual based assets, it will take more than just legal mandates, it requires a commitment to investing in technology, infrastructure, and human capital. In closing, the NTA 2025 is progressive, but it is progress that must be gently grounded. The Alliance for Economic Research and Ethics is clear that the flaws identified (for example, “forex fiction” in expense deductions and “guilt by association” in VAT compliance) are “not insurmountable.”

“They are, however, “poltergeists” in the attic of the new tax code that must be eliminated through specific amendments, and realistic administrative principles. With a restored institutional balance, embracing macroeconomic reality, and acknowledging the technological transition of SMEs, Nigeria can refashion the NTA 2025 from a legal “junk drawer” into a uni-directional engine for economic prosperity, in summary, the outcome of this legal and administrative reform will be determined less by the number of repealed laws than the speed of economic activity generated.

“It is also crucial for policymakers to consider the experiences of other sectors in addressing similar challenges. For instance, the complexities encountered in Nigeria’s pharmaceutical industry, as analyzed in a recent study, highlight the importance of finance and incentives in encouraging sectoral development. Learning from these challenges, the Nigeria Tax Act 2025 requires not only legal frameworks but also strategic financial incentives to support technology adoption and enhance compliance mechanisms.”