Nigeria’s manufacturers may need to rethink their investment, expansion and compliance strategies as the Nigeria Tax Act 2025 begins to take effect, with professional services firm Kreston Pedabo saying the law fundamentally changes how the sector will be taxed and incentivised.
In an analysis of the new legislation, Pedabo said the Act represents one of the most far-reaching overhauls of Nigeria’s tax system in decades, replacing a patchwork of tax laws with a single framework that directly links fiscal policy to industrial development.
While the reform creates openings for cost savings and growth, the firm cautioned that manufacturers who fail to understand or properly apply the new rules risk missing out.
Kehinde Folorunsho, Partner, Tax Services at Kreston Pedabo Professional Services, said the Act shifts the focus of taxation from revenue collection alone to investment stimulation, particularly in priority sectors such as manufacturing.
“For manufacturers, the conversation is no longer just about compliance, but about structuring operations to take advantage of incentives while managing new obligations,” Folorunsho said.
A central feature of the Act is the introduction of Economic Development Tax Incentives, which reward capital investment in designated sectors. Under the scheme, qualifying manufacturers can claim a five per cent annual tax credit on eligible capital expenditure for up to five years. Companies that reinvest profits may qualify for longer incentive periods, while some manufacturing-related instruments are exempt from stamp duties.
Pedabo said these provisions could materially affect project viability assessments, especially for firms planning new plants, equipment upgrades or capacity expansion.
The Act also recalibrates capital allowance rules, providing clearer pathways for deducting expenditure on plant, machinery and industrial buildings. According to Folorunsho, faster recovery of capital costs could ease early-stage cash flow pressures, a recurring challenge for manufacturers operating in Nigeria’s high-cost environment.
Innovation is another area targeted by the reform. The Act allows manufacturers to deduct up to five per cent of turnover from taxable profits for qualifying research and development spending.
Pedabo said this could encourage companies to invest more deliberately in product innovation and process efficiency rather than relying on imported technology.
On the consumption tax side, the law retains the Value Added Tax rate at 7.5 per cent but introduces clearer exemptions for certain locally produced goods, including agricultural products, medical supplies and educational materials.
It also clarifies input VAT credit rules, a move Pedabo said could reduce compliance disputes and limit tax leakages along manufacturing supply chains.
Additional reliefs apply to manufacturers involved in agriculture and agro-processing.
These include income tax holidays of up to five years, zero-rated VAT on key inputs such as animal feeds and fertilisers, and duty exemptions on imported agricultural machinery.
Pedabo said the combined effect of these measures could lower production costs, improve margins and strengthen the competitiveness of Nigerian manufacturers against imported alternatives.
However, the firm warned that the benefits will not be automatic. Folorunsho said effective implementation will depend on the capacity of tax authorities to process incentive claims efficiently and apply the law consistently.
He also stressed the need for manufacturers—particularly small and medium-sized enterprises—to actively engage with the new framework to avoid compliance gaps or lost opportunities.
The firm added that tax reform alone cannot offset persistent structural constraints such as power shortages, logistics inefficiencies and limited access to long-term finance.
Still, Pedabo said the Nigeria Tax Act 2025 sets a new direction for fiscal policy and industrial growth.
For manufacturers, the challenge now is to translate the law’s provisions into practical business advantages while navigating the risks that come with transition.
