Tax reform boosts manufacturers through incentives in Nigeria Tax Act 2025, but Pedabo warns poor execution could weaken its impact

Nigeria’s long-anticipated tax reform may redefine how manufacturers operate, invest and plan for growth, but weak execution could undermine the potential gains, professional services firm Kreston Pedabo has warned.

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The firm made the assessment while reviewing the Nigeria Tax Act 2025, saying the legislation marks a decisive policy shift towards a more coordinated and incentive-driven fiscal environment, particularly for the manufacturing sector which has struggled for years under regulatory complexity, high production costs and weak infrastructure.

Kreston Pedabo said the new law moves Nigeria away from a fragmented tax regime by consolidating multiple tax statutes into a single framework, a change expected to reduce uncertainty and compliance burdens for businesses.

However, the firm cautioned that uneven application of the law or weak administrative capacity could blunt the intended benefits and create new distortions across the sector.

Partner, Tax Services at Kreston Pedabo Professional Services, Kehinde Folorunsho, said the reform creates clear opportunities for manufacturers willing to invest, but stressed that policy design alone will not guarantee positive outcomes.

At the centre of the reform are newly introduced Economic Development Tax Incentives targeting priority sectors such as manufacturing.

Under the scheme, eligible companies can obtain an Economic Development Incentive Certificate granting a five per cent annual tax credit on qualifying capital expenditure for up to five years.

Firms that reinvest profits may qualify for longer incentive periods, while some manufacturing-related transactions are exempt from stamp duties.

Pedabo said the incentives are intended to tilt investment decisions towards local production and industrial expansion at a time when manufacturers are under pressure from rising import costs and foreign exchange volatility.

The Act also revises capital allowance rules, providing clearer guidance on how manufacturers can claim deductions on plant, machinery and industrial buildings.

Folorunsho said the changes could ease cash flow pressures by allowing businesses to recover capital costs more quickly during the early stages of operation or expansion.

The law further introduces research and development deductions, permitting manufacturers to deduct up to five per cent of turnover from taxable profits where spending is linked to innovation.

Pedabo said this provision could encourage product development and technology upgrades, areas where many local manufacturers have historically lagged because of funding constraints.

Changes to Value Added Tax administration also form a central part of the reform.

The Act retains the VAT rate at 7.5 per cent but exempts certain locally produced goods, including agricultural products, medical supplies and educational materials.

Clearer rules on input VAT credits are expected to reduce disputes and prevent the accumulation of unrecoverable taxes on raw materials and capital equipment.

Manufacturers operating within agriculture and agro-processing stand to benefit further from income tax exemptions for the first five years of operation, zero-rated VAT on selected inputs such as fertilisers and animal feeds, and duty-free importation of machinery for agricultural production.

Pedabo said, taken together, the measures could strengthen margins and free up resources for expansion, workforce development and technology investment, delivering a powerful boost to the competitiveness of locally produced goods.

However, the firm warned that the reforms will test the capacity of tax authorities and the readiness of businesses to adapt.

Folorunsho said effective administration, strong oversight and broad taxpayer education, particularly for small and medium-sized manufacturers, will be essential to prevent abuse and ensure fair access to incentives.

He added that while the reform marks a positive shift in fiscal policy, it cannot by itself resolve deeper structural constraints such as unreliable power supply, poor transport networks and limited access to finance.

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“Tax reform is an important foundation,” Folorunsho said, “but it must be supported by broader industrial and infrastructure policies for manufacturers to see lasting gains.”