The Federal Inland Revenue Service (FIRS) has clarified that though exempt from taxes from 2026, small businesses will still go through the full tax computation process from 2026.
FIRS deputy director, Kehinde Kajesomo, who disclosed this while speaking in a webinar, said the revenue service will calculate such businesses’ assessable profits, deduct capital allowances and losses, and arrive at total profits before applying the zero-tax rate.
He said: “But what it means is that they will undergo the process of computing their taxable profits, and they will file these returns with the tax authority. That’s what it means. They will do every other thing, compute their taxes, but the tax they will pay will be zero, meaning that they will not pay tax.”
He further explained that for other companies, their rate of tax will be 30 per cent, but the president may reduce it to 25 per cent, subject to advice from the national economic council (NEC).
Kajesomo stated: “If that happens, a relevant order will be published in the official gazette of the federal government. Then, the turnover that defines who is a small company, has been increased from N25 million to N50 million, but coupled with fixed assets of N250 million.
“Any company that meets that threshold, its tax rate is 0 percent, including tax on their capital gains. They paid capital gains tax of 10 percent before, but now, as long as they are small companies, they will pay no income tax, which will include the fact that they will not be having tax on their gains, or disposal of assets.”
Kajesomo said the capital gains tax rate was not increased from 10 per cent to 30 per cent, and no specific rate is mandated by law for capital gains.
He said, instead, tax treatment depends on company size, as small companies’ gains are effectively taxed at 0 per cent — down from 10 per cent, while gains for larger companies are subject to their general corporate income tax rate of 30 per cent.
“In actual fact, they may not pay 30 percent, because what it means is that for some companies that are loss-making, because the law allows you to put all your income in one basket, it means you can deduct losses of one item from the profit from another item,” he said.
“Meaning that if you make gains in respect of your disposable asset, or you make losses in respect of your business income, by the time you mix this loss and gain together, the possibility is that you may be paying tax on your gains.”
Kajesomo further clarified that under the revised tax act, higher rates apply only to the portion of income that falls into each band, not the entire taxable income.
He said this means individuals who enter the top band will pay 25 percent only on the extra amount above the threshold, not on their full earnings.
“So, if I’m an individual, and let’s assume my taxable income is N51 million, is that N51 million going to be subject to 25 per cent? No,” he explained.
“Out of that, my N51 million, the first N800,000 will be at 0%. The next 2.2 million will be at 15 per cent, and so on and so forth. That means if my total taxable income is N51 million, I will actually pay 25 percent on just the 1 million that is above N50 million.
“We have some exemptions. For individuals earning national minimum wage, they are exempt from tax. Then for military officers, which we call other ranks, their salaries are exempt from tax,” he added.
The deputy director added: “Then for those under diplomatic immunities, or when Nigeria has an agreement that exempts them from taxation, they will be exempt from income tax.”
