Nigeria’s long-anticipated tax reform may redefine how manufacturers operate, invest, and plan for growth, but its success will hinge on execution, professional services firm Kreston Pedabo has said.

In an assessment of the Nigeria Tax Act 2025, Pedabo said the law signals a clear 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.

According to the firm, the new Act moves Nigeria away from a fragmented tax regime by merging multiple tax statutes into a single framework. While this consolidation is expected to reduce uncertainty and compliance burdens, Pedabo warned that weak administration or uneven application of the law could undermine the intended benefits.

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 access longer incentive periods, while some manufacturing-related transactions are exempt from stamp duties.

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

Beyond incentives, the Act revises capital allowance rules, providing clearer guidance on how manufacturers can claim deductions on plant, machinery, and industrial buildings. Folorunsho said this could ease pressure on cash flow by allowing businesses to recover capital costs more quickly during the early stages of operation or expansion.

The Act also 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 due to funding constraints.

Changes to Value Added Tax administration also form a key 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 the agriculture and agro-processing value chain stand to gain further advantages. These include income tax exemptions for the first five years of operation, zero-rated VAT on selected inputs such as animal feeds and fertilisers, 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, improving the competitiveness of locally made goods.

However, the firm cautioned that the reforms will test the capacity of tax authorities and the readiness of businesses to adapt. Folorunsho said effective administration, strong oversight, and widespread taxpayer education—especially for small and medium-sized manufacturers—will be critical to preventing abuse and ensuring fair access to incentives.

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

“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.”