New Tax Reforms Exempt Food, Education, Agriculture — FIRS

The Federal Inland Revenue Service (FIRS) has unveiled sweeping changes in Nigeria’s tax framework as part of the newly enacted tax reform laws. In a move aimed at easing the burden on citizens and promoting inclusive growth, FIRS confirmed that food, education, and agricultural sectors will be exempt from value-added tax (VAT). The announcement was made amidst debates about how to stimulate economic activity while preserving government revenues.

Under the new regime, essential goods and services—particularly those tied to sustenance, learning, and farming—will no longer attract VAT charges. The shift signals a major policy reorientation: the government appears willing to cede some tax revenue in favor of social protection and long-term productivity. In practice, items such as basic agricultural produce, tuition fees, textbooks, and related educational materials will be removed from the tax burden, enabling lower costs for consumers and institutions in those sectors.

This reform comes as part of a broader legislative overhaul. Earlier in 2025, the President assented to four critical tax reform bills: the Nigeria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board Act. These Acts collectively abolish overlapping statutes, consolidate tax rules, and aim to modernize tax administration across the federation. One central objective is simplification and fairness in tax policy, with the VAT exemptions forming a key part of that agenda.

Officials say the shift from conventional VAT to sector-specific exemptions was designed not only to protect vulnerable populations but also to encourage investment and formalization in agriculture and education. By reducing input costs for farmers and academic institutions, revenue pressures may ease and growth spurts could follow in those areas. The expectation is that the reform will forestall regression of these sectors, and make them more resilient in the face of inflation and foreign exchange volatility.

Yet, the new structure doesn’t abandon VAT altogether. The reformed tax laws also introduce a zero-rating system for previously exempt items. This means that while end users will not pay VAT on those goods, suppliers may now be entitled to input VAT refunds—an important shift that can improve liquidity for businesses that deal in basic foodstuffs or educational commodities. This combination of exemptions and zero-rating attempts to maintain the integrity of the VAT system, reduce distortions, and curb undue cost passes onto consumers.

Complementing the sectoral exemptions is an overhaul of thresholds and exemptions elsewhere in the tax code. Under the Nigeria Tax Act, small businesses with turnover below a specified threshold will now be exempt from company income tax, and individuals with low incomes will be shielded through adjusted personal income tax bands. The reform also sets in motion new institutional and administrative changes: the FIRS is being replaced by the Nigeria Revenue Service (NRS), which will operate with an expanded mandate across federal, state, and local levels. The Joint Revenue Board will coordinate revenue policy across tiers of government, and a tax ombudsman office will be established to ensure taxpayer rights and dispute resolution.

Despite the ambitious scope, analysts caution that the revenue cost of these exemptions must be monitored carefully. Nigeria already operates with a relatively low tax-to-GDP ratio, and widening tax reliefs could narrow the base further if not balanced by improved compliance, broader tax modernization, or new revenue instruments. Some critics argue that unless efficiency in tax collection and enforcement is significantly strengthened, the reform might exacerbate fiscal shortfalls.

The success of the VAT exemption depends heavily on execution. Implementing zero-rating refunds for suppliers will require robust administrative and audit capacity, to prevent fraudulent claims. Also, states will have to adapt: since VAT revenues are commonly shared across subnational levels, adjustments will need to be made in intergovernmental revenue allocation formulas to compensate for lost VAT inflows. The new law embeds such adjustments, but operationalizing them will require clarity, cooperation, and political will.

Stakeholders in agriculture and education have reacted positively, describing the exemptions as long-overdue relief. Many seen rising costs pushing small farmers and private schools to the brink. These sectors often struggle with thin margins and volatile input costs; lowering tax burdens could free up resources for expansion, better inputs, and innovation. In rural communities, cheaper agricultural supplies might also improve food security indirectly by reducing production costs.

Still, observers stress that tax relief alone is insufficient. Complementary reforms in infrastructure, power, access to credit, land tenure, and institutional support will be needed to unlock the true potential of agriculture and education. Moreover, the government must avoid creating new loopholes or creating complexity that undermines the gains of simplification.

As the January 2026 effective date of the reforms draws nearer, the focus shifts to implementation. The new NRS, Joint Revenue Board, and state revenue agencies must coordinate closely to ensure smooth rollout, equitable revenue sharing, and transparency. Taxpayer education will be critical so that businesses and households understand new tax obligations, exemptions, and procedures.

 

In the end, the VAT exemptions for food, education, and agriculture reflect a deliberate policy choice: to lighten the tax burden on essential sectors, protect vulnerable groups, and reposition Nigeria’s economy for more inclusive growth. Whether this bold experiment succeeds will depend on the balance between lost revenue, gains from growth, and the ability of the revenue agencies to enforce compliance elsewhere.