A Report On The Implications Of The 2025 Nigerian Tax Regime For Charitable Organizations

By Ikpeba, Best Woudatiemona LL.B (Hons.).

Executive Summary

The comprehensive overhaul of the Nigerian fiscal landscape, culminating in the enactment of the 2025 tax laws, represents a fundamental restructuring of the nation’s tax system. For charitable and non-profit organizations, this new regime introduces a significant paradigm shift. While the core principle of income tax exemption for purely charitable activities is preserved, the era of passive exemption has ended, replaced by a new standard of active and mandatory compliance.

This report provides a detailed analysis of the implications of the Nigeria Tax Act (NTA) 2025 and the Nigeria Tax Administration Act (NTAA) 2025 for the non-profit sector. Key findings indicate that all charitable organizations are now required to register for tax purposes, obtain a Taxpayer Identification (Tax ID), and file annual self-assessment returns, regardless of their tax liability. Furthermore, they must rigorously comply with all employer obligations, including the deduction and remittance of Pay-As-You-Earn (PAYE) taxes for their staff.

A critical area of concern arises from the introduction of a new 4% Development Levy. The legislation, as currently drafted, contains a significant ambiguity regarding its applicability to charitable organizations of Companies Limited by guarantee and not that of Trust, creating a potential and substantial financial liability that requires urgent clarification from fiscal authorities. The report also examines the updated rules for Capital Gains Tax, Value Added Tax, and the tax deductibility of corporate donations, all of which have strategic implications for the financial management and fundraising activities of charities.

Ultimately, the 2025 tax regime demands a higher degree of financial sophistication and administrative diligence from charitable organizations. This report concludes with actionable recommendations to help the sector navigate these new complexities, mitigate risks, and ensure continued compliance in this transformed regulatory environment.

Introduction to the New Tax Landscape

Overview of the 2025 Tax Reforms

The year 2025 marks a watershed moment for Nigeria’s fiscal policy with the enactment of a suite of new tax laws designed to consolidate, simplify, and modernize the country’s tax framework. The reform repeals numerous existing tax statutes and merges their provisions into a more cohesive legislative structure, principally comprising the Nigeria Tax Act (NTA) 2025 and the Nigeria Tax Administration Act (NTAA) 2025.^[1] This consolidation is a deliberate move away from a fragmented and often contradictory collection of laws towards a unified system.

Accompanying this legislative overhaul is a significant institutional restructuring. The reform establishes the Nigeria Revenue Service (NRS) as the new federal tax authority, repealing the Federal Inland Revenue Service (Establishment) Act, 2007.² It also creates the Joint Revenue Board (JRB)^[2] to harmonize revenue administration across all tiers of government and, notably, establishes the Office of the Tax Ombud as an independent body for dispute resolution.⁴ This comprehensive restructuring signals a fundamental shift in Nigeria’s approach to fiscal governance, impacting every sector of the economy.

Stated Objectives of the Reform

The overarching objective of the reform is to streamline Nigeria’s tax system to enhance revenue generation, simplify compliance procedures, and address regional disparities in tax administration.⁵ A key focus is the elimination of “nuisance taxes” those that yield minimal revenue while being costly to administer and disproportionately affecting small entities. The new framework aims to shift focus towards high-yielding, broad-based taxes that are easier to collect and to merge levies imposed on similar tax bases to reduce inefficiency. By institutionalizing these harmonization efforts, the reform seeks to create a more transparent, efficient, and sustainable tax structure for the nation.

Specific Relevance to the Non-Profit Sector

For charitable and non-profit organizations, this new tax regime is particularly transformative. It introduces a central tension that will redefine their operational and administrative posture. On one hand, the core tax-exempt status for income derived from purely charitable activities has been carefully preserved within the new NTA 2025.^[3] On the other hand, the NTAA 2025 imposes a set of universal administrative and compliance obligations that now fully extend to the non-profit sector.^[4]

This creates a paradigm shift from a state of passive exemption, where many charities had minimal interaction with tax authorities, to a new reality of active compliance. Organizations are no longer outside the tax system; they are now fully integrated participants who happen to enjoy specific, conditional exemptions on their income. They must register, file returns, and comply with all statutory obligations like any commercial entity, fundamentally altering the administrative, financial, and legal diligence required to operate a charity in Nigeria.

In this regard, there is need to highlight and demonstrate that trust which is the vehicle of many charitable organizations are taxable persons. The applicability to a trust as to their tax liability is established through the definition of a “taxable person” in both the Nigeria Tax Act (NTA) 2025 and the NTAA 2025. Section 202 of the NTA 2025 and Section 147 of the NTAA 2025 define a “taxable person” to include a “company, individual or body of individuals, family, community, corporations sole, trustee, executor or any other legal arrangement…”

The Core Tax Status of Charitable Organizations under the NTA 2025

Preservation and Conditions of Income Tax Exemption

The cornerstone of a charitable organization’s tax status is found in the Nigeria Tax Act 2025, which continues to recognize the sector’s vital role by granting a specific exemption from income tax. Section 163(1)(a)(iii) of the Act exempts the “profits or gains of any person… engaged in… charitable activities of a public character”. However, this exemption is not absolute and is contingent upon a critical condition that introduces a new layer of scrutiny for non-profits.

The exemption applies only if the profits or gains are not derived from a trade or business carried on by the organization be it formal or informal. This proviso effectively mandates that charitable organizations must meticulously segregate their income streams. Funds received from donations, grants, and other purely philanthropic sources remain exempt. In contrast, any income generated from activities that could be construed as commercial or economical – such as renting out property at market rates, selling merchandise, or providing services for a fee – may be classified as income from a “trade or business” and thus become subject to income tax.

The mandatory annual filing of returns,^[5] which requires a detailed breakdown of income sources, provides the Nigeria Revenue Service (NRS) with unprecedented visibility into the financial activities of charities. This transparency, combined with the “trade or business” clause, establishes a clear basis for the NRS to conduct audits and potentially challenge the tax-exempt status of specific revenue streams. This elevates the distinction between charitable and commercial activities from a theoretical concept to the primary determinant of tax liability and a significant area of audit risk. Consequently, charities must now maintain a more sophisticated accounting systems capable of clearly delineating these income sources and be prepared to legally defend the non-commercial nature of their activities.

Capital Gains Tax (CGT) Treatment

In respect to Capital Gains Tax, the new tax regime extends a similar conditional exemption to charitable organizations with respect to Capital Gains Tax (CGT). Under the NTA 2025, gains from the disposal of chargeable assets are now consolidated under the general income tax framework. Section 55^[6] of the Act specifically addresses assets held in trust for charities, stating that any gain from the disposal of such property is not a chargeable gain subject to tax.

This CGT exemption, however, is subject to two important conditions mirroring those for income tax:

1. The gain must not be derived from the disposal of an asset that was acquired in connection with any trade or business carried on by the charity.^[7]
2. The gain must be applied solely for the purposes of the charitable institution^[8]

A significant risk is introduced in Section 55(2),¹² which stipulates the consequences if a property ceases to be held in such a trust. In such a scenario, the trustees are legally treated as if they had disposed of the property and immediately re-acquired it for a consideration equal to its market value. Any gain arising from this “deemed disposal” is treated as having accrued to the trustees personally and becomes a chargeable gain for which they are liable to pay tax. This provision acts as a safeguard against the misuse of charitable trusts and poses a critical consideration for organizations planning to restructure their assets or alter the use of properties previously dedicated to charitable purposes.

New Fiscal Obligations and Potential Liabilities

The Development Levy: A Critical Ambiguity

One of the most significant changes introduced by the NTA 2025 is the consolidation of several pre-existing levies, such as the Tertiary Education Tax and the National Information Technology Development Agency (NITDA) Levy, into a single “Development Levy”. Section 59 of the NTA 2025 imposes this levy at a rate of 4% on the “assessable profits of all companies chargeable to tax under Chapters Two and Three of this Act, other than small companies and non-resident companies”.

While intended to simplify taxation for commercial entities, this consolidation has created a critical and potentially costly ambiguity for the non-profit sector. The law does not provide an explicit exemption for charitable organizations – in this instance, companies limited by guarantee. The applicability of the levy hinges on the interpretation of the phrase “companies chargeable to tax.” A charitable organization whose income is entirely from non-commercial, charitable activities would not have taxable profits and could argue it is not “chargeable to tax.” Put differently, charitable organizations (companies limited by guarantee) whose income comes entirely from non-economic, philanthropic activities is exempt from income tax under Section 163 of the NTA 2025. Such an organization could argue that since it has no taxable profits, it is not a “company chargeable to tax,” and therefore the Development Levy does not apply.

However, a charity that generates even a nominal amount of income from a “trade or business” becomes, by definition, a company chargeable to tax on that specific portion of its income. The legislative language in Section 59 does not clarify whether the 4% levy would then apply only to the taxable business profits or to the organization’s entire “assessable profits,” which could include its otherwise tax-exempt charitable funds. A literal interpretation presents a severe financial risk. This ambiguity represents a potential unintended consequence of the legislative drafting, where the unique dual-income nature of some charities was not explicitly addressed, leaving the sector exposed to a new and substantial potential liability that requires urgent clarification from the fiscal authorities.

Furthermore, in respect to charitable organizations that are companies limited by guarantee tax obligations as it concerns the Development Levy, it can be argued that the business or trade for the purpose of tax should be distinct from the charitable organization. In other words, the business should be treated as a company of its own in other to enjoy all the tax exemption benefits that accrues to a company, which include the exemption of small companies to pay tax where their gross turnover do not exceed fifty million naira (N50,000,000) or less with total fixed assets not exceeding two hundred and fifty million naira (N250,000,000).

Value Added Tax (VAT) Considerations

Charitable organizations must now also navigate their obligations under the new VAT regime, which remains at a rate of 7.5%. While the core operations of many charities may fall outside the scope of VAT, they are not automatically exempt from all VAT-related duties. The key determinant is whether the organization is involved in the provision of “taxable supplies” of goods and services.

The NTA 2025, in Sections 186 and 187, provides a list of exempt and zero-rated supplies. Many items relevant to the non-profit sector, such as basic food items, educational books and materials, and medical services, are either exempt or zero-rated, meaning no VAT is charged to the final consumer. However, charities must carefully review all their activities. For instance, selling tickets to a fundraising dinner, offering consultancy services for a fee, or selling branded merchandise could be considered taxable supplies. If an organization provides such supplies, it would be required to register for VAT, issue VAT invoices, collect the tax, and remit it to the NRS, further reinforcing the new imperative for active compliance.

Impact on Funding and Donor Relations

Corporate Donations and Tax Deductibility

The NTA 2025 directly influences the funding landscape for charitable organizations by setting clear rules for the tax treatment of corporate donations. Section 164^[9] of the Act allows companies to claim a tax deduction for donations made to eligible charitable bodies, thereby incentivizing corporate philanthropy.

The framework for deductibility is governed by several key provisions:

• Eligible Recipients: To be deductible for the donor, a donation must be made to a recognized fund, body, or institution in Nigeria. This includes public funds, statutory bodies, and institutions established for religious, charitable, educational, or scientific purposes.¹⁴
• The 10% Cap: The total amount a company can deduct for donations in any year of assessment is capped at 10% of its total profit before tax for that year.^[10] This cap is a crucial

strategic consideration for charities soliciting large donations from corporate partners, as any amount exceeding this threshold will not provide an additional tax benefit to the donor.

• Proof of Donation: The donating company is required to provide the relevant tax authority with documentary evidence of the donation to substantiate its claim for deduction.
• Donations in Kind: For non-cash donations, the deductible value is determined as the lower of the asset’s market value at the time of donation or its original acquisition cost.

These provisions affirm the government’s policy of encouraging private sector support for charitable causes, in turn, promote corporate social responsibilities. However, the 10% cap requires charities to be strategic in their fundraising efforts, potentially structuring very large contributions over multiple years or through different mechanisms to maximize the tax benefit for their corporate supporters.

Administrative and Compliance Imperatives under the NTAA 2025

The Nigeria Tax Administration Act (NTAA) 2025 codifies a new set of administrative duties that apply universally to all registered entities, including charitable organizations. This marks the most significant operational change for the sector, shifting the focus from mere tax exemption to mandatory, proactive compliance with procedural requirements.

Mandatory Registration and Taxpayer Identification

The foundational step for all organizations under the new regime is registration. Section 4 of the NTAA 2025 mandates that every “taxable person” must register with the relevant tax authority and obtain a Taxpayer Identification (Tax ID). The definition of a “taxable person” in the NTA 2025 is broad enough to encompass charitable organizations as entities that carry on economic activities, even if not for profit.³ This requirement formally integrates every charity into the national taxpayer database, making them visible and accountable to the tax authorities.

The Obligation to File Annual Returns

Perhaps the most impactful new requirement is the universal obligation to file annual tax returns. Section 11 of the NTAA 2025 is unequivocal, stating that every company must, with or without notice from the Service, file a self-assessment return at least once a year, “whether or not it is liable to pay tax under Nigeria Tax Act, 2025”.^[11] This provision legally separates the obligation to file from the liability to pay, making the filing process non-negotiable for all charities. At this point, it must be stated that this provision only applies to charitable organizations which are

Companies Limited by Guarantee and do not apply to Charitable Trust.

The return must be submitted within six months of the organization’s financial year-end and must include audited financial statements (or, for smaller entities, a statement of accounts attested to by the taxpayer), a tax computation schedule, and a completed self-assessment form. This necessitates a professional standard of accounting, record-keeping, and financial reporting that may represent a new and significant administrative burden for many organizations in the sector.

Employer Obligations: PAYE and Other Deductions

The NTAA 2025 reinforces that a charity’s tax-exempt status does not extend to its employees. As employers, charitable organizations have strict obligations to deduct and remit taxes on behalf of their staff.

• Pay-As-You-Earn (PAYE): Under Section 51 of the NTAA 2025, every employer must deduct the correct amount of income tax from the emoluments paid to its employees and remit it to the relevant tax authority.
• Annual PAYE Returns: Section 14 of the NTAA 2025 further requires every employer to file a return by January 31st of each year, providing a schedule of all emoluments paid and taxes deducted for every employee in the preceding year.

Failure to comply with these employer obligations carries significant penalties, including a penalty of 40% of the tax not deducted and interest on unremitted sums.^[12] This underscores the critical importance of maintaining a robust payroll system.

The following table provides a summary of the key compliance obligations for charitable organizations under the 2025 tax regime.

Dispute Resolution and Enforcement

Navigating the New Administrative Framework

The administration and enforcement of the new tax laws will be carried out by the newly established institutional bodies. The Nigeria Revenue Service (NRS) is now the primary federal tax authority responsible for assessing and collecting taxes from companies, including incorporated trustees. The Joint Revenue Board (JRB) is tasked with harmonizing tax administration and resolving disputes between different tax authorities across the federation. Charitable organizations must now direct their compliance activities and communications towards these new bodies.

New Avenues for Redress: The Tax Ombud

A significant and positive development for the non-profit sector is the establishment of the Office of the Tax Ombud under Part VI of the Joint Revenue Board (Establishment) Act, 2025. This office is designed to serve as an “independent and impartial arbiter to review and resolve complaints relating to tax”.

Crucially, the Tax Ombud is mandated to resolve disputes through “informal, fair and costeffective procedures” and will not charge a fee for its services. This provides an accessible and affordable avenue for redress for charitable organizations, which may lack the financial resources to engage in prolonged disputes through the formal Tax Appeal Tribunal or the courts. The creation of this office acknowledges the need for alternative dispute resolution mechanisms and could prove to be an invaluable resource for the sector in navigating disagreements with tax authorities over issues like the interpretation of “trade or business” income or the application of new levies.

Strategic Recommendations and Conclusion

Immediate Action Points for Charitable Organizations

To effectively navigate the new tax regime, charitable organizations should take the following immediate steps:

1. Conduct an Immediate Legal and Financial Review: Engage legal and accounting professionals to conduct a thorough audit of all income-generating activities. This review must classify each income stream as either purely charitable (and thus tax-exempt) or as a potential “trade or business” (and thus taxable).
2. Ensure Tax Registration: Immediately verify existing tax registration status or initiate the process to register with the relevant tax authority to obtain a Taxpayer Identification (Tax ID) as mandated by Section 4 of the NTAA 2025.
3. Strengthen Financial and Administrative Systems: Upgrade internal accounting, recordkeeping, and financial reporting systems to meet the standards required for the annual filing of audited or attested accounts. This is essential for compliance with Section 11 of the NTAA 2025.
4. Review and Formalize PAYE Compliance: Conduct a comprehensive audit of current payroll processes to ensure full compliance with the deduction, remittance, and annual reporting requirements for Pay-As-You-Earn (PAYE) tax for all employees.
5. Budget for Potential Liabilities: Given the ambiguity surrounding the 4% Development Levy, it is prudent for organizations with any form of business income to create a financial provision or contingency fund for this potential liability until official clarification is provided.

Recommendations for Policy Clarification

The most pressing issue facing the non-profit sector is the uncertainty regarding the Development Levy. It is strongly recommended that the sector, through its representative bodies and associations, formally engages with the Honourable Minister of Finance and the leadership of the Nigeria Revenue Service. The objective of this engagement should be to advocate for the issuance of an official circular or regulation that explicitly clarifies the application of the Development Levy under Section 59 of the NTA 2025. Specifically, clarification is needed to confirm that the levy does not apply to the income of charitable organizations incorporated as companies limited by guarantees that is otherwise exempt from income tax under Section 163 of the NTA 2025.

Conclusion

The 2025 Nigerian tax reforms present a dual reality for charitable organizations. The government has reaffirmed its support for their public-service mission by preserving the fundamental exemptions from income and capital gains taxes for their core charitable work. However, in exchange for these privileges, the new regime demands a significantly higher standard of transparency, accountability, and administrative diligence. The mandatory requirements for registration, annual filing, and stringent compliance with employer obligations signal a clear policy shift: charitable organizations are no longer outside the formal tax system but are now an integral part of it. This new landscape is not a threat to their existence but a call for greater professionalization and a proactive approach to compliance. Navigating this new era will require strategic planning, investment in professional capacity, and a vigilant approach to regulatory changes.

[1] Nigeria Tax Act, 2025 and Nigeria Tax Administration Law 2025; Stephen Angbulu, ‘Tinubu Signs Tax Reform Bills Into Law’ (26^th June 2025) Punchnewspaper <https://punchng.com/breaking–tinubu–signstax–reform–bills–into–law/> accessed 23 September 2025 ² Nigeria Revenue Service (Establishment) Act, 2025 pt II

[2] Joint Revenue Board of Nigeria (Establishment) Act, 2025, pt II ⁴ Ibid, pt VI ⁵ NRSA 2025, s4

[3] Nigeria Tax Act 2025, s 163(1)(a)(iii)

[4] Nigeria Tax Administration Act 2025, ss4, 11, 14 & 51

[5] Ibid, s13(1);

[6] NTA 2025

[7] NTA 2025, s55(1)(d)

[8] Ibid  ¹² NTA 2025

[9] NTA 2025 ¹⁴ NTA 2025, s164(3)

[10] NTA 2025, s164(5).

[11] NTAA 2025, s11

[12] NTAA 2025, ss105, 107

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