Nigeria’s new tax laws are giving businesses a broader avenue to recover Value Added Tax (VAT) paid on their operating costs, a change that could reduce tax costs for companies.
The changes expand the categories of expenses eligible for VAT recovery and clarify documentation requirements, allowing manufacturers, service providers and traders to claim back more of the VAT paid on purchases.
The revision addresses long-standing complaints that strict rules had limited refunds and left businesses with unrecoverable costs.
Oladele Odugbemi, a finance and accounting professional, said these restrictions had contributed to “low input VAT recovery, particularly on services and capital expenditure” before the 2025 reforms broadened the mechanism.
The reforms therefore change the question for businesses from simply how much VAT they owe to how much VAT they can legitimately recover, he added.
PwC Nigeria stated in a report titled, ‘The Nigerian Tax Reform Acts,’ that the new framework allows companies to claim input VAT on purchases, including services and fixed assets, where the costs are directly related to VATable supplies.
The report also noted that businesses selling newly zero-rated essential goods and services can recover VAT costs that previously could not be recovered.
This means a business that pays VAT on qualifying inputs but collects less VAT on its own sales in a particular period may no longer have to treat the difference entirely as a loss. Instead, the excess can become a tax credit that reduces future VAT obligations or, if unused, be recovered from the tax authority.
For companies, the distinction matters because a tax credit is not immediately equivalent to cash in the bank.
The reform comes as VAT has become an increasingly important source of government revenue.
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Nigeria generated N8.59 trillion in VAT in 2025, an increase of 28 percent from N6.72 trillion in 2024, according to figures from the Nigeria Revenue Service (NRS). In the first quarter of 2026, Nigeria recorded N2.42 trillion of Value Added Tax (VAT), a 17.06 percent increase compared to Q1 2025.
Abayomi Fashina, a senior tax consultant, told BusinessDay that allowing companies to recover VAT could reduce their operating costs and limit the need to pass those costs to consumers. “When companies can recover VAT, they don’t need to pass those costs onto consumers,” he said.
The new rules also introduce a clearer timeline for businesses seeking cash refunds.
“This reform presents a significant opportunity for service-oriented organisations to enhance tax efficiency and strengthen working capital,” said Ibrahim Olasunkanmi, a finance expert.
Taiwo Oyedele, minister of Finance and co-ordinating Minister of the Economy, said businesses that previously could not claim input VAT would become eligible under the new framework.
“The new law from January next year, you become eligible to claim input credit, like you get money in your bank account,” Oyedele said while explaining the reforms to businesses.
He said businesses would need to understand the new rules, keep proper records and file their claims to benefit from the provision.
Under the Nigeria Tax Administration Act 2025, a taxpayer who qualifies for a VAT refund must submit a request within 12 months of the transaction giving rise to the refund. The NRS is required to refund a valid claim within 30 days or allow the amount to be set off against another tax liability.
This could become increasingly important as the amount of VAT businesses can potentially recover grows.
But taking advantage of the new system will depend heavily on documentation. PwC said businesses will need to update their systems and compliance processes to support input VAT claims, while the new framework also introduces VAT fiscalisation and electronic invoicing requirements.
For businesses, the benefit could ultimately be reflected in lower tax costs and improved cash flow. For the NRS, however, broader input VAT recovery also entails greater responsibility for validating claims and processing refunds efficiently.
As VAT collections continue to grow, the effectiveness of the reform may be judged not only by how much revenue the government collects, but also by how efficiently businesses recover the VAT they are legally entitled to claim.
