The Nigeria Tax Act 2025, introduced as part of a sweeping fiscal reform agenda to consolidate existing tax laws, broaden the tax base and boost government revenue is being widely acknowledged as a bold and necessary step toward modernising Nigeria’s tax system.
However, stakeholders in the insurance industry have raised serious concerns that several provisions of the Act may significantly strain insurers’ financials, heighten compliance costs and erode profitability, particularly at a time when the sector is grappling with an intensive recapitalisation exercise.
Industry operators argue that while the Act promises clarity and harmonisation, its timing and cumulative fiscal impact could place insurers under multiple layers of taxation, further complicating their ability to meet higher capital requirements and sustain growth.
Sector-Specific Tax Treatment And Section 61
According to Mr. Abayomi Kayode, Chief Finance Officer of Rex Insurance Limited, the new tax framework embeds corporate tax rules for insurance businesses into a consolidated statute, with explicit provisions recognising the unique operational and income structures of general and life insurance companies.
He explained that Section 61 of the Act represents one of the most consequential provisions for the industry, as it clearly defines how insurance businesses are to be taxed. Under this section, insurance companies are explicitly classified as either general insurance or life insurance for tax computation purposes.
For general insurance companies, profits for taxation are to be calculated as if the entire premium income and investment income were derived in Nigeria, regardless of their actual source. In the case of life insurance companies, investment and other income are treated as received in Nigeria, while expenses are deemed to have been incurred domestically.
While these provisions introduce clarity and consistency into profit computation, Kayode noted that they also expose insurers to a potentially broader tax base, particularly where foreign income streams and expense allocations are involved.
Deductibility Of Reserves And Special Provisions
The Act also introduces industry-specific deductions aimed at reflecting the capital-intensive nature of insurance operations. Life insurance companies are permitted to deduct actuarial reserves and special reserve funds—up to one percent of gross premium earned or 10 percent of net profits, whichever is higher— provided these reserves are maintained until statutory paid-up capital requirements are met.
Similarly, reinsurance companies are allowed to deduct a portion of gross profits allocated to general reserve funds, subject to compliance with statutory minimum capital thresholds. These provisions are seen as positive, as they recognise the need for strong balance sheets to cover long-term liabilities and maintain solvency margins.
However, Kayode stressed that while these deductions may help lower taxable income legitimately, they are unlikely to fully offset the broader tax and compliance pressures introduced by the Act.
Broadened Reporting Requirements And Compliance Burden
Another major implication for insurers arises from expanded reporting and compliance obligations under the Nigeria Tax Administration framework. Insurance companies, like banks and other financial institutions, are now required to report significant customer transactions above prescribed thresholds and ensure timely submission of updated taxpayer information.
For many insurers, this translates into heightened compliance pressure, increased administrative workload and the need for substantial investment in digital tax reporting systems. Operators without robust in-house tax and compliance infrastructure may face higher operating costs and exposure to penalties.
Minimum Effective Tax Rate And Development Levy
Kayode identified the introduction of a global minimum effective tax rate of 15 percent as one of the most significant fiscal challenges for larger insurers, particularly those with multinational operations or foreign investment income. The minimum tax and top-up tax rules, aligned with global tax norms, are expected to increase effective tax liabilities for major industry players.
Compounding this challenge is the introduction of a four percent development levy, which industry leaders warn will further erode profitability at a time when insurers are already under pressure to shore up capital and meet stricter regulatory standards.
Interaction With Other Regulatory Reforms
The insurance sector’s concerns are amplified by the fact that the tax reforms are unfolding alongside other major regulatory changes, notably the Nigeria Insurance Industry Reform Act (NIIRA) 2025, which significantly raised minimum capital requirements across the industry.
Stakeholders argue that the combined impact of higher taxes, increased compliance costs and recapitalisation demands could disproportionately affect smaller and mid-tier insurers, potentially accelerating consolidation in the sector.
Industry leaders and shareholders have therefore called on the government to consider transitional measures, including temporary tax reliefs or phased implementation, to allow insurers to adjust to both fiscal and regulatory reforms without undue financial strain.
Opportunities And Strategic Implications
Despite these challenges, Kayode acknowledged that the Nigeria Tax Act 2025 also presents notable opportunities for the insurance sector. Clearer and consolidated tax provisions can improve predictability and long-term planning, while industry-specific deductions help align tax liabilities more closely with economic realities.
In addition, modernised compliance requirements and alignment with global tax standards could enhance the credibility of Nigeria’s insurance industry among foreign investors and international partners.
Nevertheless, he cautioned that insurers will need to strengthen tax planning capabilities, invest in compliance infrastructure and maintain proactive engagement with regulators to navigate the evolving fiscal landscape effectively.
Broader Economic Concerns
Beyond the insurance industry, concerns have also been raised about the wider economic implications of the reforms. Mr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, warned that successful implementation of the tax reforms will depend more on strategic execution than policy intent alone.
Yusuf noted that Nigeria’s fragile economic recovery makes timing critical, stressing that poorly sequenced reforms could undermine business confidence.
He expressed particular concern about the informal sector, which employs millions of Nigerians and operates on thin margins, warning that mandatory filings and penalties could effectively “criminalise informality” if introduced too abruptly.
He recommended a revenue-efficient approach that focuses enforcement on large corporations and high-net-worth individuals, who account for the bulk of tax revenue, while using incentives, education and gradual integration to bring informal businesses into the tax net.
With 2026 shaping up as a pre-election year, Yusuf also cautioned against rushing reforms that could provoke political backlash and further erode public trust in government policies.
Balancing Revenue And Sustainability
Ultimately, while the Nigeria Tax Act 2025 represents a pivotal transformation of the country’s fiscal framework, its impact on the insurance sector will depend on balanced implementation, stakeholder engagement and complementary policy measures.
For insurers, the Act introduces clearer tax treatment and modern compliance standards, but also imposes heavier fiscal and operational demands at a sensitive moment for the industry. Achieving the government’s revenue objectives without undermining sector stability will require careful calibration to ensure that tax reform supports, rather than constrains, sustainable growth in Nigeria’s insurance market.
