Nigeria Tax Act 2025: Section 155 Unlocks Full Input VAT Recovery, Reshaping Business Costs
For years, Nigerian businesses grappled with a significant, often unacknowledged, tax burden under the former Value Added Tax (VAT) regime. Essential operational expenditures, from capital equipment purchases to vital services, were subject to VAT that could not be reclaimed, effectively penalising investment and inflating operational costs. This inequitable system, which treated crucial business inputs as non-deductible expenses, has now been fundamentally reformed by Section 155 of the Nigeria Tax Act (NTA), 2025.
As reported on October 19, 2026, the NTA ushers in a modernised approach to input VAT recovery, aligning Nigeria with international best practices and offering much-needed fiscal relief to businesses. The previous Value Added Tax Act, specifically Section 17, imposed stringent limitations on input VAT deductibility. Businesses could only recover VAT paid on goods acquired directly for resale or on raw materials used in manufacturing. All other VAT expenditures, including those on legal fees, IT services, marketing, logistics, and utilities, were deemed non-recoverable, forcing businesses to absorb these costs or pass them on to consumers through higher prices. This not only eroded profit margins but also discouraged investment in essential services and capital assets.
Section 155 of the NTA represents a paradigm shift. It empowers registered businesses to deduct input VAT incurred on *any* taxable supply, crucially including services and fixed capital assets, from their output VAT liabilities. The core principle is straightforward: if input VAT was incurred for the purpose of consumption, use, or supply in making taxable business sales, it is now recoverable. This broadens the scope of deductible input VAT significantly, encompassing expenditures on legal consulting, IT infrastructure, marketing, factory machinery, and office buildings.
To ensure compliance and prevent abuse, Section 155 establishes six key provisions. These include universal eligibility across services and fixed assets, a direct business consumption test to distinguish between business and personal expenses, proportional deduction for businesses with mixed taxable and exempt supplies, and a five-year expiration period for claiming input VAT deductions. Furthermore, the Act stipulates a strict forward-looking commencement rule, meaning recovery applies only to supplies made from the NTA’s effective date, and deductions are to be made in the tax period in which the taxable supply occurred, allowing for immediate offsetting of capital investment VAT against output VAT.
This reform has profound implications for Nigeria’s business landscape. Capital upgrades and investments in professional services become effectively cheaper, as the embedded VAT is no longer a sunk cost. For finance leaders and compliance officers, the mandate is clear: rigorous record-keeping and strict adherence to VAT invoicing requirements are paramount to fully leverage these new deductions. The NTA 2025, through Section 155, transforms input VAT from a punitive tax on business operations into a mechanism that supports economic growth and operational efficiency.
