Nigeria Abolishes Excess Dividend Tax in Major Fiscal Reform Targeting Tax Loopholes
Story Written by okafor joseph july 23,2025
FG Abolishes Excess Dividend Tax as Part of New Reforms to Close Loopholes
The Federal Government has officially scrapped the controversial Excess Dividend Tax (EDT) as part of sweeping fiscal reforms aimed at closing long-standing tax loopholes and improving the efficiency of Nigeria’s corporate tax system.
The decision, announced by the Federal Inland Revenue Service (FIRS), is part of a broader effort to align Nigeria’s tax laws with global best practices and boost investor confidence.
The Excess Dividend Tax, which previously allowed tax authorities to impose additional taxes on retained earnings not distributed as dividends, had faced sustained criticism from private sector players, particularly holding companies and multinationals.
FIRS Executive Chairman, Zacch Adedeji, said the abolition was long overdue, calling the EDT “a disincentive to business growth and capital accumulation.”
“This reform marks a significant step in eliminating distortions and improving fairness in the tax system. We’re sending a clear message that Nigeria is committed to creating a more business-friendly environment,” Adedeji stated.
Reform Closes Loopholes, Boosts Compliance
Under the new framework, the government also introduced more robust anti-avoidance measures to plug gaps previously exploited by corporations to reduce their tax liabilities. These include enhanced transfer pricing rules, stricter disclosure obligations, and better inter-agency collaboration on tax data sharing.
Tax experts have long argued that the excess dividend provision often led to double taxation and discouraged long-term investments in the country. The repeal is expected to encourage more corporate reinvestment and improve Nigeria’s competitiveness as a regional investment hub.
Private Sector Reacts
The move has been widely welcomed by the private sector and tax professionals.
Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, said the repeal of the EDT demonstrates the government’s willingness to listen to stakeholder concerns and take meaningful action to improve Nigeria’s investment climate.
“This is a positive development that removes a major source of uncertainty for businesses. It aligns with the broader goal of simplifying and modernising Nigeria’s tax laws,” Oyedele said.
Several business groups, including the Manufacturers Association of Nigeria (MAN) and the Nigerian Economic Summit Group (NESG), have commended the move, urging the government to sustain momentum in overhauling the tax framework.
What It Means for Businesses
With the elimination of the excess dividend tax, companies—particularly those with complex ownership structures or those that reinvest earnings—can now retain profits without fear of retrospective tax charges. This is expected to promote capital formation, long-term planning, and overall business stability.
Tax consultants also anticipate improved voluntary compliance and reduced litigation between companies and the tax authorities.
The repeal forms part of the government’s wider 2025 fiscal reform agenda, which includes simplifying tax codes, boosting non-oil revenue, and expanding the tax net without increasing the burden on businesses.
As the government moves to attract more foreign direct investment and improve ease of doing business, the scrapping of the Excess Dividend Tax is seen as a strategic shift towards a more efficient and investor-friendly tax regime in Africa’s largest economy.
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