Automating Tax Processes in Business Central for Nigeria's New Tax Laws: A Guide

Nigeria's tax landscape is undergoing significant reforms aimed at modernizing the system and increasing revenue collection. For businesses operating in Nigeria, remaining compliant with these ever-evolving regulations becomes very important. 

Microsoft Dynamics 365 Business Central offers an apt platform for the automation of tax processes efficiently. 

This article explains in detail the process of effectively automating tax in Business Central to keep up with the latest tax laws enacted in Nigeria, focusing on e-invoicing, withholding tax changes, and VAT, among other critical aspects. The effective dates of these changes are principally January 1, 2025.

 Understanding Nigeria's New Tax Laws

There are extensive tax reforms in Nigeria that intend to rationalize the tax system, promote compliance, and enhance revenue collection. This is based on the Presidential Fiscal Policy and Tax Reforms Committee and involves the amendment of various laws on tax to ensure they are more effective and reasonable. 

The majority of the key changes will come into effect over time, although the majority are anticipated to take effect in 2025.

Key Objectives of the New Tax Laws

• Increase Tax Revenue: The Nigerian government is determined to increase the total amount collected from taxes, considering that the goal is to fuel economic growth by financing vital services. 

• Improve Compliance: There are new provisions in the law that are targeted to make tax administration easier, imposing digital reporting to reduce tax evasion.

• Enhance Transparency: E-invoicing coupled with the introduction of ATAS will be highly instrumental in granting insight into enterprise transactions and respective tax reports.

• Tax Relief to SMEs: The new law is aimed at reducing the burden of tax on small-scale enterprises and manufacturers for growth.

• Simplify the Tax Environment: These reforms are targeted at removing the complication in tax deductions, as well as promoting ease of compliance and administration.

E-Invoicing Mandate

Federal Inland Revenue Service will mandate e-invoicing for whatever business transaction either B2B, B2C, or B2G.

• FIRS e-invoice Platform: Businesses will need to integrate into the FIRS e-invoice platform for purposes of compliance, which shall include, amongst many other functions and features, verifying invoices for compliance to increase the collection of VAT.

• Implementation Timeline: Although details will continue to develop, the initial go-live was announced as early as 2025.

Changes in Withholding Tax

There are further-reaching variations, including withholding taxes. 

• Exemption for Small Businesses: Small businesses whose annual turnover is below a specified threshold-e-presently N25 million, but now proposed to increase to N50 million, shall not be required to apply the withholding tax obligations.

• Reduced Rates for Low-Margin Sectors: Sectors where margins are low, like agriculture and manufacturing, will attract reduced withholding tax rates.

• Exclusions to Key Sectors: The farmers, the manufacturers, and other producers shall not pay the withholding tax provided the requirements are met.

• Double Rates on Non-Compliance: The business that fails to get a valid TIN shall be charged withholding tax at the rate of twice the normal.

Value Added Tax Changes

There is a change in VAT rate and applicability with the new law.

The intention is to increase the VAT rate on non-essential commodities from 7.5% through 10% in 2025 to 12.5% between 2026 and 2029, eventually reaching 15% starting from 2030 onward

Items hitherto exempt under VAT but are now zero-rated. As such items will, therefore allow input VAT refunds for companies supplying them with items classified as essential may have their VAT removed altogether.

Corporate Income Tax Changes

The Bill makes several reforms to the corporate income tax, CIT.

• Gradual CIT Rate Reduction: It reduces the current 30% CIT rate to 27.5% in 2025 and 25% in 2026.

• Top-up Tax: Top-up tax shall be imposed where the effective tax rate is less than 15%, mainly for multinationals or large turnover companies above NGN 20 billion.

• Development Levy: A Development Levy shall be charged to every Nigerian company other than a small company, in place of the Tertiary Education Tax, the National Information Technology Development Levy, and the National Agency for Science and Engineering Infrastructure Levy. 

This shall be 4% in 2025 and 2026, 3% from 2027 to 2029, and 2% in 2030 and subsequent years.

Other Notable Changes

• Consolidation of Tax Laws: "The new reforms seek to consolidate the various tax laws, making it easy to comply for business." Among many, the Nigerian Tax Bill consolidates various tax laws.

• Access to Accounting Systems: FIRS has been given powers to deploy ATAS and thereby access the accounting systems of the taxpayer.

To help you quickly grasp the key tax changes and how to automate them in Business Central, here's a table summarizing the essential points:

Tax Area	New Regulation	Impact on Business	Automation in Business Central
E-Invoicing	Mandatory e-invoicing for all B2B, B2C, and B2G transactions, effective from 2025.	Businesses must integrate with the FIRS e-invoicing platform to ensure compliance, affecting invoice generation and transmission workflows.	Implement a custom connector or use third-party apps to facilitate integration, test thoroughly, and ensure accurate data transmission.
Withholding Tax (WHT)	Exemption for SMEs with annual turnover below NGN50 million proposed, WHT on goods supplied by Nigerian businesses now 2%, except for goods manufactured/supplied by the manufacturer that are exempt, and lower WHT for professional services.	SMEs benefit from exemption; businesses must track and verify TIN, and apply correct rates. Non-compliance can result in higher rates.	Configure Business Central with new WHT rates, exemptions, and compliance rules. Create rules for automatic application of exemptions, and incorporate TIN checks.
Value Added Tax (VAT)	VAT rate will increase on non-essential items from 7.5% to 10% in 2025, 12.5% from 2026-2029, and 15% from 2030 onwards. Certain items are now zero-rated. VAT on essential items may be removed.	Businesses must adjust pricing and accounting for the VAT changes, and classify items correctly. Potential input VAT refunds on zero-rated items.	Set up new VAT rates and rules for different products and services. Generate accurate VAT reports that comply with FIRS requirements. Ensure that your system is updated with the new rates scheduled for 2025, 2026, and beyond.
Corporate Income Tax (CIT)	Gradual reduction of CIT rate from 30% to 27.5% in 2025 and 25% in 2026. Top-up tax for companies with effective tax rates below 15%. Development levy will be imposed on all companies, except SMEs.	Companies must adjust their financial planning. Those with effective tax rates below 15% may need to pay a top-up tax. CIT reductions will bring down tax burdens.	Ensure that the correct CIT rate is applied and top-up tax is calculated correctly in Business Central, using the system’s tools to reconcile financial data and tax liabilities.
ATAS Compliance	FIRS will use the Automated Tax Administration System (ATAS) to access taxpayer accounting systems.	Businesses must grant FIRS access to their systems, with penalties for non-compliance.	Implement secure API integrations to allow FIRS to access data, while adhering to data protection regulations, and be able to generate real-time reports for audits.

Why Business Central for Tax Automation?

Dynamics 365 Business Central is a powerful ERP system that offers advanced functionalities for the automation of accounting, tax, and management reporting.

Key Benefits:

• Integration: Easy integration with other Microsoft products; can be extended with numerous add-ons.

• Compliance: Maintains accounting and tax processes according to both international and local standards and requirements.

• Automation: This provides complete automation of processes, enhances control, and improves overall organization

How to Set Up Tax Automation in Business Central

Following are the steps crucial to automating your tax processes in Business Central for compliance with the new regulations in Nigeria:

1. E-Invoicing Integration

• Create or utilize a custom connector to integrate Business Central with the FIRS e-invoicing platform.

• Look out for third-party apps or connectors designed to cater to Nigerian e-invoicing compliance.

• Use API integrations for seamless and uninterrupted invoice transmission to the FIRS portal.

• Detailed testing to ensure that the generation and transmission of invoices are accurate.

2. VAT Configuration

• Set up Business Central with new VAT rates and rules for different goods and services.

• Leverage the VAT reporting capability of Business Central in producing returns that are in line with requirements from FIRS. Your system should be updated with new rates that will take effect in 2025, 2026, and beyond.

3. Withholding Tax Configuration

• Set new withholding tax rates, exemptions, and compliance in Business Central.

• Create rules that allow the automating of exempting small businesses, amongst such other qualified entities that might be provided for under the new law.

• Institutionalize checks towards ensuring compliance related to the TIN amongst other important information.

4. ATAS Compliance

• Use secure API integrations whereby the FIRS can pull key data in your Business Central system.

• Ensure the system provides access to FIRS while keeping in mind data protection laws.

According to PWC, With the FIRS implementing ATAS, businesses need to be proactive in granting access to their accounting systems via a secure API and maintain compliance with data protection laws.

5. Leveraging Native Business Central Capabilities

• Use OCR to automatically capture data from invoices and subsequently automate data entry.

• Implement automated payment schedules and reconciliation processes for efficiency.

6. Payroll Integration

• Integrate your payroll using connectors with Business Central to automate tax deductions and reporting.

• All payroll-related taxes must be calculated and reported accurately based on the new tax laws of the land.

7. Automate Accounts Payable

• Leverage accounts payable automation software to streamline your invoice processing, vendor payments, and tax compliance.

• Use a tool providing automated compliance with tax rules across many countries that might be a key requirement in case you deal with cross-border businesses. 

Conclusion

Navigating Nigeria’s evolving tax landscape requires careful planning and the right technology to ensure compliance. With changes like mandatory e-invoicing, revised withholding tax rates, and VAT adjustments, businesses must integrate their ERP systems efficiently to stay ahead.

This is where Onpoint can help. At Onpoint, we specialize in ERP tax automation and compliance, ensuring your Microsoft Dynamics 365 Business Central system is configured to meet FIRS requirements seamlessly. Whether you need e-invoicing setup, WHT & VAT configuration, or full ATAS integration, our team provides expert consulting and implementation services tailored to your business needs.

Get in touch with us today to streamline your tax processes and stay compliant with ease.