New Tax Reforms Rattle Agriculture: Small Farmers Fear Rising Costs, Big Investors Wooed

Nigeria’s sweeping tax reform laws, signed into effect in mid-2025, are reshaping the country’s economic landscape — and the agricultural sector is feeling the tremors.

The reforms, packaged under the Nigeria Tax Act (NTA) 2025 and three companion laws, were billed as a major modernization of the tax system. They consolidate decades-old statutes, introduce stricter compliance rules, and replace the long-standing Pioneer Status Incentive with a new scheme — the Economic Development Tax Incentive (EDTI). Government officials argue the reforms will expand revenue, improve transparency, and attract foreign investment.

But for Nigeria’s farmers, especially smallholders, the picture looks more complicated.

Rising Costs and Uncertainty

Already grappling with higher fuel, fertiliser, and transport costs due to subsidy removals and exchange rate adjustments, farmers fear the reforms will pile on additional burdens. While the government has delayed the rollout of a controversial fuel surcharge until January 2026, energy and logistics expenses are still rising, squeezing production margins.

There is also uncertainty around Value Added Tax (VAT). The law centralizes exemption powers under the presidency, leaving farmers and input suppliers in suspense over whether fertilisers, seeds, and farm machinery will be zero-rated. If these items lose exemption status, input costs could spike further.

“Any additional tax burden at the point of purchase will trickle down to food prices,” warned an agribusiness consultant in Lagos. “Without clear exemptions for key inputs, smallholder farmers will be forced to bear costs they cannot absorb.”

Opportunities for Big Players

Not all actors in the agricultural value chain see only risks. The new EDTI, though more selective than the Pioneer Status Incentive, is designed to reward investors who build capital-intensive projects such as storage facilities, processing plants, or cold-chain infrastructure.

For mid- to large-scale agribusinesses, this could open the door to significant tax breaks. Economists say this could boost investment in value-adding activities and help Nigeria reduce post-harvest losses, which remain among the highest in Africa.

“This reform, if managed well, could be a turning point for agro-processing in Nigeria,” said Professor Adaobi Okeke, an agricultural economist at the University of Nigeria. “But the incentives must be structured to include small and medium players, not just the big corporates.”

Compliance Burden for SMEs

Another sticking point is compliance. The Nigeria Revenue Service, empowered by the reforms, is tightening enforcement and pushing for digital tax filing. While this promises efficiency, it also raises costs for smaller agri-SMEs that lack the accounting systems or expertise to keep pace.

“Formalisation should not become a punishment,” a cooperative leader in Kano told reporters. “We want to comply, but the government must simplify processes for small cooperatives and traders who are the backbone of food supply.”

Budgetary Trade-offs

The big question is whether new tax revenues will flow back into agriculture. Despite its role as the largest employer, the sector continues to receive less than 10 percent of Nigeria’s federal budget — far below the African Union’s Maputo target. Analysts caution that unless government reinvests tax gains into extension services, mechanisation, and rural infrastructure, the reforms could end up widening the gap between smallholder farmers and larger agribusiness operators.

Looking Ahead

In the short term, experts warn of higher costs and tighter margins for smallholders, with potential knock-on effects on food prices. In the medium term, however, the reforms could catalyze greater investment in agro-processing, storage, and exports — if regulators issue timely exemptions for farm inputs and broaden access to incentives under the EDTI.

“The tax reform is a double-edged sword,” said Dr. Bayo Lawal, a development finance specialist. “Handled well, it can modernize the sector. Mishandled, it could deepen rural poverty and food insecurity.”

For now, Nigeria’s agricultural ecosystem stands at a crossroads — caught between the promise of reform-driven investment and the peril of rising costs for those who put food on the nation’s table.