The Development Levy Explained: Which Companies Actually Pay 4% in Nigeria?

Nigeria’s Development Levy is a 4% charge on the assessable profits of qualifying companies. It does not apply to every registered company, and it is not calculated on gross turnover.

Under Section 59(1) of the Nigeria Tax Act, 2025, the levy applies to companies chargeable to tax under Chapters Two and Three of the Act, excluding small companies and non-resident companies. The Act also excludes assessable profits calculated for hydrocarbon tax purposes.

This distinction matters because many businesses describe themselves as SMEs without checking whether they meet the statutory definition of a small company. A company may have a modest profit but still fall within the levy if it does not qualify for the small-company exemption.

Last Updated: July 2026

What Is the Development Levy?

The Development Levy is a unified 4% levy imposed on the assessable profits of qualifying companies in Nigeria. It was introduced under Section 59 of the Nigeria Tax Act, 2025, which commenced from 1 January 2026.

The levy consolidates several charges that previously existed separately, including:

• Tertiary Education Tax.
• National Information Technology Development levy.
• National Agency for Science and Engineering Infrastructure levy.
• Nigeria Police Trust Fund levy.

The new structure replaces separate calculations with one statutory levy. However, consolidation does not mean that every company pays it. The liability depends on whether the company is within the charging provision and whether an exemption applies.

What does the levy fund?

Section 59(3) specifies how the revenue is distributed:

The Nigeria Revenue Service collects the levy and pays it into a special account created for that purpose under Section 59(2). It is therefore a federal tax charge rather than a state-level business levy.

Which Companies Pay the 4% Levy?

A company generally falls within the Development Levy when all of the following conditions apply:

1. It is a company chargeable to tax under the relevant provisions of the Nigeria Tax Act.
2. It is not a qualifying small company.
3. It is not a non-resident company.
4. It has assessable profits to which the levy can be applied.
5. The amount is not assessable profits computed specifically for hydrocarbon tax purposes.

This means the levy can affect large Nigerian companies across different sectors, including manufacturing, telecommunications, banking, insurance, retail, logistics, technology, construction, agriculture and professional activities.

There is no general sector-wide exemption for manufacturing companies, agricultural companies or technology companies under Section 59. The key questions are the company’s legal classification, turnover, fixed assets, business activity and tax base.

Resident companies above the small-company threshold

A Nigerian company that exceeds the statutory small-company threshold is generally within the levy regime if it has assessable profits.

For example, a Nigerian manufacturing company with:

• Gross turnover of ₦300 million.
• Total fixed assets of ₦180 million.
• Assessable profits of ₦40 million.

would fall outside the small-company definition because its turnover exceeds the threshold. Its Development Levy calculation would be:

[ ₦40,000,000 \times 4% = ₦1,600,000 ]

The ₦1.6 million Development Levy is separate from the company’s applicable Companies Income Tax calculation.

Which Companies Are Exempt?

1. Qualifying small companies

Small companies are expressly excluded from the Development Levy under Section 59(1).

The signed Nigeria Tax Act, 2025 defines a small company in Section 202 as a company that:

• Earns gross turnover of ₦50 million or less per annum.
• Has total fixed assets not exceeding ₦250 million.
• Does not provide professional services.

Both financial thresholds matter. A company that meets only one of them does not automatically qualify.

The signed Act’s ₦50 million threshold is important because earlier versions and commentary circulated during the reform process used ₦100 million. KPMG noted that the enacted version changed the definition from the earlier ₦100 million proposal to ₦50 million.

Therefore, a company with annual gross turnover of ₦80 million and fixed assets of ₦100 million may be described informally as a small business, but it does not meet the signed Act’s definition of a small company for this relief.

2. Non-resident companies

Section 59(1) excludes non-resident companies from the Development Levy.

This does not mean that all income connected with Nigeria is outside the Nigerian tax system. The Nigeria Tax Act contains separate rules for non-resident persons, including income attributable to a Nigerian permanent establishment or significant economic presence.

For example, a foreign company providing services to Nigerian customers may have Nigerian tax obligations under the rules applicable to non-resident persons. Those obligations are different from imposing the 4% Development Levy on the company’s assessable profits as a Nigerian resident company.

The exclusion in Section 59 concerns the Development Levy itself. It should not be interpreted as a complete exemption from every Nigerian tax obligation.

3. Hydrocarbon-tax assessable profits

Section 59(4) provides that the Development Levy is not imposed on assessable profits computed for the purpose of hydrocarbon tax.

This is a specific exclusion. It relates to profits calculated under the hydrocarbon-tax provisions in Chapter Three of the Act. It does not automatically exempt every company connected with the oil and gas industry.

A company engaged in petroleum-related support services, equipment supply, transportation or consultancy needs to identify the specific income stream and applicable tax provisions. The mere fact that a business serves the petroleum sector does not, by itself, establish an exemption from the levy.

The ₦50 Million and ₦100 Million Confusion

The threshold confusion comes from differences between earlier reform drafts, professional summaries and the enacted legislation.

The final signed Act is the relevant document for determining the statutory small-company exemption. KPMG’s update specifically records that the enacted version reduced the small-company turnover threshold to ₦50 million and retained the ₦250 million fixed-asset limit.

A separate “small business” threshold used in other tax-administration contexts may also create confusion. A turnover threshold used for VAT administration does not automatically change the definition of a “small company” under the Companies Income Tax provisions of the Nigeria Tax Act.

For Development Levy purposes, the calculation needs to begin with the definition in the Nigeria Tax Act, not with a general description such as “SME,” “startup” or “small business.”

What Counts as Assessable Profit?

The Development Levy is calculated on assessable profit, not on turnover, revenue or cash received.

Section 22 of the Nigeria Tax Act provides the general basis for computing assessable profits from a trade, business, profession or vocation. In broad terms, the starting point is the profit of the relevant accounting period, adjusted under the tax rules for allowable and disallowed items.

[ \text{Development Levy} = \text{Assessable Profit} \times 4% ]

The phrase “assessable profit” is not necessarily the same as the net profit shown in a company’s financial statements. Tax adjustments may affect the final figure, including:

• Expenses that are not allowable for tax purposes.
• Capital expenditure treated through capital allowances rather than accounting depreciation.
• Income or gains treated under separate provisions.
• Tax adjustments required by the Nigeria Tax Act.
• Losses or reliefs whose treatment may differ from accounting treatment.

Example: profitable qualifying company

Assume Company A has the following results:

The Development Levy is:

[ ₦75,000,000 \times 4% = ₦3,000,000 ]

The levy is based on the assessable profit after the relevant tax computation, not simply on the company’s ₦500 million turnover.

Example: high turnover but no assessable profit

Assume Company B has:

• Gross turnover: ₦600 million.
• Fixed assets: ₦150 million.
• Assessable profit: nil because allowable deductions and tax adjustments produce no assessable profit.

Company B is not a small company because its turnover exceeds ₦50 million. However, applying the basic formula to nil assessable profit produces no Development Levy:

[ ₦0 \times 4% = ₦0 ]

This example does not remove the company’s filing or record-keeping obligations. It only demonstrates that the levy base is assessable profit, not turnover.

Example: turnover below ₦50 million

Assume Company C has:

• Gross turnover: ₦45 million.
• Fixed assets: ₦80 million.
• Assessable profit: ₦12 million.
• Business activity: general retail.
• No professional-services classification.

Company C falls within the statutory small-company definition. The Development Levy is therefore:

[ ₦12,000,000 \times 0% = ₦0 ]

The exemption from the Development Levy does not mean that the company can disregard its accounting records, tax registration or other applicable tax obligations.

Professional Services and Small-Company Status

The signed Act excludes businesses providing professional services from the small-company definition. This restriction is significant because turnover and fixed assets alone are not enough.

A professional-services business may include activities such as:

• Legal practice.
• Accounting and audit services.
• Architecture.
• Engineering consultancy.
• Medical or clinical professional practice.
• Management consultancy.
• Other regulated professional services, depending on the nature of the activity and applicable interpretation.

The correct classification depends on the company’s actual business activity, not only the wording used in its corporate registration documents.

For example, a company with ₦30 million turnover and ₦40 million in fixed assets may appear to satisfy the financial thresholds. If its principal activity is the provision of professional services, the exclusion may prevent it from qualifying as a small company.

This is one reason why a company’s invoices, contracts, business model, regulatory registration and financial statements can be relevant when establishing its tax classification.

Common Mistakes in Development Levy Calculations

Mistake 1: Applying 4% to turnover

A company with ₦200 million turnover does not automatically owe ₦8 million. The 4% rate applies to assessable profits, not turnover.

Mistake 2: Using ₦100 million as the enacted threshold

The ₦100 million figure appeared in earlier versions and summaries. The signed Act uses ₦50 million for the small-company definition, with fixed assets not exceeding ₦250 million.

Mistake 3: Treating every SME as exempt

“SME” is a commercial description, not a complete statutory test for Development Levy purposes. The company needs to check turnover, fixed assets and whether it provides professional services.

Mistake 4: Assuming a loss removes all compliance work

A company may have no Development Levy payable because it has no assessable profit, but it may still have tax-return, documentation and reporting obligations under applicable tax administration rules.

Mistake 5: Treating an oil-sector connection as a blanket exemption

The hydrocarbon-tax exclusion applies to assessable profits computed for hydrocarbon tax purposes. It is not a general exemption for every company operating in or supplying the petroleum industry.

A Practical Calculation Checklist

Use the following sequence when reviewing a company’s Development Levy position:

1. Confirm whether the entity is a company within the relevant tax provisions.
2. Identify whether it is resident or non-resident for Nigerian tax purposes.
3. Calculate annual gross turnover using the company’s accounting records.
4. Determine the total fixed assets and retain supporting schedules.
5. Check whether the company provides professional services.
6. Compute assessable profit under Section 22 and other relevant provisions.
7. Exclude any assessable profits that fall within the hydrocarbon-tax exclusion.
8. Apply the 4% rate only where Section 59 applies.
9. Keep the financial statements, tax computation, asset register and supporting documents together.
10. Compare the result with the company’s applicable tax return and payment obligations.

The Company Income Tax Calculator can help organise the profit-based calculation. It is important to enter assessable profit rather than turnover when estimating the Development Levy component.

For businesses comparing corporate tax calculations with consumption-tax obligations, the VAT Calculator addresses a different tax base and should not be used to calculate the Development Levy.

Conclusion

The Development Levy is a 4% charge on assessable profits, not a 4% charge on turnover. Under Section 59 of the Nigeria Tax Act, 2025, qualifying resident companies generally pay it, while small companies, non-resident companies and assessable profits computed for hydrocarbon tax purposes are excluded.

For the small-company exemption, the signed Act uses gross turnover of ₦50 million or less, total fixed assets not exceeding ₦250 million and an exclusion for businesses providing professional services. The ₦100 million figure found in some articles relates to an earlier version or a different tax-administration context and should not replace the enacted definition.

References

The principal legal source is the Nigeria Tax Act, 2025, especially Section 22 on assessable profits, Section 59 on Development Levy and Section 202 on general interpretation and the definition of a small company. The enacted copy is available through the Nigerian Investment Promotion Commission’s publication of the Act, while the Lagos State Internal Revenue Service gazette copy reproduces the ₦50 million small-company threshold.

KPMG’s July 2025 update is also relevant because it records the difference between the earlier ₦100 million version and the final signed Act, which uses ₦50 million.

This article is for educational purposes only and does not constitute professional advice. Consult a qualified professional for your specific situation.