The Federal Government has directed all federal ministries, departments, and agencies to immediately discontinue the deduction of a 1% stamp duty from payments made to contractors and vendors, following the commencement of the Nigeria Tax Act 2025 on 1 January 2026. The directive, issued by the Office of the Accountant General of the Federation, clarifies that the new tax law fundamentally changes how stamp duty is applied and that continued deduction from payment transactions is now unlawful.
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What changed under the new tax law
The Nigeria Tax Act 2025, signed by President Bola Tinubu on 26 June 2025, replaced multiple legacy tax laws including the Stamp Duties Act with a unified and modernised framework. Under the new regime, stamp duty is imposed on chargeable instruments — legal documents and agreements — rather than on payment transactions themselves. The previous practice of deducting one per cent from contractor and vendor payments at source was a carry-over from the old framework that the new law explicitly does not support.
The OAGF circular states clearly that MDAs must not apply stamp duty deductions to payment transactions going forward, and that only instruments and transactions expressly listed as chargeable under the provisions and schedules of the Nigeria Tax Act 2025 are subject to the duty. Stamp duty validly deducted before 1 January 2026 remains preserved under the savings provisions of the Act, and contracts awarded before that date continue to be governed by the old law.
A one per cent deduction on every government payment sounds modest until you calculate what it costs a contractor receiving multiple payments across a year. For SMEs supplying goods and services to federal agencies, the removal of this deduction is a direct improvement in the cash they receive for completed work.
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What it means for businesses supplying the government
Nigerian SMEs that supply goods, services, or works to federal MDAs have historically seen a portion of every payment automatically deducted before it reached their accounts. Beyond the financial cost, the practice created reconciliation challenges and disputes between contractors and agencies over what had been deducted and why.
The directive removes that friction entirely for transactions governed by the new tax law. Contractors will now receive the full invoiced amount from government clients, with stamp duty obligations applying only where a specific chargeable instrument — such as a formal deed or agreement — has been executed.
The broader tax reform framework of which this is part also introduced zero per cent VAT on basic food items, medicine, and educational materials, exempted small companies with annual turnovers of N50 million or below from company income tax, and removed personal income tax obligations for individuals earning at or below the national minimum wage — a package of measures that collectively reduces the compliance cost and tax burden on small businesses across Nigeria.
Tax reform only delivers value to small businesses when it is implemented consistently at the point where payments actually happen. Today’s directive is the enforcement step that turns a legal change into a practical benefit for the contractors and suppliers who interact with government money daily.
