Nigeria’s New Personal Income Tax Law: What Workers and Businesses Need to Know

President Bola Ahmed Tinubu has signed four major tax reform bills into law — a move expected to modernize Nigeria’s tax system, improve compliance, and simplify tax administration across all levels of government.

The newly enacted laws, collectively known as the Nigeria Tax Act, unify several outdated and overlapping tax regulations into a single framework. By eliminating more than 50 minor levies, the government aims to reduce bureaucracy, boost efficiency, and create a more transparent tax environment for both individuals and businesses.

Simplified Tax Collection and Administration

Under the new reforms, the Tax Administration Act will now guide how taxes are collected across federal, state, and local governments. This uniform approach ensures that citizens and corporate organizations are no longer burdened with conflicting tax demands from multiple agencies.

Another major highlight of the reform is the establishment of the Nigeria Revenue Service (NRS), which replaces the former Federal Inland Revenue Service (FIRS). The NRS will operate as an independent body with greater autonomy to drive digital transformation, enforce compliance, and improve revenue efficiency nationwide.

The Joint Revenue Board Act also introduces a new Tax Ombudsman and Tax Appeal Tribunal — both designed to resolve tax disputes fairly and efficiently, without unnecessary delays.

Personal Income Tax: Who Pays and How Much

One of the most discussed aspects of the reform is the introduction of a new Personal Income Tax (PIT) regime, which becomes effective from January 1, 2026. This new framework introduces higher rates for top earners while expanding exemptions for low-income workers.

Here’s a breakdown of the new tax structure:

• 0% tax for individuals earning up to ₦800,000 annually
• 15% for income between ₦800,000 and ₦3 million
• 18% for income between ₦3 million and ₦12 million
• 21% for income between ₦12 million and ₦25 million
• 23% for income between ₦25 million and ₦50 million
• 25% for income above ₦50 million annually

This progressive structure raises the tax-free threshold significantly, ensuring that low-income earners are protected from taxation, while wealthier individuals contribute a fairer share.

Under the old system, income tax started at 7% for those earning ₦300,000 per year and peaked at 24% for those earning above ₦3.2 million. The new reform aligns tax brackets more closely with Nigeria’s current income realities and cost of living.

Introducing the Online Tax Calculator

To make compliance easier, the government has launched an online Personal Income Tax Calculator, developed by the Presidential Fiscal Policy and Tax Reforms Committee.

The tool allows workers to calculate their expected tax under both the old and new regimes by simply inputting their gross income and allowable deductions — such as pension contributions, National Housing Fund (NHF), National Health Insurance Scheme (NHIS), insurance premiums, and rent.

It instantly displays total tax payable, effective tax rate, and net income. For employees and business owners, this innovation provides greater clarity, helping them plan their finances, payroll, and tax obligations more efficiently.

PAYE: What Employers Need to Know

The Pay-As-You-Earn (PAYE) system remains the main method through which salaried workers pay their taxes in Nigeria. Employers are required to deduct applicable taxes from employee salaries and remit them monthly to the State Internal Revenue Service (SIRS) of the employee’s state of residence.

Taxable income includes salaries, bonuses, directors’ fees, and other employment-related allowances. However, certain items — like pension contributions, life insurance premiums, and gratuities — remain tax-deductible.

Under the revised rules, the government aims to eliminate the complexity of the PAYE process through digital filing and automation, ensuring timely and accurate remittances.

No New Taxes, Just Clarity and Fairness

Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, emphasized that the new framework does not impose new taxes but rather clarifies existing ones.

“There is no imposition of tax on individuals who were not previously taxable,” Oyedele stated.

He explained that income from virtual assets — including cryptocurrency, influencer marketing, and digital content creation — has always been taxable. The new laws simply provide clarity and fairness by clearly outlining reporting procedures and allowing deductions for verified business losses.

Oyedele added that the reforms are designed to reduce Nigeria’s multiple-taxation problem by cutting over 60 existing levies down to fewer than 10 major tax categories.

According to him, “The reform focuses on easing compliance, reducing tax burden on low-income earners, and ensuring that high-income individuals contribute appropriately to national growth.”

Exemptions for Low-Income Earners

Under the new system, Nigerians earning the national minimum wage of ₦70,000 per month — as approved in 2024 — will be fully exempted from paying personal income tax.

This aligns with the administration’s goal of creating a people-centered, growth-driven, and business-friendly tax system that supports job creation and encourages entrepreneurship.

What It Means for the Nigerian Economy

Experts believe the consolidated Nigeria Tax Act could boost investor confidence, expand the tax base, and improve government revenue without stifling growth.

Through simplifying rules and introducing transparency through digital tools, the reform could encourage more voluntary compliance and reduce the need for heavy-handed enforcement.

Small businesses are also expected to benefit from reduced administrative costs and improved clarity on tax obligations.