The Digest:
Nigeria's personal income tax system has been updated under the Nigeria Tax Act 2025, introducing a higher tax-free threshold and a simplified progressive structure. This guide explains the new brackets and how to determine what you owe
Key Points:
- The new tax-free threshold is ₦800,000 per annum.
- Tax rates progress from 0% to 25% across six income bands.
- Allowable deductions include pension (8%), rent relief, and NHF.
- The former Consolidated Relief Allowance (CRA) has been abolished.
- Residents are taxed on worldwide income; non-residents on Nigeria-sourced income.
- Tax is typically deducted at source via PAYE for employees.
- Low-income earners below the minimum wage may be fully exempt.
- Determine Gross Income - sum of salary, bonuses, business, rental, and other earnings.
- Subtract Allowable Deductions - pension, rent relief (higher of ₦500k or 20% of rent), NHF, etc.
- Arrive at Taxable Income - gross income minus deductions.
- Apply Progressive Rates - tax each portion according to the applicable band.
Annual gross salary: ₦15,000,000
Pension (8%): ₦1,200,000
Rent relief: ₦600,000
Taxable income: ₦13,200,000
Tax breakdown:
- First ₦800,000 @ 0% = ₦0
- Next ₦2,200,000 @ 15% = ₦330,000
- Next ₦9,000,000 @ 18% = ₦1,620,000
- Remaining ₦1,200,000 @ 21% = ₦252,000
Total tax payable: ₦2,202,000
Marginal rate: 21% | Effective rate: ~16.7%
Understanding your tax obligation is the first step toward compliant and confident financial planning. With clear brackets and deductions, the 2026 tax framework aims for simplicity and fairness
Sources: Nigeria Tax Act 2025, Federal Inland Revenue Service (FIRS), Business Day
