Many Nigerians earn money from several places at once: a salary, a small side business, freelance gigs, allowances, or occasional payments. When tax comes up, the first confusion is often basic but important - what exactly counts as income in the eyes of the tax system?
This uncertainty shows up everywhere: payslips that feel opaque, PAYE deductions that seem arbitrary, and online debates about whether certain earnings “should even be taxed at all.” Before talking about bands, rates, or calculators, everything starts with how income itself is defined.
In the next article in this series, we move from definitions to numbers, using real-world examples to show how “what counts as income” flows directly into “how much tax is actually paid.”
This uncertainty shows up everywhere: payslips that feel opaque, PAYE deductions that seem arbitrary, and online debates about whether certain earnings “should even be taxed at all.” Before talking about bands, rates, or calculators, everything starts with how income itself is defined.
What this really means
- Nigeria’s tax system does not treat every naira of income the same way.
- Salary and wages are generally taxable, but allowances can be taxed or exempt depending on their structure.
- Bonuses, commissions, and most performance-related payments are usually taxable income.
- Income from business, side hustles, and freelancing is treated as business or self-employment income, not employment income, even when it is irregular.
- Reimbursements for genuine work expenses are often confused with taxable pay, even though they are meant to refund costs, not increase income.
- Pension contributions paid into approved schemes reduce the part of income exposed to tax, which is why they appear as deductions before tax is calculated.
- Reliefs and allowances exist because the law does not intend to tax gross income in full; they are built-in adjustments, not “favours” from an employer.
- When this stage is unclear, people are more likely to mistrust the entire process, assuming every deduction is arbitrary or unfair.
Why this clarity matters
Understanding what the tax system recognises as income is the foundation for everything that follows — from PAYE calculations to exemptions and reliefs. When this first step is fuzzy, every line on a payslip feels suspicious. When it is clear, the rest of the system becomes easier to interpret, question, and challenge where necessary, even if it still feels imperfect.In the next article in this series, we move from definitions to numbers, using real-world examples to show how “what counts as income” flows directly into “how much tax is actually paid.”
- Next article in the series 'Making Sense of Tax in Nigeria': How Employee Tax Is Calculated on Your Salary in Nigeria (A Worked Example for ₦200,000 per month)
