On January 1, 2026, the Nigeria Tax Act 2025 came into effect, bringing significant changes to how Nigerians are taxed. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, has provided official clarifications that every Nigerian—whether employed, self-employed, or running a business—needs to understand.

The bottom line: Most Nigerians will pay less tax under the new law. Here's everything you need to know.

The New Tax-Free Threshold: ₦800,000

The most impactful change is the increase of the annual tax-free threshold from ₦300,000 to ₦800,000.

This means:

• If you earn ₦800,000 or less per year (about ₦66,667/month), you pay zero income tax

• This is a 167% increase from the previous threshold

• Millions of low-income Nigerians are now completely exempt from income tax

💡 Key Insight from Taiwo Oyedele

"Employees earning up to ₦100,000 per month may also see their tax liability drop to zero" when pension, NHF, NHIS deductions, and rent relief are applied.

How ₦100K/Month Earners May Pay Zero Tax

Here's the math for someone earning ₦100,000/month (₦1,200,000/year):

ItemAmountAnnual Gross Income₦1,200,000Less: Pension (8%)-₦96,000Less: NHF (2.5%)-₦30,000Less: NHIS (5%)-₦60,000Adjusted Income₦1,014,000Less: Tax-Free Threshold-₦800,000Taxable Income₦214,000Tax at 15%₦32,100

With rent relief (20% of annual rent, up to ₦500,000), many ₦100K earners can reduce this further to near-zero.

New Progressive Tax Brackets (2026)

The Nigeria Tax Act 2025 introduces a more progressive tax structure with reduced rates for lower income brackets:

Annual Taxable IncomeTax RatePrevious Rate₦0 – ₦800,0000%7%₦800,001 – ₦3,000,00015%11%₦3,000,001 – ₦12,000,00018%15%₦12,000,001 – ₦25,000,00021%19%₦25,000,001 – ₦50,000,00023%21%Above ₦50,000,00025%24%

What This Means for You

• Low earners (under ₦800K/year): Complete tax exemption

• Middle earners (₦1-5M/year): Significant reduction due to higher threshold

• High earners (₦50M+/year): Slight increase to 25% top rate

Allowable Deductions

Before calculating your tax, these statutory deductions reduce your taxable income:

1. Pension Contribution (8%)

The employee's mandatory contribution to the Contributory Pension Scheme (CPS) is deductible. This is 8% of your basic salary, housing, and transport allowances.

2. National Housing Fund (2.5%)

If you're employed and earning above the national minimum wage, your 2.5% NHF contribution is deductible.

3. National Health Insurance Scheme (5%)

Your NHIS contribution of 5% of basic salary is deductible for employed persons.

4. Rent Relief (20%, Max ₦500,000)

You can claim 20% of your annual rent paid as a deduction, subject to a maximum of ₦500,000. This is particularly beneficial for renters in high-cost cities like Lagos, Abuja, and Port Harcourt.

Example: Rent Relief Calculation

If you pay ₦2,000,000/year in rent:

• 20% of ₦2,000,000 = ₦400,000 (deductible)

If you pay ₦3,000,000/year in rent:

• 20% of ₦3,000,000 = ₦600,000, but capped at ₦500,000

Official PAYE Computation Steps

According to Taiwo Oyedele, here's the official step-by-step process for computing PAYE under the new law:

1. Step 1: Start with gross salary (basic + allowances)

2. Step 2: Add benefits-in-kind, if applicable (company car, housing, etc.)

3. Step 3: Deduct Pension (8%), NHF (2.5%), and NHIS (5%)

4. Step 4: Deduct rent relief (20% of annual rent, max ₦500,000)

5. Step 5: Apply the progressive tax brackets to remaining taxable income

Benefits-in-Kind: What's New?

The explicit inclusion of benefits-in-kind (Step 2) is a clarification from the reforms committee. If your employer provides:

• Company car for personal use

• Accommodation or housing subsidy

• Driver services

• Other non-cash benefits

These should be valued and added to your gross income before deductions are applied.

Key Clarifications from the Tax Reforms Committee

1. PIT is Payable to Your State IRS (SIRS), Not NRS

Personal Income Tax remains payable to the relevant State Internal Revenue Service (SIRS) based on your state of residence. For example:

• Lagos residents pay to LIRS (Lagos Internal Revenue Service)

• Abuja/FCT residents pay to FCT-IRS

• Rivers residents pay to RIRS (Rivers State Internal Revenue Service)

The NRS (Nigeria Revenue Service) does not collect personal income tax.

2. Foreign Employers Are Not Taxable

Good news for remote workers: Foreign employers are no longer deemed taxable in Nigeria solely because they have employees working remotely in the country.

This means your foreign employer doesn't need to register with Nigerian tax authorities just because you work from Lagos or Abuja. However, you as the employee are still responsible for paying your personal income tax.

3. Partnership Income Allocation

For individuals in partnerships, taxes are payable to each partner's state of residence—not the state where the partnership is registered or operates.

4. New "Tax Incentives Return" Requirement

Beneficiaries of specific tax incentives must now file a "Tax Incentives Return." This is a new compliance requirement for businesses enjoying:

• Pioneer status

• Export processing zone benefits

• Free trade zone incentives

• Other government-approved tax holidays

Important Filing Deadlines

Mark these dates in your calendar:

ObligationDeadlinePenalty for Non-ComplianceEmployer Annual PAYE Filing January 31 ₦500,000 + 10% of tax dueIndividual Tax Return March 31 ₦50,000 + interestMonthly PAYE Remittance 10th of following month 10% penalty + interestTax Incentives Return March 31 Loss of incentive eligibility

Calculate Your 2026 Tax

Want to know exactly how much tax you'll pay under the new law? Use our free tax calculator:

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Enter your income, deductions, and rent—get your exact tax amount in 30 seconds.

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Frequently Asked Questions

Is the ₦800,000 threshold annual or monthly?

Annual. The ₦800,000 tax-free threshold applies to your total annual income. On a monthly basis, this works out to about ₦66,667/month.

Do I pay tax to FIRS or my State IRS?

For personal income tax, you pay to your State Internal Revenue Service (e.g., LIRS in Lagos). FIRS handles corporate taxes and VAT.

What if I earn in foreign currency (USD, GBP, EUR)?

You must convert your foreign income to Naira at the prevailing CBN rate for tax calculation purposes. The tax is then paid in Naira to your State IRS.

I'm a remote worker for a foreign company. Am I taxed?

Yes. As a Nigerian resident, you're taxed on your worldwide income. However, your foreign employer is NOT required to withhold or remit taxes on your behalf—that responsibility falls on you.

Can I claim rent relief if I live with family?

Only if you pay rent. The rent relief requires documentary evidence of rent payments. Living rent-free with family doesn't qualify.

What happens if I don't file by March 31?

Late filing attracts a penalty of ₦50,000 for individuals, plus interest on any unpaid tax. Continued non-compliance can lead to prosecution.

Does this apply to business owners too?

The personal income tax changes apply to your personal earnings. If you run a registered company, corporate income tax (CIT) has separate rules and rates.

Conclusion

The Nigeria Tax Act 2025 represents a significant step toward a more equitable tax system. With the ₦800,000 tax-free threshold, progressive brackets, and clear guidance from the reforms committee, most Nigerians will see their tax burden reduced.

Key takeaways:

• If you earn ≤₦800K/year, you pay zero tax

• If you earn ~₦100K/month, you may pay near-zero after deductions

• Always claim your rent relief (up to ₦500K)

• Pay to your State IRS, not FIRS or NRS

• File by March 31 to avoid penalties

Source: Official clarifications from Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, January 2026.

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