•Tinubu (seated) signing the Tax Bills into Law in June
Recently, President Bola Tinubu signed four new tax bills into law aimed at modernising and streamlining the country’s tax system.
The four new laws — collectively referred to as the Nigeria Tax Act — consolidate various tax rules into a single, simplified code, eliminating over 50 small and overlapping taxes, reports Daily Trust.
This reform is expected to reduce complexity and duplication, making it easier for businesses to comply.
Additionally, the Tax Administration Act establishes uniform rules for tax collection across federal, state, and local governments, ensuring consistency and minimising administrative conflicts.
Similarly, the Nigeria Revenue Service Act replaces the Federal Inland Revenue Service (FIRS) with an independent Nigeria Revenue Service (NRS), designed to enhance efficiency and autonomy in tax administration.
The Joint Revenue Board Act also strengthens coordination among different tiers of government and introduces a Tax Ombudsman and Tax Appeal Tribunal to ensure fair resolution of disputes.
However, checks by our correspondent show that one of the most debated aspects of the new tax law is the Personal Income Tax, which imposes higher rates on high-income earners while granting tax exemptions to workers earning N800,000 and below.
Percentage of taxable income
The new Personal Income Tax regime, enacted in 2025 and set to take effect from January 1, 2026, introduces a progressive structure that outlines what Nigerians will pay as personal income tax based on their earnings.
Checks show that 0% tax will apply to individuals earning up to N800,000 annually, while 15% will be charged on income between N800,000 and N3,000,000.
Similarly, individuals earning N3,000,000 – N12,000,000 will pay 18%, while those earning between N12,000,000 and N25,000,000 will be taxed at 21%.
In addition, 23% will apply to income between N25,000,000 and N50,000,000, and 25% will be levied on those earning above N50,000,000 annually.
By comparison, checks show that under the old tax law, income taxation started from N300,000 at a rate of 7%, rising to a top rate of 24% on income exceeding N3,200,000.
This new framework significantly raises the tax-free threshold and introduces broader progressive bands, aligning more closely with the nation’s income distribution.
Under the previous law, workers calculated PAYE (Pay-As-You-Earn) tax based on income levels — ranging from 7% (for those earning less than N300,000 annually) to 24% (for those earning more than N3,200,000). Workers earning the national minimum wage or below were exempted from personal income tax.
It is also worth noting that every taxable person — except those earning the minimum wage or below — was liable to a minimum income tax of 1% of their gross income.
According to the Finance Act 2020, a low-income earner is defined as an individual earning the national minimum wage or less, currently N30,000 per month or N360,000 annually.
Ultimately, the Personal Income Tax (PIT) remains a direct tax levied on personal income — including wages, salaries, directors’ fees, dividends, royalties, and rental income.
The new tax law also introduces an online Personal Income Tax Calculator to help workers easily determine their monthly tax obligations.
Understanding income tax calculator
The Personal Income Tax (PIT) calculator, developed by the Presidential Fiscal Policy and Tax Reforms Committee, provides a practical tool to help Nigerians understand how the new tax laws affect their income.
The calculator allows users to input their gross annual income and select deductions such as pension, National Housing Fund (NHF), National Health Insurance Scheme (NHIS), insurance premiums, and rent to compare their tax liabilities under both the old and new tax regimes.
It then automatically computes the total tax payable, effective tax rate, and net income. For everyday earners, this makes it easier to understand how tax brackets work in practice.
For the first time, wage earners can compare side-by-side how much they will owe under both systems. The broader N800,000 tax exemption means that many low-income earners will now fall completely outside the tax net, while middle- and high-income earners will see more structured and progressive rates applied to their income.
For businesses, the tool also helps employers assess the potential impact on payroll planning.
By knowing how much employees are likely to take home under the new rules, companies can make informed decisions on salary structuring, staff benefits, and tax compliance strategies.
How PAYE works in Nigeria
The Pay-As-You-Earn (PAYE) system is one of the main channels through which individuals pay taxes in Nigeria.
It is administered by the Federal Inland Revenue Service (FIRS) through the relevant State Internal Revenue Services (SIRS), depending on the taxpayer’s state of residence.
Personal Income Tax (PIT) in Nigeria is governed by two key legislations — the Personal Income Tax (Amendment) Act 2011 and the Finance Act 2020, which took effect on January 1, 2021.
An employee’s gross emolument includes all forms of compensation such as salary, bonuses, fees, and benefits received in the course of employment.
However, certain allowances and reliefs are not taxable and can be used to reduce taxable income. These include consolidated relief allowance, gratuities, contributions to approved pension funds, and premiums on life insurance policies.
New tax law provides clarity, not higher taxes — Oyedele
The Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Taiwo Oyedele, has clarified that Nigeria’s new tax laws do not introduce fresh taxes but rather provide clarity on existing provisions.
Speaking during an engagement with journalists and influencers, Oyedele explained that income earned from virtual assets, including cryptocurrency, has always been taxable under the Personal Income Tax Act.
The new laws, he said, merely clarify and streamline the framework for compliance.
“There is no imposition of tax on individuals who were not previously taxable,” Oyedele said.
“Online content creators, influencers, income from virtual assets, and other income-generating activities have always been subject to tax. What the new laws do is provide clarity and ensure fairness, such as allowing deductions for losses where applicable.”
Oyedele also highlighted the administration’s ongoing efforts to simplify Nigeria’s tax system.
“We are reducing over 60 different taxes and levies to fewer than 10,” he said, noting that the goal is to ease compliance and eliminate multiple charges.
The committee chairman further disclosed that high-income earners —representing the top 3% of Nigeria’s population — will now pay up to 25% of their income as tax.
However, Nigerians earning the national minimum wage of N70,000 per month, as approved by President Bola Tinubu in 2024, will be exempted from personal income tax.
Oyedele emphasised that the reform is designed to ease the tax burden on ordinary citizens while ensuring wealthier individuals make a fair contribution to national development.
“The objectives of the reforms have been clear from the very beginning: reduce the tax burden on the masses, harmonise and simplify tax rules to address the multiplicity of taxes, and promote a modern, business-friendly and globally competitive tax system.
“Our approach is people-centric, growth-focused, and efficiency-driven,” he said.
