What is the New Tax Laws all about?
The Tax reform in Nigeria is a systemic way of replacing old, complicated tax laws with simpler, fairer ones. Think of it like upgrading from an old Nokia phone to a smartphone – everything works better and makes more sense.
The reform consists of four layers of new laws which are replacing over a dozen old tax law. The four layers of the new tax laws are:
- Nigeria Tax Act – One law for all taxes (income tax, company tax, VAT, etc.)
- Nigeria Tax Administration Act – Makes tax collection easier and digital
- Nigeria Revenue Service Act – FIRS gets a new name and better tools
- Joint Revenue Board Act – Federal and state governments work together better
Major Tax changes for employees (come 2026)
Starting January 2026, a progressive tax structure will apply, with rates ranging from 0% to 25%; the new tax system is like climbing stairs – you only pay higher tax when you reach higher steps. Here’s exactly how much tax you’ll pay based on your annual income:
| Annual Income Range | Tax Rate | Tax on This Bracket |
| First ₦800,000 | 0% | ₦0 |
| ₦800,001 – ₦3,000,000 | 15% | 15% of amount above ₦800K |
| ₦3,000,001 – ₦10,000,000 | 18% | 18% of amount above ₦3M |
| ₦10,000,001 – ₦25,000,000 | 21% | 21% of amount above ₦10M |
| ₦25,000,001 – ₦50,000,000 | 23% | 23% of amount above ₦25M |
| Above ₦50,000,000 | 25% | 25% of amount above ₦50M |
Important: This is a progressive system. You don’t pay the higher rate on all your income—only on the portion that falls into each bracket.
Tax-Free Threshold for Salary Earners
One good about this tax reform is tax-free threshold which exempt Individuals earning ₦800,000 or less annually (approximately ₦66,667 monthly) completely from personal income tax. This represents a massive increase from the previous effective threshold and provides significant relief to minimum wage earners.
What The New Tax Laws Means for Your Take-Home Pay
Low-Income Earners (₦800,000/year or less): You’ll pay zero tax, resulting in higher take-home pay.
Middle-Income Earners (₦1M – ₦10M annually): You’ll likely see a slight reduction in your tax burden compared to the old system, with more money in your pocket each month.
High-Income Earners (Above ₦50M annually): You’ll face a higher maximum tax rate of 25%, up from the previous 24%, but this only applies to income above the ₦50 million threshold.
Who is considered a Tax Resident?
The new law clearly defines tax residency for the first time. You’re considered a tax resident if any of the following apply:
- You’re domiciled in Nigeria
- You maintain a permanent home in Nigeria
- You spend 183 days or more in Nigeria in a tax year
- You have substantial economic or immediate family ties in Nigeria
- You serve as a Nigerian diplomat or public servant abroad
Resident individuals are taxed on worldwide income, while non-residents are taxed only on Nigeria-sourced income.
Things You Can Remove From Your Taxable Income under the New Tax Laws
Before calculating your tax, you can remove these amounts (if you actually paid them):
1. Rent Money (New!)
- If you pay rent, you can remove 20% of what you paid
- Maximum: ₦500,000
- You need receipts and proof of payment
Example: You pay ₦1 million rent yearly. You can remove ₦200,000 from your taxable income.
2. Pension Contributions
- The 8% you contribute to pension can be removed
3. National Housing Fund
- The 2.5% deducted for housing can be removed
4. Life Insurance
- Up to ₦100,000 yearly if you pay life insurance premiums
5. Severance Pay (If You Lose Your Job)
- Up to ₦50 million is tax-free (increased from ₦10 million)
Important: Get Your TIN (Tax Number)
Every employee must have a Tax Identification Number (TIN) before January 2026. It’s like your BVN, but for taxes.
How to get it:
- Go to your state tax office website
- Fill the online form
- Link it to your NIN (National ID Number)
- Give it to your employer
No TIN = Problems for you and your employer
If You Work from Home for Foreign Companies
This is new and important. If you:
- Code for a U.S. company while in Lagos
- Design graphics for UK clients
- Do any remote work for foreign companies
You must now pay tax on that income in Nigeria. The foreign company won’t deduct tax for you, so you must calculate and pay it yourself.
If You Earn Money from Crypto or Online
Income from cryptocurrency, NFTs, online courses, YouTube, or any digital business is now taxable. If you make money online, you need to declare it and pay tax.
The Impact of the new tax law on Businesses
If your business earns ₦100 million or less yearly and owns assets worth ₦250 million or less:
YOU PAY ZERO COMPANY TAX!
This is a massive gift to small businesses. You’re completely exempt from:
- Companies Income Tax
- Capital Gains Tax
- Development Levy
Example: You run a bakery making ₦80 million yearly. You now pay no company tax at all. That’s huge!
Regular Companies
If you don’t qualify as small business, you pay 30% tax on your profits. This hasn’t changed.
One Levy Instead of Four
Remember how you used to pay:
- Education Tax (2.5%)
- IT Development Levy
- NASENI Levy
- Police Trust Fund Levy
Now you pay just one Development Levy of 4%. Simpler paperwork, one payment instead of four.
Selling Property or Assets
The tax on selling assets (Capital Gains Tax) has increased:
- Companies: Now 30% (was 10%)
- Individuals: Depends on your tax bracket (15% to 25%)
Good news: If you sell something for less than ₦150 million and your profit is less than ₦10 million, you pay no capital gains tax.
Big Companies and Multinationals
If your company:
- Is part of a group making €750 million or more worldwide, OR
- Makes ₦50 billion or more in Nigeria
You must pay at least 15% tax. If tax breaks reduce your rate below 15%, you pay extra to reach 15%. This stops big companies from paying very little tax.
Free Trade Zones (Important Change Coming 2028)
If you operate in a Free Zone:
- Until December 31, 2027: Current tax exemptions continue
- From January 1, 2028: If you sell to Nigerian customers (not export), you’ll pay tax
What to do: If you’re in a Free Zone, start planning now for 2028 changes.
The Benefits of the New Tax Law to Nigerians
For Low Earners: You keep more of your money. The ₦800,000 tax-free threshold means most minimum wage workers pay nothing.
For Middle Earners: You get rent relief and simpler tax processes. Most will pay slightly less or the same.
For Small Business Owners: If you qualify (under ₦100 million revenue), you pay ZERO company tax. This can save you millions and help you grow faster.
For Everyone: A simpler, digital system means less paperwork, less confusion, and less corruption. It’s easier to understand what you owe and why.
Don’t Panic: These changes are designed to make things fairer and simpler. Most Nigerians will benefit, especially low and middle-income earners and small business owners.
Final Thoughts
Nigeria’s new tax law is the biggest change in over 25 years. While change can feel scary, this reform is actually designed to help most Nigerians:
✅ Low earners pay nothing
✅ Small businesses are exempt from company tax
✅ Digital systems reduce corruption
✅ Everything is simpler and clearer
The key is to prepare now. Don’t wait until January 2026. Get your TIN, update your systems, gather your documents, and understand your obligations.
Common Questions (Simple Answers)
“I’m a student. Do I need a TIN?”
No. Only people earning income need a TIN. If you have no job or business, you don’t need one.
“Will I definitely pay more tax?”
Not necessarily. Most low and middle-income earners will pay less or the same. Only very high earners (above ₦50 million yearly) will pay more.
“What if I work for an American company from Nigeria?”
You must pay Nigerian tax on that income. Since your employer won’t deduct it, you’ll need to calculate and pay it yourself at year-end.
“My landlord refuses to give me receipts. Can I still claim rent relief?”
You need proper documentation – tenancy agreement, receipts, and proof of payment (bank transfers). Without these, you can’t claim the relief. Consider this when choosing where to rent.
“What happens if I don’t get a TIN?”
Your employer might not be able to pay you, or they’ll face penalties. You’ll also have problems with banks and government services. Just get it – it’s free and easy.
“I sell things on Instagram. Is that taxable now?”
Yes. If you’re making money from any business (online or offline), it’s taxable. Keep records of your income and expenses.
“Can the government really track my income?”
Yes. The new system uses AI and cross-checks your bank accounts, business transactions, and employer records. Don’t try to hide income – penalties are severe.
“I have a side hustle. Do I need to register separately?”
If you have employment and a side business, you declare both on your tax return. You might not need separate registration, but you must declare all income.
Share this guide with your colleagues, employees, friends, and family. The more people understand these changes, the smoother the transition will be for everyone.
Disclaimer: This guide explains the new tax laws in simple terms but is not legal or financial advice. Your specific situation may be different. For personal tax advice, consult a licensed tax professional.