Nigeria’s government has passed a new tax reform under President Tinubu’s administration. In June 2025, the President signed four tax reform bills into law, overhauling how taxes are collected (including personal income tax). These laws (collectively known as the Nigeria Tax Act 2024 and related Acts) simplify many old rules. They will officially start on January 1, 2026. The goal is to make taxes easier to understand and to spur economic growth while making sure wealthier Nigerians pay a fair share. Let’s explain this in detail for you.
Why the New Tax Law?
The Tinubu government introduced this law to simplify taxes and boost the economy. Before, Nigeria had many different tax laws and rates. The new law consolidates (combines) those old laws into one system. The aim is to remove confusing extra taxes on businesses and individuals, strengthen tax collection, and encourage companies to grow. Officials say that by making taxes simpler and cutting some rates, the economy will grow faster and more Nigerians will benefit. For example, the corporate tax rate was cut from 30% to 25% for most companies, and very small businesses (turnover ≤ ₦100 million) pay 0% corporate tax. The idea is “if small businesses grow, the whole country grows”.
Key Changes from the Old System
Under the new law, personal income tax and corporate taxes change significantly. Important changes include:
- Higher personal income exemption: Anyone earning ₦800,000 or less per year (about ₦67,000 per month) now pays no income tax. This is a big jump from before. (Previously, even low earners paid some tax under older rules.)
- New tax brackets: Income above ₦800,000 is taxed progressively at rates from 15% up to 25%. For example: 15% on the next portion (₦800k–₦3m), 18% on the next (₦3m–₦12m), and so on, up to 25% on incomes above ₦50m. (Under the old system, rates and brackets were different and usually higher for many earners.)
- End of Consolidated Relief Allowance (CRA): The old fixed relief (CRA) is removed. Instead, workers get a new “rent relief” of up to ₦500,000 per year or 20% of rent paid, whichever is lower.
- Company Income Tax (CIT) cut: General CIT rate fell from 30% to 25%. Very small firms (turnover ≤ ₦100m) now pay 0% CIT.
- Other levies combined: Several levies like the Tertiary Education Tax and Police Trust Fund levy are replaced by a 4% Development Levy on profits (applies to larger companies).
- Value-Added Tax (VAT) changes: VAT stays at 7.5%, but businesses can now claim back VAT they paid on most purchases (called “input VAT credit”). Also, basic goods and services (food, education, health, etc.) are zero-rated, so their VAT costs can be fully refunded.
These changes differ from the old tax system by raising the tax-free threshold and changing who pays more. Overall, the new rules shift the tax burden onto higher earners and large companies, while easing taxes on low earners and small businesses.
Who Will Be Affected?
- Salary Earners: If you earn a salary (through PAYE), most low-income workers will not pay any income tax. For example, someone on a low wage of ₦30,000 – ₦66,000/month (₦360,000 – ₦800,000/year) pays zero tax under the new law. Only when annual income exceeds ₦800,000 does tax start at 15%. Middle-income earners will generally pay lower taxes than before because of the higher exemptions and different brackets. High-income earners (above tens of millions per year) will pay up to 25%, slightly higher than before for the very rich.
- Self-Employed/Independent Professionals: Self-employed Nigerians (traders, freelancers, etc.) also follow these rules. They must register with the tax authority, get a Tax Identification Number (TIN), and file annual returns. The same income thresholds and rates apply. For example, a self-employed person earning ₦2 million per year now pays 15% only on the portion above ₦800k.
- Small Businesses and Traders: Informal businesses turning formal (by registering as companies) get new incentives. If a business’s annual turnover is ₦100 million or less and its assets are under ₦250 million, it pays no corporate tax, no capital gains tax, and no development levy. A small shop earning ₦90 million/year will therefore pay 0% CIT under the new law, whereas previously it would have paid 30% on its profits. This change encourages businesses to register and grow.
- Higher-Earners and Big Companies: Those with very high income or large companies will pay more. For example, a company with annual profit of ₦1 billion now pays 25% instead of 30%, but a multinational group may face a 15% minimum tax on its profits worldwide (a new global minimum rule). Wealthy individuals who earn well above ₦50 million/year will pay 25% on income above that level.
Examples: How You Might Be Affected
- A Low-Income Worker: Suppose you earn ₦50,000 per month (₦600,000 per year). Under the old system you might have paid some tax (even 5–7% on your income above 300k). Under the new law, your ₦600,000 income is fully exempt, so you pay no income tax at all.
- A Middle-Income Worker: If you earn ₦100,000 per month (₦1,200,000 per year), under the new rules the first ₦800,000 is tax-free, and only the remaining ₦400,000 is taxed at 15%. That’s ₦60,000 tax for the year. Previously, you would have paid higher rates on a bigger portion of your income. In short, you pay much less tax now.
- A Freelancer Earning ₦5 Million a Year: Here, ₦800,000 is tax-free, the next ₦2.2 million is taxed at 15% (₦330,000), and the remaining ₦2 million falls into the 18% bracket (₦360,000). Total tax ≈ ₦690,000. This is generally lower than under the old system for that income level.
- Small Business (Turnover ₦80m): A small company making ₦80 million turnover/year (within the small business limit) will pay zero corporate tax. Previously it would pay 30% on its profits. This change saves the business a lot of money and encourages formal registration.
- Large Company (Profit ₦100m): A bigger company with ₦100m profit now pays 25% (₦25m) instead of 30% (₦30m) in tax, plus a 4% development levy (₦4m). So total tax+levy would be 29% of profit (lower than old ~30%).
These examples show the new law tends to reduce taxes for most ordinary Nigerians and small businesses, while slightly increasing the share from the wealthy.
Exemptions and Relief for Low-Income Nigerians
The government has explicitly promised to protect low-income earners. In practice:
- Full Exemption for the Poorest: Officials say about 95% of Nigerians will end up paying no personal income tax under the new regime. In fact, anyone earning at or below the new minimum threshold (₦800,000/year) is exempt. President Tinubu and his team emphasize that the reforms target “those at the top of the pyramid,” easing the burden on ordinary workers.
- VAT Relief on Essentials: In addition, people earning very low wages (for example, ₦100,000/month or less) are being helped through VAT relief on basic goods. This means essential items like food, healthcare, education, etc., will have zero VAT so that low earners do not pay tax at the point of purchase.
- Increased Allowances: Certain payouts also have higher exemptions. For instance, severance (loss-of-job) payments up to ₦50 million are tax-free (previously only ₦10m was exempt), helping protect those who lose jobs.
Overall, the official line is that low-income Nigerians pay little or no new tax. The Personal Income Tax changes are designed so “if you are a low-income earner, you are exempt from paying tax from January next year,” in the words of a tax official. This shows the government’s intention to shield the poorest workers even as it raises taxes elsewhere.
Summary
Nigeria’s new tax law (signed in June 2025, effective Jan 1, 2026) reshapes the tax system. It cuts and consolidates taxes, aiming to make it easier to do business and fairer for workers. key points are:
- Higher tax-free income: All annual earnings up to ₦800,000 (about ₦66,700/month) are now tax-exempt.
- Progressive rates: Income above that is taxed in rising brackets (15% up to 25%).
- Small business relief: Tiny companies (turnover ≤ ₦100m) pay no corporate tax.
- Lower taxes for many: Most Nigerians will pay less tax than before, with 95% paying nothing.
- Safeguards for the poor: The poorest workers get exemptions and VAT-free essentials to cushion them.
These changes are meant to simplify taxes and encourage growth. For detailed questions, Nigerians can follow guidance from tax authorities like the Federal Inland Revenue Service, which is working on public outreach about the new law.
