Nigeria’s new Tax Act, set to take effect from January 1, 2026, introduces sweeping reforms that will reshape the country’s tax landscape for individuals, businesses, and foreign workers. Here’s a detailed breakdown of what Nigerians need to know about the impending changes.
The new legislation applies broadly to all individuals earning income within Nigeria, including salaried workers, content creators, remote workers, influencers, and traders. Additionally, Nigerian citizens earning income abroad will be subject to taxation if they qualify as tax residents in Nigeria.
Addressing widespread concerns, the new law clarifies that simply moving money through bank transfers, POS transactions, deposits, or withdrawals does not constitute a taxable event. Similarly, money held in bank accounts will not be taxed—only actual income earned, such as salaries, business profits, or interest, will be subject to taxation.
However, tax authorities will have enhanced monitoring capabilities to track business compliance, though this oversight focuses on income and profits rather than account balances.
Revolutionary Tax-Free Threshold
One of the most significant changes is the expanded tax exemption for low-income earners. Individuals earning the national minimum wage or less, as well as those with annual incomes below ₦800,000, will be completely exempt from personal income tax. Students without taxable income will also pay no taxes.
New Progressive Tax Structure
The law introduces a reformed progressive tax band system designed to reduce the burden on middle-income earners:
- First ₦800,000: 0%
- Next ₦2.2 million: 15%
- Next ₦9 million: 18%
- Next ₦13 million: 21%
- Next ₦25 million: 23%
- Above ₦50 million: 25%
For example, an individual earning ₦6 million annually will see their tax liability reduced from ₦896,000 under the old law to ₦780,000 under the new regime, representing a savings of ₦116,000 and increased take-home pay.
Military and Pension Benefits
In a major policy shift, the salaries of military officers are now completely tax-exempt. Additionally, approved pension and retirement benefits, including disability pensions for armed forces personnel injured in service, will not be subject to taxation.
Exemptions and Special Provisions
Several categories of income enjoy tax-exempt status under the new law:
Loans: Borrowed funds from financial institutions remain non-taxable, as they do not constitute income, though lenders will pay tax on interest earned.
Government Bonds: All income from federal and state government bonds is exempt from taxation.
Foreign Income: Dividends, interest, rent, and royalties earned from abroad are exempt from Nigerian tax, provided they are repatriated through approved banking channels.
Capital Gains: Profits from share sales remain tax-free as long as the shares sold do not exceed ₦150 million in value and gains stay below ₦10 million. Amounts exceeding these thresholds become taxable.
Severance Packages: Employees receiving severance packages of ₦50 million or less will pay no tax on these amounts. Only sums exceeding this threshold will be taxed using the progressive tax bands.
Changes Affecting Creative Professionals
In a significant reversal of previous policy, creative professionals including authors, musicians, and sportsmen will no longer enjoy tax exemptions on foreign income. They must now pay Nigerian tax on all income earned both domestically and internationally.
Digital Assets and Cryptocurrency
Reflecting the growing importance of digital finance, the new law explicitly includes cryptocurrency in its tax net. Profits from crypto trading, NFTs, and other digital assets are now taxable.
Business Tax Provisions
Small Businesses: Companies with annual turnover below ₦50 million are completely exempt from taxes, providing significant relief to micro and small enterprises.
Business Structure: One-person businesses registered as enterprise or business names will pay personal income tax, while those registered as limited liability companies will pay company income tax.
Agricultural Sector: Agricultural companies engaged in crop production, livestock, forestry, dairy, and cocoa processing will enjoy a five-year tax holiday from their commencement date, aimed at boosting food production and agricultural investment.
Rent Relief Provisions
The new law introduces a rent relief measure allowing individuals to claim 20% of their annual rent paid, capped at ₦500,000. To qualify for this relief, taxpayers must declare their actual rent and provide documentation to the relevant tax authority.
For instance, if annual rent is ₦5 million, while 20% would equal ₦1 million, the law limits the claimable amount to ₦500,000.
Remote Workers and Foreign Nationals
Remote workers in Nigeria employed by international organizations will be required to pay Nigerian tax if their home country exempts their salary under a treaty or diplomatic arrangement.
Foreign nationals earning salaries in Nigeria will be exempt from Nigerian tax if their employer is a start-up or operates in the technology or creative arts sectors, and their income is already taxed in their country of residence.
Enhanced Compliance and Monitoring
While the law provides numerous exemptions and reliefs, it also grants tax authorities improved tools for monitoring compliance, particularly for businesses. The focus remains on tracking income and profits rather than monitoring bank balances, though businesses should expect more rigorous oversight of their financial activities.
Implications for Tax Planning
The new law requires both individuals and businesses to review their tax planning strategies. Key considerations include:
- Properly documenting rent payments to claim relief
- Understanding the treatment of foreign income and repatriation requirements
- Structuring businesses appropriately to maximize tax benefits
- Maintaining accurate records of digital asset transactions
- Ensuring compliance with enhanced reporting requirements
As Nigeria transitions to this new tax regime, taxpayers are advised to familiarize themselves with these changes and consult with tax professionals to ensure full compliance while maximizing available benefits and exemptions.
The Nigeria Tax Act 2025 represents one of the most comprehensive tax reforms in recent Nigerian history, balancing revenue generation needs with efforts to reduce the burden on low and middle-income earners while supporting small businesses and strategic sectors like agriculture.
Ayo Sogbuyi is a seasoned journalist with over 30 years of experience, he is a passionate advocate for press freedom and ethical reporting. Throughout his career, he has covered significant global events and championed the role of journalism in holding power to account.