Nigeria Income Tax Guide 2026 | New Tax Act 2025 Brackets & Rates

Nigeria's Tax Act 2025 — signed into law in July 2024 and effective from 1 January 2026 — is the most significant overhaul of Nigeria's personal income tax system in decades. The Act raises the personal tax-free threshold from ₦300,000 to ₦800,000 per year, introduces a cleaner 6-bracket structure replacing the old 7-bracket system, and abolishes the Consolidated Relief Allowance (CRA) that had complicated calculations for years. For the first time, most low- and middle-income Nigerian earners will pay less income tax than they did previously.

This guide covers the new bracket structure in full detail, with worked examples at ₦2M, ₦5M, ₦10M, and ₦20M annual income levels. It also explains the Contributory Pension Scheme (CPS), the interaction between state PAYE and federal PITA, VAT, and the practical implications for salaried employees and self-employed individuals. All figures are verified against FIRS (Federal Inland Revenue Service) official guidance at firs.gov.ng.

The Tax Act 2025: What Changed and Why It Matters

The Nigeria Tax Act 2025 (also referred to as the Finance Act 2025 or the Fiscal Policy and Tax Reform Act 2025) was signed by President Bola Tinubu in July 2024 following recommendations from the Presidential Committee on Fiscal Policy and Tax Reforms. It took effect on 1 January 2026, making 2026 the first full tax year under the new system.

The three headline changes are: (1) The personal income tax-free threshold was more than doubled — from ₦300,000 to ₦800,000 per year. This means anyone earning ₦800,000 or less per year pays zero personal income tax, providing meaningful relief to Nigeria's lowest-paid formal-sector workers. (2) The Consolidated Relief Allowance (CRA) — which was a deduction equal to ₦200,000 plus 20% of gross income — has been abolished entirely. While the CRA benefited higher earners significantly, it added complexity and was often misapplied. The new system removes it entirely. (3) The bracket structure was simplified from 7 tiers to 6, with the new top bracket set at 25% (not the old 24%) but only applying above ₦10,000,000 — the vast majority of salaried Nigerians never reach this band.

The reform is broadly progressive: low-income earners benefit most from the doubled tax-free threshold, while the abolition of CRA has a mixed effect on higher earners depending on income level. The FIRS has issued guidance through Tax Circulars available at firs.gov.ng confirming employer obligations to update PAYE payroll systems from January 2026.

New Bracket System: Rates, Thresholds, and Worked Examples

Nigeria's 2026 personal income tax brackets under the Tax Act 2025 are as follows:

Annual Income Brackets (2026):

• 0%: ₦0 – ₦800,000
• 15%: ₦800,001 – ₦2,800,000
• 18%: ₦2,800,001 – ₦5,000,000
• 21%: ₦5,000,001 – ₦8,000,000
• 23%: ₦8,000,001 – ₦10,000,000
• 25%: Above ₦10,000,000

Worked Example 1 — ₦2,000,000/year:

• ₦800,000 exempt at 0% = ₦0
• ₦1,200,000 taxable (₦2,000,000 − ₦800,000) at 15% = ₦180,000
• Total PITA: ₦180,000 (effective rate: 9.0%)

Worked Example 2 — ₦5,000,000/year:

• ₦800,000 at 0% = ₦0
• ₦2,000,000 at 15% (₦800,001–₦2,800,000) = ₦300,000
• ₦2,200,000 at 18% (₦2,800,001–₦5,000,000) = ₦396,000
• Total PITA: ₦696,000 (effective rate: 13.92%)

Worked Example 3 — ₦10,000,000/year:

• ₦800,000 at 0% = ₦0
• ₦2,000,000 at 15% = ₦300,000
• ₦2,200,000 at 18% = ₦396,000
• ₦3,000,000 at 21% = ₦630,000
• ₦2,000,000 at 23% = ₦460,000
• Total PITA: ₦1,786,000 (effective rate: 17.86%)

Worked Example 4 — ₦20,000,000/year:

• ₦800,000 at 0% = ₦0
• ₦2,000,000 at 15% = ₦300,000
• ₦2,200,000 at 18% = ₦396,000
• ₦3,000,000 at 21% = ₦630,000
• ₦2,000,000 at 23% = ₦460,000
• ₦10,000,000 at 25% = ₦2,500,000
• Total PITA: ₦4,286,000 (effective rate: 21.43%)

The key insight: even at ₦20,000,000/year — approximately $12,500 USD — the effective tax rate is only 21.43%. Nigeria's system is designed to leave a meaningful take-home pay for formal-sector earners.

Old System vs New System: Who Benefits from the Reform?

Under the old Personal Income Tax Act (PITA) (Cap P8, LFN 2004 as amended), Nigeria used a 7-bracket structure with a Consolidated Relief Allowance (CRA) equal to ₦200,000 + 20% of gross income. The old brackets were: 7% (up to ₦300,000), 11% (₦300,001–₦600,000), 15% (₦600,001–₦1,100,000), 19% (₦1,100,001–₦1,600,000), 21% (₦1,600,001–₦3,200,000), 24% (above ₦3,200,000).

Under the old system at ₦5,000,000/year: first deduct CRA = ₦200,000 + (20% × ₦5,000,000) = ₦1,200,000. Taxable income = ₦3,800,000. Old tax = ₦7,000 (7% on ₦100,000 above ₦200,000 minimum) + ₦33,000 + ₦75,000 + ₦95,000 + ₦336,000 + ₦144,000 = approximately ₦690,000. Under the new 2026 system at ₦5,000,000: ₦696,000 — almost identical for this income level.

The clearest winners are lower-income earners: someone earning ₦1,200,000/year paid approximately ₦60,000–₦70,000 under the old system after CRA. Under the new system they pay 15% on ₦400,000 (₦1,200,000 − ₦800,000) = ₦60,000 — a modest saving. At ₦800,000/year, they now pay zero where previously they paid a small amount after CRA. For earners above ₦10,000,000, the abolition of CRA (which previously sheltered large amounts at high income levels) means those in the highest band may see a small increase, offset by the simplified compliance burden.

Contributory Pension Scheme: Employee 8%, Employer 10%

Nigeria's Contributory Pension Scheme (CPS) is governed by the Pension Reform Act 2014 (as amended). It is mandatory for all employers with 3 or more employees in the private sector, and for all federal public servants. Contributions are based on monthly emoluments (basic salary, housing allowance, and transport allowance).

Standard contribution rates:

• Employee: minimum 8% of monthly emoluments
• Employer: minimum 10% of monthly emoluments

Contributions are remitted to a Retirement Savings Account (RSA) held with a Pension Fund Administrator (PFA) of the employee's choice. PFAs are licensed by the National Pension Commission (PenCom — pencom.gov.ng).

Tax treatment: Employee pension contributions are deductible from gross income for PITA purposes — this is one of the few deductions that survived the abolition of CRA. At ₦10,000,000/year with 8% pension: ₦800,000 pension contribution reduces taxable income accordingly, providing a meaningful tax saving.

Practical example at ₦10,000,000/year:

• Gross income: ₦10,000,000
• Less pension deduction (8%): ₦800,000
• Income for PITA: ₦9,200,000
• PITA on ₦9,200,000: ₦800,000 exempt; 15% × ₦2,000,000 = ₦300,000; 18% × ₦2,200,000 = ₦396,000; 21% × ₦3,000,000 = ₦630,000; 23% × ₦1,200,000 = ₦276,000
• Total PITA: ₦1,602,000 (effective rate: 16.02% on gross income)
• Net take-home: ₦10,000,000 − ₦1,602,000 − ₦800,000 = ₦7,598,000/year

Workers employed in firms with fewer than 3 employees are technically exempt from mandatory CPS participation but are encouraged to join voluntarily. The informal sector — which comprises a large share of Nigerian employment — remains largely outside the CPS net.

State PAYE vs Federal PITA: Nigeria's Complex Tax Jurisdiction

Nigeria's Personal Income Tax Act (PITA) has a unique jurisdictional split that confuses many taxpayers. Understanding who pays tax to whom is critical.

The federal/state divide: Personal income tax in Nigeria is primarily administered at the state level — not the federal level — for most employees. The Federal Inland Revenue Service (FIRS) administers PITA only for: (1) members of the armed forces and police; (2) residents of the Federal Capital Territory (Abuja); (3) expatriate employees; and (4) persons whose income is entirely from the federal government. For everyone else — salaried workers employed in Lagos, Rivers, Kano, or any other state — income tax is administered by the State Internal Revenue Service (SIRS) of the state where the individual is resident.

The 2026 brackets apply uniformly: The Tax Act 2025 sets the national framework — the same ₦800,000 threshold and 6-bracket structure apply in all 36 states plus the FCT. States do not have separate income tax rates. What varies by state is the efficiency of collection, employer compliance monitoring, and the penalty regime.

Key rule — residence-based taxation: You pay state PAYE based on where you live, not where your employer is headquartered. A Lagos-based employee of an Abuja firm pays Lagos State PAYE to the Lagos State Internal Revenue Service (LIRS). Employers with staff in multiple states must register with and remit to each relevant SIRS.

Employer obligations: Employers must: (1) deduct PAYE from salaries monthly; (2) remit to the relevant state IRS by the 10th of the following month; (3) file annual PAYE returns by January 31 of the following year; (4) issue employee tax deduction cards (form H1 or equivalent). Non-compliance attracts penalties under PITA — typically 10% of unpaid tax plus interest at the CBN minimum rediscount rate.

VAT and Other Indirect Taxes in Nigeria

Nigeria's Value Added Tax (VAT) rate is 7.5% — unchanged under the Tax Act 2025. VAT was increased from 5% to 7.5% under the Finance Act 2019 and has remained at this rate. Compared to the African average of 14–18%, Nigeria's VAT is low, which is part of the reason FIRS has focused on broadening the VAT base rather than raising the rate.

VAT registration: Businesses with annual turnover above ₦25,000,000 must register for VAT with FIRS. The threshold was raised from ₦5,000,000 under the Finance Act 2021, exempting many small businesses. VAT returns are filed monthly.

VAT exemptions: A broad range of items are zero-rated or exempt, including: basic food items (unprocessed agricultural produce); medical and pharmaceutical products; educational materials; electricity for domestic use; baby products; exported goods and services.

Withholding Tax (WHT): Nigeria operates an extensive withholding tax system. Key rates include: dividends — 10%; interest — 10%; royalties — 10%; rent — 10%; professional/consultancy fees — 5%; contracts (supply and construction) — 5%. WHT is a payment on account of the final tax liability — it is credited against the recipient's income tax assessment.

Company Income Tax (CIT): Corporate tax on company profits is separate from PITA and is set at 30% for large companies (turnover above ₦100M/year), 20% for medium companies (₦25M–₦100M), and 0% for small companies (below ₦25M). This guide covers personal income tax; CIT is not directly relevant to individual PAYE employees.

Lagos vs Abuja: Practical PAYE Administration

The two most important tax jurisdictions for Nigerian employees are Lagos State and the Federal Capital Territory (Abuja). Both apply the same national tax brackets under the Tax Act 2025 — there are no state surcharges on income tax in Nigeria. However, the administrative experience differs significantly.

Lagos State Internal Revenue Service (LIRS — lirs.gov.ng): LIRS is the most sophisticated state tax authority in Nigeria. It introduced the LIRS e-Tax platform for electronic PAYE payments and filings. Lagos accounts for approximately 45–50% of total Nigerian personal income tax revenue. LIRS has an active enforcement programme — it regularly audits employers and issues Tax Clearance Certificates (TCC) efficiently through its online portal. Employees and self-employed individuals in Lagos must obtain an annual TCC for many transactions including property purchases, vehicle registrations, and passport renewals.

FCT Internal Revenue Service (FCT-IRS — irs.gov.ng): The FCT-IRS administers PITA for Abuja residents, alongside FIRS for federal employees in the FCT. FCT-IRS has also invested in digital systems and issues TCCs electronically. FIRS retains jurisdiction for federal public servants regardless of state.

Withholding Tax on dividends — a common confusion: The 10% WHT on dividends is administered by FIRS (not state IRS), even for individuals who are state PAYE taxpayers. Nigerian companies deduct WHT at source on dividends before payment. The WHT is a final tax on dividend income — no additional personal income tax applies on dividends that have suffered WHT.

Annual Tax Clearance Certificate (TCC): All individuals and businesses are required to obtain an annual TCC from their relevant tax authority. The TCC confirms that tax obligations for the three immediately preceding years have been settled. It is required for: government contracts, passport renewals, vehicle registration, property title transfers, and bank credit facilities above certain thresholds. Apply through your state IRS portal or FIRS portal (for FCT/federal employees).