Nigeria's PAYE system taxes employment income at progressive rates from 7% to 24%, but the Consolidated Relief Allowance (CRA) — which deducts 20% of gross income plus NGN 200,000 before any tax is calculated — significantly reduces the effective tax burden for most employees.
Higher of (20% of gross income OR NGN 200,000) + NGN 200,000. Deducted before tax brackets applied.
Pension Contribution (Employee)
8% of monthly total emoluments under the Contributory Pension Scheme (CPS). Tax-deductible.
National Housing Fund (NHF)
2.5% of basic salary — paid monthly to the Federal Mortgage Bank of Nigeria.
Top Marginal Rate
24% — applied to annual taxable income above NGN 3.2M after CRA and other deductions.
Official Source
Federal Inland Revenue Service (FIRS) — firs.gov.ng
Introduction
How Nigeria PAYE (Pay As You Earn) Works in 2026
Nigeria's personal income tax is governed by the Personal Income Tax Act (PITA), with PAYE deducted at source by employers for all employees working in Nigeria. The tax authority overseeing federal employees is the Federal Inland Revenue Service (FIRS), while state Internal Revenue Services manage the taxes of employees in their respective states — for Lagos-based employees, the Lagos State Internal Revenue Service (LIRS) handles assessment.
The starting point for Nigerian PAYE is the Consolidated Relief Allowance (CRA): employees deduct the higher of 20% of gross income or NGN 200,000, plus an additional flat NGN 200,000, from their gross before tax brackets are applied. Added to this, pension contributions of 8% of total emoluments and National Housing Fund (NHF) contributions of 2.5% of basic salary further reduce taxable income. The result is that many mid-range Nigerian employees pay a much lower effective tax rate than the headline brackets suggest.
Section 01
How Nigerian PAYE Is Calculated: Step by Step
Understanding Nigerian PAYE requires following the calculation sequence, as the CRA and other deductions significantly reduce taxable income before any brackets apply.
Step 1 — Calculate Gross Income: Sum all employment income including basic salary, housing allowance, transport allowance, and any other emoluments.
Step 2 — Calculate the CRA: The Consolidated Relief Allowance is: 20% of gross income OR NGN 200,000 (whichever is higher), PLUS NGN 200,000 fixed allowance. For an employee on NGN 3,000,000/year gross, the CRA is: 20% × NGN 3M = NGN 600,000, plus NGN 200,000 = NGN 800,000 total CRA.
Step 3 — Deduct Pension and NHF: Subtract the 8% pension contribution and 2.5% NHF (on basic salary) from gross. These are fully tax-deductible.
Step 4 — Apply Tax Brackets: The remaining taxable income is taxed progressively: 7% on the first NGN 300,000; 11% on NGN 300,001–600,000; 15% on NGN 600,001–1.1M; 19% on NGN 1.1M–1.6M; 21% on NGN 1.6M–3.2M; 24% above NGN 3.2M.
Step 5 — Apply the 1% Minimum Tax Rule: If total tax calculated is less than 1% of gross income, the minimum PAYE is 1% of gross income. This applies to very low incomes.
Pension, NHF, and Other Nigerian Payroll Deductions
Contributory Pension Scheme (CPS): Under the Pension Reform Act 2014, Nigerian employees in the formal sector must contribute 8% of their monthly total emoluments to a Retirement Savings Account (RSA) with a Pension Fund Administrator (PFA) of their choice. Employers contribute a minimum of 10% (some contribute more). The combined 18%+ total contribution is managed by the employee's chosen PFA and invested for retirement. Pension contributions are fully deductible from taxable income.
National Housing Fund (NHF): Employees in the public sector and private companies with 10 or more employees contribute 2.5% of their basic monthly salary to the Federal Mortgage Bank of Nigeria (FMBN) under the National Housing Fund Act. These contributions accumulate and can be accessed through NHF mortgage loans. NHF contributions are tax-deductible.
NSITF (National Social Insurance Trust Fund): A 1% contribution on total emoluments is required for employers (not employees) to cover workplace injury insurance. This does not reduce employee take-home pay directly but forms part of the employer's total payroll cost.
State vs. Federal PAYE: PAYE is administered at the state level for most employees — the State Internal Revenue Service (SIRS) of the state where the employee works collects the tax. Federal government employees' PAYE is administered by FIRS. The tax rates under PITA are uniform across all states — states do not set their own PIT rates.
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Nigeria's Personal Income Tax Act (PITA) applies progressive PAYE rates: 7% on the first NGN 300,000 of annual taxable income; 11% on NGN 300,001–600,000; 15% on NGN 600,001–1.1M; 19% on NGN 1.1M–1.6M; 21% on NGN 1.6M–3.2M; and 24% above NGN 3.2M. However, taxable income is calculated after deducting the Consolidated Relief Allowance (CRA), pension contributions (8%), NHF (2.5% of basic), and any other approved reliefs. The effective rate on gross income for most formal sector employees is significantly lower than the headline bracket rates suggest — typically 5–15% for mid-range earners.
Q
What is PAYE in Nigeria?
PAYE (Pay As You Earn) is Nigeria's system of withholding personal income tax from employees' salaries at source. Employers calculate the tax due on each employee's monthly emoluments, deduct it from gross salary, and remit it to the relevant State Internal Revenue Service (or FIRS for federal employees) by the 10th of the following month. PAYE covers all employment income including basic salary, housing allowance, transport allowance, utilities, leave pay, and bonuses. The legal framework is the Personal Income Tax Act (PITA), as amended. Failure to deduct and remit PAYE can result in penalties for employers.
Q
What are pension contributions in Nigeria?
Under Nigeria's Contributory Pension Scheme (CPS), governed by the Pension Reform Act 2014, employees in the formal sector contribute 8% of their monthly total emoluments (basic salary plus housing plus transport allowances) to a Retirement Savings Account (RSA) with a licensed Pension Fund Administrator (PFA). Employers contribute a minimum of 10% — some employers contribute 12% or more. The combined contribution is invested by the PFA. Pension contributions are deductible from the income tax base, reducing PAYE liability. Upon retirement (at 50 years or more), employees can access their RSA balance as a lump sum and/or annuity.
Q
How does Nigeria compare to South Africa for income tax?
Nigeria and South Africa have meaningfully different income tax structures. South Africa's SARS Personal Income Tax uses more progressive brackets reaching a top rate of 45% on income above ZAR 1.8M (~NGN 52M at current rates) — significantly higher than Nigeria's 24% top rate. However, South Africa has no CRA equivalent and employee social contributions are relatively low. For mid-range earners, effective rates are broadly comparable: a South African on ZAR 500,000 gross faces an effective rate of approximately 22–26%, while a Nigerian on the equivalent gross faces approximately 10–15% effective after CRA. Nigeria's system is more generous to formal sector employees through the CRA mechanism but has lower compliance in the informal economy. South Africa's broader tax base and more developed tax administration give it more consistent revenue collection.
Q
What is the Consolidated Relief Allowance in Nigeria?
The Consolidated Relief Allowance (CRA) is a mandatory deduction from gross employment income before Nigerian PAYE is calculated. It equals the higher of 20% of gross annual income or NGN 200,000, plus an additional fixed NGN 200,000. The CRA replaced multiple previous allowances (rent, transport, utilities) with a single simplified deduction. For an employee earning NGN 2,400,000 per year gross: CRA = (20% × 2.4M = 480,000) + 200,000 = NGN 680,000. The CRA significantly reduces the PAYE base for all Nigerian employees and is the primary reason effective tax rates are well below headline bracket rates for most formal sector workers.
Disclaimer:General information only. Nigerian tax administration varies by state. PITA rates and CRA calculations may be updated by Finance Acts. Consult a qualified Nigerian tax professional or your State Internal Revenue Service for advice specific to your circumstances.