The Nigerian government announced new progressive Personal Income Tax (PIT) rates under the Nigeria Tax Act 2025, which will be taking effect from January 1, 2026. The reform represents the most comprehensive update to the country’s personal tax system in more than 20 years.
It seeks to ease the tax burden on low-income earners while increasing contributions from higher-income individuals. The initiative is part of the government’s broader strategy to modernise tax administration and align Nigeria’s system with global standards.
Taxpayers are advised to review their income brackets and prepare for updated deductions and rates in the upcoming tax year.
Here are 10 key points to understand about the new PIT rates.
1. Tax exemption for low-income earners
Individuals earning an annual income of ₦800,000 or less are fully exempt from paying personal income tax. This change is designed to relieve the tax burden on the lowest income earners and aligns with Nigeria’s national minimum wage policy.
2. New progressive tax bands and rates
The new tax structure introduces seven income brackets with rates ranging from 0% to 25%. The highest marginal rate is now 25% for individuals earning above ₦50 million annually. Middle-income earners benefit from lower rates compared to the previous system, while high earners face increased rates.
3. Abolition of Consolidated Relief Allowance (CRA)
The Consolidated Relief Allowance, which previously provided tax relief to individuals, has been completely removed. It has been replaced by a new Rent Relief system that allows individuals to claim the lower of ₦500,000 or 20% of their annual rent paid.
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4. Rent relief system
The Rent Relief replaces the CRA and is designed to provide targeted relief based on actual housing costs. Taxpayers can deduct either ₦500,000 or 20% of their rent from their taxable income, whichever is lower, potentially reducing taxable income for many individuals.
5. Increased exemption threshold for compensation for loss of employment
The new tax law raises the exemption threshold for compensation related to job loss or personal injury from ₦10 million to ₦50 million, providing greater financial protection for affected individuals.
6. Capital gains tax alignment with PIT rates
Capital gains for individuals will now be taxed at the applicable progressive income tax rates based on income brackets rather than a flat rate. This change integrates capital gains into the broader income tax framework.
7. Clarification on tax residency rules
The reforms define tax residency clearly. An individual is considered a tax resident in Nigeria if they spend 183 days or more in the country during a tax year or maintain significant economic or family ties. This provides clarity for globally mobile taxpayers.
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8. Global income taxation for residents
Resident individuals are now taxed on their worldwide income, including foreign employment income. Non-resident employees are only taxed on Nigerian-sourced income where duties are performed in Nigeria. This marks a shift towards a residency-based tax system.
9. Standardisation of PAYE and withholding tax processes
Employers are required to uniformly withhold and remit Pay-As-You-Earn (PAYE) taxes monthly. The reforms also mandate standard documentation for employee benefits and empower the tax service to enforce compliance consistently across states.
10. Implementation and impact timeline
The new progressive PIT rates take effect from January 1, 2026. These reforms aim to broaden the tax base, simplify tax administration, and enhance compliance while balancing relief for low-income earners with increased contribution from high earners.
