Tax
Nigeria Tax Act 2025: what actually changes on 1 January 2026
New PAYE bands from 0% to 25%, rent relief replacing the Consolidated Relief Allowance, and nothing at all to pay on the minimum wage. The bands, the arithmetic, and who ends up worse off.
5 Jan 2026 · 9 min read
The Nigeria Tax Act 2025 took effect on 1 January 2026. It replaces the personal income tax bands that had stood since 2011 with a new 0%–25% scale, scraps the Consolidated Relief Allowance in favour of a rent relief, removes anyone on the national minimum wage from PAYE altogether, and sets company income tax at 0% for small companies.
If you are on a salary, this decides your take-home pay from January. If you run the payroll, it decides what you deduct and remit every month — and the liability for getting it wrong is yours, not your employees'.
Every figure below comes from the Act as signed. The worked examples are calculated in full so you can check them against your own payslip.
The new PAYE bands
Personal income tax is charged on these bands of annual chargeable income — what is left after your allowable deductions, not your gross salary.
| Annual chargeable income | Rate |
|---|---|
| First ₦800,000 | 0% |
| Next ₦2,200,000 | 15% |
| Next ₦9,000,000 | 18% |
| Next ₦13,000,000 | 21% |
| Next ₦25,000,000 | 23% |
| Above ₦50,000,000 | 25% |
The bands are cumulative. Crossing into the 21% band does not put your whole income at 21% — only the slice that falls inside it.
The top rate rises from 24% to 25%, but the first ₦800,000 is now free of tax entirely. Under the old scale, the first naira of chargeable income was taxed at 7%.
Rent relief replaces the Consolidated Relief Allowance
This is the change most coverage skips, and it is the one that decides whether you personally pay more or less.
The Consolidated Relief Allowance is gone. It used to give every taxpayer the higher of ₦200,000 or 1% of gross income, plus a further 20% of gross income, deducted before tax was worked out. On a ₦12m salary that was ₦2.6m of deductions before you counted anything else, and it applied automatically.
In its place is rent relief: the lower of 20% of the annual rent you actually paid, or ₦500,000.
- It is capped. ₦500,000 a year is the ceiling, no matter how high your rent.
- It is not automatic. You must have paid rent, and you should expect to evidence it.
- Own your home outright or live rent-free, and you claim nothing at all.
Still deductible before tax, unchanged: pension contributions at 8% of basic, housing and transport allowances; National Housing Fund contributions; National Health Insurance contributions; and life assurance premiums. All of them need documentation.
A worked example
Take someone on ₦12,000,000 a year — ₦1m a month — paying ₦1,000,000 a year in rent, on a typical structure where basic, housing and transport make up 80% of the package.
| Step | Amount |
|---|---|
| Gross annual income | ₦12,000,000 |
| Less pension (8% of ₦9,600,000) | (₦768,000) |
| Less rent relief (20% of ₦1,000,000) | (₦200,000) |
| Chargeable income | ₦11,032,000 |
Note that the rent relief here is ₦200,000, not the ₦500,000 ceiling — the cap only bites once annual rent passes ₦2.5m. Applying the bands to that chargeable income:
| Band | Amount taxed | Rate | Tax |
|---|---|---|---|
| First ₦800,000 | ₦800,000 | 0% | ₦0 |
| Next ₦2,200,000 | ₦2,200,000 | 15% | ₦330,000 |
| Next ₦9,000,000 | ₦8,032,000 | 18% | ₦1,445,760 |
| Total | ₦11,032,000 | ₦1,775,760 |
Annual PAYE of ₦1,775,760 — ₦147,980 a month, an effective rate of 14.8% on gross pay.
Who pays less, and who pays more
Because the reliefs changed at the same time as the bands, there is no single answer. Below is the same calculation run across a range of salaries, comparing the old regime with the new one. Both columns assume 8% pension on basic, housing and transport at 80% of gross, and no rent relief claimed in the new column.
| Monthly gross | Old PAYE/mo | New PAYE/mo | Change | Effective rate |
|---|---|---|---|---|
| ₦70,000 | ₦2,834 | ₦0 | −₦2,834 | 0% |
| ₦100,000 | ₦5,540 | ₦4,040 | −₦1,500 | 4.0% |
| ₦150,000 | ₦11,143 | ₦11,060 | −₦83 | 7.4% |
| ₦200,000 | ₦18,135 | ₦18,080 | −₦55 | 9.0% |
| ₦250,000 | ₦25,807 | ₦25,100 | −₦707 | 10.0% |
| ₦300,000 | ₦33,535 | ₦33,044 | −₦491 | 11.0% |
| ₦500,000 | ₦66,987 | ₦66,740 | −₦247 | 13.3% |
| ₦750,000 | ₦111,147 | ₦108,860 | −₦2,287 | 14.5% |
| ₦1,000,000 | ₦155,307 | ₦150,980 | −₦4,327 | 15.1% |
| ₦1,500,000 | ₦243,627 | ₦247,340 | +₦3,713 | 16.5% |
| ₦2,000,000 | ₦331,147 | ₦345,620 | +₦14,473 | 17.3% |
| ₦4,500,000 | ₦766,747 | ₦880,500 | +₦113,753 | 19.6% |
The shape of the reform is in the last column. Low and middle earners keep more; the bill turns upward at roughly ₦1.3m a month and climbs steeply after that. Someone on ₦4.5m a month pays about ₦1.36m more over a year.
Claiming the full ₦500,000 rent relief is worth up to ₦105,000 a year to someone in the 21% band, so the crossover sits a little higher for anyone who pays rent and keeps the receipts.
Nobody on minimum wage pays PAYE any more
An employee earning at or below the national minimum wage of ₦70,000 a month is no longer liable to personal income tax at all. They were taxed before — modestly, but they were taxed.
If you employ people at or near that level, their deduction is now zero. Check that your payroll actually reflects it. A template built before 2026 will carry on deducting, and the employee is the one who notices.
If you are the one paying the salaries
The tables above are written from the employee's side. Run a payroll and they are a budgeting document instead.
Your junior staff cost you the same and take home more. PAYE at or below ₦70,000 a month is now nil, and it falls at every level up to about ₦1.3m. That is a pay rise you did not have to fund, and it is worth telling people about — someone on ₦100,000 a month is ₦1,500 better off without you spending anything.
Your senior hires became more expensive to make whole. If you negotiate on net pay, the numbers moved underneath you: matching a take-home of ₦2m a month now costs meaningfully more in gross salary than it did in 2025, and the gap widens the higher you go. Quote gross, not net, and let the tax calculation sit where it belongs.
None of this changes the obligations themselves. You still remit monthly, still file annual returns, and you are still liable if the deduction is wrong.
Company income tax and the small company line
Small companies pay 0% company income tax. They are also exempt from capital gains tax and from the new development levy. Everyone else pays 30%.
There is one genuinely unresolved point here, and it is worth knowing about rather than assuming you have misread something:
- The Nigeria Tax Act defines a small company as one with gross turnover of ₦50m or less and fixed assets of ₦250m or less.
- The Nigeria Tax Administration Act, passed alongside it, uses ₦100m or less with the same asset test.
The two figures sit in two different statutes and have not been reconciled in the text. Some professional guidance has run with the ₦100m number. If your turnover falls between ₦50m and ₦100m, that gap is the difference between owing 30% and owing nothing — so take advice on your own position and get the answer in writing before you file, rather than assuming the more favourable reading.
Either way, companies providing professional services are excluded from small company treatment regardless of turnover.
The development levy is a single 4% charge on assessable profits, consolidating four levies that businesses previously computed and paid separately — the Tertiary Education Tax, the NITDA information technology levy, the NASENI levy, and the Police Trust Fund levy. Small companies and non-resident companies do not pay it. For most mid-sized companies it is simpler to calculate, though not necessarily cheaper.
VAT: the rate holds, the rules move
The headline rate stays at 7.5%. What changes is everything around it.
More things are zero-rated — basic food items, medical and pharmaceutical products, educational books and tuition, medical equipment, and residential rent. The distinction from exempt matters commercially: on a zero-rated supply you charge the customer nothing but can still recover the input VAT on your own costs. On an exempt supply you cannot.
Input VAT recovery is broader. Businesses can now claim input VAT on services and on capital expenditure — equipment and assets that used to be stranded cost. That is a real saving, and it is only available if your records are complete enough to support the claim.
Invoicing gets stricter. The Act introduces mandatory invoice sequencing and fiscalisation, with obligations on digital service providers. Sequential, tamper-evident numbering stops being good practice and becomes a requirement.
What to do before your next filing
- Update your payroll bands. Anything still running the old 7%–24% scale is deducting the wrong amount from every employee, every month.
- Zero out PAYE for minimum-wage staff, and check it rather than assuming the software handled it.
- Collect rent evidence from employees who want the relief — tenancy agreement, receipts, proof of payment.
- Work out which side of the small company line you fall on, and if you are between ₦50m and ₦100m of turnover, get it confirmed rather than guessed.
- Fix your invoice numbering now. Sequencing is far easier to adopt before you have a year of gaps behind you.
- Separate capital expenditure in your books, because you can only reclaim input VAT on equipment you can evidence.
The last two are really the same point. This reform rewards businesses whose records are already clean and penalises the ones that reconstruct the year in March. If your expenses live in a WhatsApp thread and your invoices are numbered by hand, the cost of that has just gone up.
Common questions
When did the Nigeria Tax Act 2025 take effect? 1 January 2026. It was signed in June 2025, giving businesses roughly six months to prepare.
What are the new PAYE rates? 0% on the first ₦800,000 of annual chargeable income, then 15%, 18%, 21%, 23%, and 25% above ₦50,000,000.
Is the Consolidated Relief Allowance still available? No. It was abolished and replaced by rent relief, capped at the lower of 20% of annual rent paid or ₦500,000.
Do I pay less tax under the new law? Under roughly ₦1.3m a month, yes — modestly. Above that you pay more, and the gap widens sharply at the top. Anyone on the ₦70,000 minimum wage now pays nothing.
Are pension contributions still deductible? Yes, at 8% of basic, housing and transport allowances. NHF, NHIS and life assurance premiums remain deductible with documentation.
Did VAT go up? No. It remains 7.5%. The zero-rated list expanded and input VAT recovery was broadened.
This article explains the law as enacted and is not tax advice for your circumstances. The ₦50m/₦100m small company threshold in particular is unsettled between the two Acts — confirm your position with a qualified adviser or with the FIRS before you file.