Calculating Your Personal Income Tax Under Nigeria’s New Tax Law

During a phone conversation I had with a client earlier today, I mentioned that there has been quite a lot of misinformation flying around about the new tax laws, which go into effect next year.

From people claiming that everyone will be taxed a universal 20% levy on their income to some claiming that all the money currently in your bank account will be taxed, there has been a widespread misinformation campaign doing the rounds recently. In some ways, it almost seems as though most citizens never paid tax before this.

As a matter of fact, while putting the finishing touches on this article, I came across yet another tweet that reinforced this false claim of a flat 20% tax rate across the board.

However, this is not true.

The truth is, we’ve always had taxes, albeit with numerous issues. Too many laws, too many rates, too many loopholes, and, some would say, too thin a spread. The 2025 reform tries to clean all of this up. And if you’ve ever wondered how your personal income tax is actually calculated, not just guessed at, this is for you.

I would encourage you to read through this article, if not for anything, just to gain some knowledge about what’s really going on and how your personal finances specifically will be impacted by the new tax laws, particularly under the Nigeria Tax Act (NTA), 2025.

The New Tax Bands (Marginal)

Personal income tax is now graduated into six bands, with five of them being taxable. This means you don’t pay one flat rate on your whole income; you pay in slices as your income climbs higher.

So here’s the new structure:

• First ₦800,000 at 0%

• Next ₦2,200,000 (₦800,001 to ₦3,000,000) at 15%

• Next ₦9,000,000 at 18% (₦3,000,001 to ₦12,000,000)

• Next ₦13,000,000 at 21% (₦12,000,001 to ₦25,000,000)

• Next ₦25,000,000 at 23% (₦25,000,000 to ₦50,000,000)

• Above ₦50,000,000 at 25% (₦50,000,001+)

  
  

It’s sort of like a staircase. The higher you go, the more you pay on that next step, but only on the portion of your income that falls there.

Reliefs and Deductions

Before applying these bands, however, your gross income is reduced by allowances and reliefs:

• Pension contributions

• National Housing Fund (NHF)

• Life assurance premiums

• Rent relief: 20% of rent, capped at ₦500,000.

  
  

These aim to soften the blow by lowering your “taxable income,” which, as the name implies, is the total amount you’re to pay tax on. These deductions are taken out of your gross income before the remainder is subsequently taxed.

To keep this article simple, I’ve stripped out pension, NHF, and other deductions and will only use rent relief. This way you can see how the bands themselves apply without too much complexity.

Practical Examples

There are many deductions you can legally claim before tax is applied, for things like pension, life assurance, and the Consolidated Relief Allowance. As mentioned previously, to keep this article simple, we’ll strip everything away and only use rent relief. That relief is set at 20% of your annual rent, capped at ₦500,000, whichever is lower.

Let’s run through four earners.

1. A low-income earner: Ada earns ₦1,500,000 per year

• Gross income: ₦1,500,000

• Rent relief: ₦200,000 (20% of ₦1m rent)

• Taxable income = ₦1,300,000

Apply the bands:

• First ₦800,000, at 0% = ₦0

• Remaining ₦500,000, at 15% = ₦75,000

Going by this, Ada’s total tax will be ₦75,000, since she is being taxed solely on the first taxable band.

2. A middle-income earner: Tunde earns ₦5,000,000 per year

• Gross income: ₦5,000,000

• Rent relief: ₦500,000 (rent is ₦3m, capped)

• Taxable income = ₦4,500,000

Apply the bands:

• First ₦800,000, at 0% = ₦0

• Next ₦2,200,000, at 15% = ₦330,000

• Remaining ₦1,500,000, at 18% = ₦270,000

• Add them up.

Tunde’s total tax is ₦600,000.

3. A high-income earner: Efe earns ₦20,000,000 per year

• Gross income: ₦20,000,000

• Rent relief: ₦500,000 (capped)

• Taxable income = ₦19,500,000

Apply the bands:

• First ₦800,000, at 0% = ₦0

• Next ₦2,200,000, at 15% = ₦330,000

• Next ₦9,000,000, at 18% = ₦1,620,000

• Next ₦7,500,000 (up to ₦19.5m), at 21% = ₦1,575,000

• Add them up.

Efe’s total tax is ₦3,525,000.

4. A very high-income earner: Musa earns ₦80,000,000 per year

• Gross income: ₦80,000,000

• Rent relief: ₦500,000 (capped)

• Taxable income = ₦79,500,000

Apply the bands:

• First ₦800,000, at 0% = ₦0

• Next ₦2,200,000, at 15% = ₦330,000

• Next ₦9,000,000, at 18% = ₦1,620,000

• Next ₦13,000,000, at 21% = ₦2,730,000

• Next ₦25,000,000, at 23% = ₦5,750,000

• Remaining ₦29,500,000, at 25% = ₦7,375,000

Musa’s total tax is ₦17,805,000.

Note again that there are other deductions present that could potentially soften some of these tax hits, but these examples only take one into consideration (rent relief)

I would encourage you to look further into these deductions and reliefs, as they could prove to be very helpful in minimizing your exposure.

So How Do You Pay?

• If you’re employed, your employer deducts PAYE and remits it to the NRS.

• If you’re self-employed or freelance: You file online through the new NRS platform, declare income, apply for reliefs, and pay directly.

• If you’re informal: The NRS is developing simplified digital channels and working with state tax authorities to bring more people on board.

  
  

Final Thoughts

I have quite a number of thoughts on the new tax reform, which I likely will discuss in a later article to be published here; however, this focuses primarily on enlightening you, the citizen, on the new tax bands, to get a rough idea of how much tax you could be paying come next year.

The core idea for this tax reform is about widening the net, reducing exemptions, and making the rules clearer. Low earners are protected. Middle earners get some relief. High earners carry more of the weight.

Implementation will decide if this becomes a turning point or another policy on paper. I suppose we’ll see next year.

For now, at least you can calculate your own tax bill.