As 2025 concludes, Nigeria stands on the brink of a significant overhaul of its tax system, scheduled to commence on the first day of January 2026. The Tax Reform Act, which President Bola Tinubu signed into law in June 2025, is designed to modernise the nation's fiscal framework. Despite extensive public awareness campaigns, confusion persists among citizens regarding the specifics of the impending changes.
Clarifying the Core Objectives of the Reform
Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, has addressed rising public concerns. Speaking at the 2025 Nigeria Media Merit Award (NMMA) event in Lagos, Oyedele emphasised that the reforms are not intended to impose heavier tax burdens or arbitrary revenue collection targets on Nigerians. He framed the initiative as a broader effort to restore trust between the state and its citizens, moving beyond mere discussions on tax rates.
Nevertheless, apprehension remains widespread. To dispel myths and provide clear guidance, here is a detailed breakdown of the most pressing questions and their official answers regarding the new law.
Who is Affected and What is Taxable?
The Nigerian Tax Law applies comprehensively to all individuals generating income within the country. This includes formal employees, traders, content creators, influencers, and remote workers. It also extends to Nigerians earning income abroad if they are considered tax residents of Nigeria.
Contrary to some fears, routine banking activities will not attract taxes. Bank transfers, POS transactions, deposits, and withdrawals are not taxable events. Taxation is levied solely on earned income. Similarly, merely holding money in a bank account is not taxable; only income like salaries, business profits, or interest is subject to tax.
Students without jobs or any individual with no taxable income are not required to pay tax. While tax authorities may have enhanced tools to monitor compliance, the focus remains on income and profits, not bank balances.
Specifics on Exemptions, Reliefs, and New Rates
The law introduces several key exemptions and clarifications. Loans received are not considered income and are tax-free, though interest earned by the lender is taxable. For businesses, the tax type depends on registration: a business name pays Personal Income Tax, while a limited liability company pays Company Income Tax.
Significant exemptions include:
- Profits from selling shares, provided the transaction value is below N150 million and the gain is under N10 million.
- Approved pension and retirement benefits.
- Salaries of military officers.
- Severance packages of N50 million or less.
- Agricultural companies in specified fields, which get a five-year tax holiday from startup.
- Income from federal or state government bonds.
- Disability pensions for armed forces personnel.
A major change affects creative professionals. Authors, musicians, and sports professionals must now pay Nigerian tax on income earned both locally and abroad, ending previous exemptions on foreign income.
Profits from cryptocurrencies, NFTs, and other digital assets are now explicitly taxable. However, dividends, interest, rent, and royalties earned abroad are exempt if repatriated through approved Nigerian banking channels.
From 2026, a new progressive tax band system takes effect:
- First N800,000: 0%
- Next N2.2 million: 15%
- Next N9 million: 18%
- Next N13 million: 21%
- Next N25 million: 23%
- Income above N50 million: 25%
Individuals earning the national minimum wage or less, and those with an annual income below N800,000, are exempt from Personal Income Tax. The reform also introduces a rent relief of 20% of annual rent, capped at N500,000, subject to declaration and verification.
Practical Implications and Compliance
The reforms bring tangible benefits for many. For instance, an individual earning N6 million yearly will see their tax payable drop from N896,000 to N780,000, saving N116,000 and increasing take-home pay.
Small companies with an annual turnover below N50 million are exempt from tax. Remote workers in Nigeria for international organisations will be taxed unless their income is exempt in the organisation's home country under a specific treaty. Foreigners earning salaries in Nigeria may be exempt if their employer is a startup in the tech or creative sector and the income is already taxed in their home country.
Regarding the Tax Identification Number (TIN), existing bank accounts will not be blocked for lack of a TIN. However, opening a new bank account without one may not be permitted. The Federal Government has simplified the payment process, offering four digital platforms for convenient tax remittance.
As the January 2026 implementation date approaches, understanding these provisions is crucial for all income-earning individuals and businesses in Nigeria to ensure smooth adaptation to the modernised tax system.
