LAGOS, Nigeria – A significant reform of Nigeria’s tax system is scheduled to commence on January 1, 2026. The new Nigeria Tax Act introduces a range of changes that will impact a broad spectrum of individuals and businesses, from market traders and content creators to remote workers and corporate entities.
This report provides a clear and factual overview of the key provisions within the new legislation to clarify its implications for personal finances.
Clarification on Taxable Events
A primary point of clarification from the Federal Inland Revenue Service (FIRS) is that the new law does not tax the balance in personal bank accounts. Routine financial transactions such as transfers, POS payments, or deposits are also not considered taxable events.
“The tax is levied on income earned, such as salaries, business profits, or interest. It does not apply to existing savings. Individuals without an income, or those with an annual earnings below ₦800,000, will not be liable for income tax,” a FIRS official explained.
Scope and Exemptions
The law applies to all individuals earning income within Nigeria, including self-employed professionals, influencers, and Nigerians working remotely for overseas companies. However, several key exemptions provide relief for specific groups.
Military Personnel: The salaries of all military personnel are now fully exempt from tax.
Pensioners: Pension and retirement benefits remain non-taxable.
Small Businesses: Companies with an annual turnover of less than ₦50 million are exempt from Company Income Tax. Furthermore, new agricultural enterprises will benefit from a 5-year tax holiday to encourage growth in the sector.
The New Progressive Tax Structure
The legislation introduces a progressive tax system, meaning the tax rate increases as income rises. The first ₦800,000 of annual income is taxed at 0%.
The revised tax bands are as follows:
First ₦800,000 → 0%
Next ₦2.2 million → 15%
Next ₦9 million → 18%
Next ₦13 million → 21%
Next ₦25 million → 23%
Above ₦50 million → 25%
Introduction of Rent Relief for Tenants
A notable innovation in the act is the introduction of a tax relief for tenants. Individuals paying rent can claim a deduction of 20% of their annual rent, up to a maximum of ₦500,000, from their taxable income.
“For example, if your annual rent is ₦2.5 million, 20% amounts to ₦500,000. This sum can be deducted from your total income before your tax liability is calculated. To benefit from this relief, taxpayers must declare the actual rent paid to their tax office,” the FIRS source added.
Taxation of the Digital Economy
The new law modernizes the tax framework to include the digital economy. Profits generated from trading in cryptocurrencies, NFTs, and other digital assets will now be subject to tax. Additionally, the foreign income of creatives, such as musicians and authors, which was previously exempt, will now be taxable in Nigeria.
Potential Benefits of the New Tax Law
The reform is designed to create a more equitable and efficient system aimed at fostering national development.
Equity: The structure protects low-income earners and small businesses while ensuring higher earners contribute a proportionate share.
Economic Stimulation: Tax incentives for agriculture and small enterprises are intended to stimulate job creation and economic growth in vital sectors.
Enhanced Public Revenue: By broadening the tax base to include the digital economy, the government aims to increase revenue for essential public services and infrastructure projects.
Recognition for Service: The tax exemption for military salaries acknowledges the contributions of the armed forces.
A financial analyst commented, “If implemented effectively, this law has the potential to create a fairer tax system. The ‘Rent Relief’ is a particularly thoughtful provision. The ultimate measure of success will be the transparency in administration and the tangible application of generated revenue for public benefit.”
As the 2026 implementation date approaches, individuals and businesses are advised to familiarize themselves with the new requirements and maintain accurate financial records. This new tax framework represents a significant step towards modernizing Nigeria’s fiscal policy.
