New Personal Income Tax Law: Nigerians Earning Below ₦800,000 to Pay Zero Tax

Towards a Simpler and Fairer Tax System

According to official reports, the four bills include the Nigeria Tax Act, the Tax Administration Act, the Nigeria Revenue Service Act, and the Joint Revenue Board Act. Together, these reforms create a more unified and transparent tax structure that consolidates numerous fragmented tax rules into one simplified code.

Under the previous tax regime, many businesses and individuals struggled with multiple tax payments at different government levels, often leading to confusion, duplication, and administrative bottlenecks. The new legal framework seeks to address these challenges by streamlining the entire process and making it easier for taxpayers to comply.

Experts say the reform marks a critical step in improving Nigeria’s tax-to-GDP ratio, which remains among the lowest in Africa despite the country’s large economy.

“This is not about introducing new taxes; it is about improving how we collect and manage the ones we already have,” said a senior tax policy adviser at the Ministry of Finance. “By removing duplication and ensuring fairness, we are encouraging compliance and reducing the burden on ordinary Nigerians.”

Raising the Tax-Free Threshold for Workers

One of the most notable features of the Nigeria Tax Act is the significant increase in the tax-free threshold. Under the new law, individuals earning up to ₦800,000 annually will pay zero percent (0%) personal income tax.

This adjustment is intended to provide relief to low-income earners and improve disposable income among workers facing economic challenges.

Under the previous tax law, personal income tax (PAYE) rates ranged from 7% for incomes below ₦300,000 to 24% for those above ₦3.2 million per year. Workers earning the national minimum wage or less were exempted, but all others paid a minimum income tax of 1% of their gross income.

The new framework, which takes effect from January 1, 2026, not only raises the exempt threshold but also introduces broader progressive bands to align more closely with Nigeria’s income distribution.

Breakdown of the New Personal Income Tax Structure

According to checks by NewsWay, the new personal income tax regime introduces a progressive rate system designed to ensure fairness and equity. Below is the new rate breakdown:

• 0% – Individuals earning up to ₦800,000 per year
• 15% – Individuals earning between ₦800,000 and ₦3,000,000 per year
• 18% – Individuals earning between ₦3,000,000 and ₦12,000,000 per year
• 21% – Individuals earning between ₦12,000,000 and ₦25,000,000 per year
• 23% – Individuals earning between ₦25,000,000 and ₦50,000,000 per year
• 25% – Individuals earning above ₦50,000,000 per year

By comparison, under the old law, the top tax rate was 24% for anyone earning above ₦3.2 million annually.

With this change, high-income earners will contribute more to national revenue, while low- and middle-income workers will benefit from expanded exemptions and lower effective rates.

Tax Administration Act: Uniform Rules Across All Tiers

The newly enacted Tax Administration Act introduces uniform rules and standards for tax collection across federal, state, and local governments. This is a major improvement in Nigeria’s tax ecosystem, where inconsistent practices previously caused confusion among businesses and taxpayers.

The Act aims to minimise administrative conflicts, reduce double taxation, and ensure that taxpayers receive consistent treatment regardless of where they operate in the country.

Tax administrators from various levels of government will now work under a harmonised framework, reducing disputes and promoting transparency in revenue collection.

Nigeria Revenue Service Act: Replacing the FIRS

Another major component of the reform is the Nigeria Revenue Service Act, which replaces the Federal Inland Revenue Service (FIRS) with a new, independent body the Nigeria Revenue Service (NRS).

The NRS is expected to operate with greater autonomy, digital capacity, and efficiency. According to the government, this change will enhance tax administration, curb revenue leakages, and improve overall compliance.

The NRS will also have enhanced powers to conduct audits, enforce penalties, and collaborate with other government agencies to ensure accountability in revenue mobilisation.

“This reform represents a significant institutional shift,” said Dr. Adewale Adefarasin, a financial analyst based in Lagos. “The creation of the NRS introduces more independence and transparency in tax management, aligning Nigeria’s system with global best practices.”

Joint Revenue Board Act: Strengthening Coordination

The Joint Revenue Board Act seeks to strengthen coordination among the different tiers of government. It establishes a Joint Revenue Board, composed of representatives from federal, state, and local tax authorities.

The law also introduces two new institutions: the Tax Ombudsman and the Tax Appeal Tribunal.

The Tax Ombudsman will act as a neutral mediator between taxpayers and tax authorities, ensuring fairness and addressing grievances promptly. Meanwhile, the Tax Appeal Tribunal will handle disputes and appeals, providing a transparent legal process for resolving tax-related conflicts.

Why the Reform Matters

Nigeria’s tax system has long been criticised for its complexity, inefficiency, and low compliance levels. With over 60 different taxes imposed at various levels of government, both individuals and businesses often found the system confusing and burdensome.

The new framework consolidates many of these taxes, significantly reducing administrative costs and compliance time. By simplifying the process, the government aims to foster a more business-friendly environment, encouraging investment and supporting economic growth.

Impact on Businesses and the Economy

For businesses, especially small and medium enterprises (SMEs), this reform comes as a welcome relief. Previously, many SMEs struggled to navigate the web of local levies, development charges, and other unofficial taxes imposed by different authorities.

The elimination of multiple taxes will help improve their ease of doing business, promote transparency, and allow more businesses to operate within the formal economy.

Economists also predict that the reform could improve Nigeria’s global competitiveness ranking and attract more foreign direct investment (FDI) in the long term.

“When investors see a predictable and simplified tax system, they feel more confident in the stability of the economy,” noted Mrs. Halima Yusuf, a taxation consultant. “The move could improve Nigeria’s reputation as an emerging market destination.”

Introduction of a Personal Income Tax Calculator

To make compliance easier for workers, the government also introduced an online Personal Income Tax Calculator. This digital tool will allow taxpayers to easily calculate their monthly or annual tax obligations.

By increasing accessibility and transparency, the calculator aims to improve voluntary compliance and reduce the need for tax agents or intermediaries. It will also help workers plan their finances more effectively.

Protecting Low-Income Earners

The new progressive structure is also designed to protect Nigeria’s most vulnerable citizens. With 0% tax for individuals earning ₦800,000 or below, the government aims to cushion the impact of inflation and rising living costs on low-income households.

According to the Finance Act of 2020, low-income earners are defined as individuals earning the national minimum wage or less currently ₦30,000 per month or ₦360,000 annually. The new threshold of ₦800,000 expands this bracket to cover a wider range of workers, providing additional relief.

Reactions from Stakeholders

Reactions to the reform have been largely positive, although some stakeholders have expressed concerns about implementation and enforcement.

Business associations, including the Nigeria Employers’ Consultative Association (NECA), commended the simplification effort but urged the government to ensure proper sensitisation and digital readiness among tax officers.

“This is a bold and progressive step,” said NECA’s Director-General, Adewale-Smatt Oyerinde. “However, for the system to work efficiently, there must be adequate training, digital tools, and awareness campaigns to help taxpayers transition smoothly.”

On the other hand, some labour groups have called for careful monitoring of how the new laws will affect workers’ net income, especially in sectors where salary structures are irregular.

Implementation Timeline and Next Steps

The new Personal Income Tax regime is scheduled to take effect on January 1, 2026. Between now and then, the government plans to roll out public education programmes, digital tools, and guidelines for employers and tax authorities.

The Federal Ministry of Finance and the Nigeria Revenue Service (NRS) will collaborate with states and local governments to ensure a seamless transition to the new framework.

Conclusion

President Tinubu’s signing of the four tax bills marks a historic milestone in Nigeria’s fiscal evolution. The reforms promise a simpler, fairer, and more transparent tax system that balances equity with efficiency.

By eliminating redundant taxes, raising the tax-free threshold, and introducing a modern administrative framework, the government hopes to build a tax culture rooted in fairness and accountability.

If properly implemented, the Nigeria Tax Act could strengthen revenue generation, ease the burden on citizens, and pave the way for sustainable economic growth in Africa’s largest economy.