Our goal is to ensure you are better informed and able to provide feedback so that together we can implement this reform in a way that benefits everyone.
This is a special engagement with this stakeholder group. Based on the level of interest over 13,000 people registered we were not expecting this volume. As a result, we will likely do a rerun or share the recording, as mentioned earlier.
This session is not intended to ask anyone to promote the tax reform. Our aim is to help you understand it better. It is entirely up to you whether you choose to share this knowledge. However, we encourage you to educate your staff, especially if you work in HR or accounting.
It helps when employees understand why their pay has increased or their tax has reduced, rather than guessing. This is also important for high-net-worth individuals who may notice an increase in their taxes.
The outline of today’s session includes a brief overview of the reform objectives, implementation and transition arrangements, changes affecting employee compensation from a tax perspective, and key administrative and statutory compliance requirements.
The reform became necessary because the tax system was broken fragmented, burdened with multiple taxation, and regressive. These reforms aim to promote fairness, harmonization, efficiency, ease of doing business, and transparency in government revenue collection and spending.
We have made progress, though more work remains. At least 11 states have enacted the new law, and we are seeing improvements in modernization and the use of technology. However, challenges such as multiple taxation at the local government level still exist.
The legal framework for this discussion includes the Nigeria Tax Act, which consolidates previous tax laws such as SITA, PITA, and CGT, the Nigeria Tax Administration Act, which governs registration, assessment, filing, and enforcement; and existing notices, guidelines, and regulations that remain applicable where they are not inconsistent with the new law.
The reform focuses on several key objectives, including fiscal equity. The previous system caused fiscal drag, where low-income earners were taxed at the same marginal rate as high-income earners. This has been corrected. Issues around fiscal federalism such as stamp duties and tax exemptions are also being addressed.
Economic growth is another priority. The reform aims to reduce the tax burden on businesses, exempt small businesses, encourage formalization, and ensure competitiveness.
Previously, the tax system discouraged formalization because individuals paid lower effective tax rates than companies. This has now been corrected.
The reform also supports the digital economy. Under the new law, foreign companies hiring Nigerians remotely will no longer automatically become liable to Nigerian tax, making Nigeria more competitive globally and encouraging foreign income inflows.
Tax harmonization is a major focus, with the aim of reducing taxes across all levels of government to single digits and addressing illegal taxation. Tax identity integration is also underway.
Modernization includes the use of technology, risk-based audits, and improved compliance. More compliant taxpayers will experience fewer audits, while non-compliant taxpayers will receive increased attention.
Sustainable revenue is a secondary outcome of reform, achieved through reduced evasion, removal of distortions, and economic growth not through new or increased taxes.
The new tax laws are not retroactive. Income earned in 2025 will still be assessed under the old laws, even if filed in 2026. The new law applies to income earned from January 1, 2026.
Employers are encouraged to communicate changes clearly to employees, especially since about 98% of workers are expected to experience reduced or eliminated PAYE tax.
Key changes include harmonized Tax IDs, reduced requirements for Tax Clearance Certificates, progressive taxation, exemption of minimum wage earners, and lower tax rates for businesses to encourage formalization.
Minimum wage income is fully tax-exempt under the new law, regardless of future increases. Businesses with annual turnover below ₦100 million can now pay 0% Company Income Tax, encouraging registration and formalization.
The reform simplifies tax computation by removing complex relief structures while ensuring lower effective tax rates. This makes it easier for individuals to file returns themselves.
High-income earners may pay slightly more personal income tax, but businesses benefit from reduced corporate taxes, increased profits, and improved cash flow making them better off overall.
Non-resident tax rules are now more flexible to attract shared service centers. Remittances and gifts are not taxable, and foreign income earned by non-residents is not subject to Nigerian tax unless linked to Nigerian economic activity.
Pensions and retirement benefits under the Pension Reform Act remain tax-exempt. Compensation for loss of employment is exempt up to ₦50 million, with tax applied only to the excess.
Capital gains tax has been integrated into income tax and is now progressive. Capital market gains below ₦10 million and proceeds under ₦150 million annually are exempt for over 99% of investors.
Subnational governments retain their taxing powers, and harmonization mechanisms are being introduced to eliminate double taxation across states.
Freelancers, professionals, content creators, and virtual asset investors can now deduct expenses incurred wholly and exclusively for business purposes. Capital losses on virtual assets are now deductible.
Unilateral tax credit has been introduced, ensuring taxes paid abroad can be credited against Nigerian tax liabilities, even without a double taxation treaty.
In designing the reform, extensive data was used, including national surveys and international benchmarks. On average, about 40% of Nigerian workers earn below ₦70,000 monthly and will pay no tax.
Those earning ₦250,000 to ₦2 million form the middle class and will pay less tax, while those earning ₦2 million and above approximately the top 2% will pay more.
Implementation and Compliance Notes
Filing requirements:
Employers must file annual payroll returns.
Individuals must file self-assessment returns, even where taxes are deducted at source.
Transition rules: Income earned in 2025 is taxed under the old laws, income earned from 2026 onward is taxed under the new laws.
Tax calculation process:
Start with gross income, including benefits in kind.
Deduct statutory reliefs and allowable deductions.
Apply progressive tax rates to taxable income.
Technology adoption: Introduction of e-invoicing, APIs, and integrated tax platforms to simplify filing and payments.
Communication: Employers are encouraged to educate employees to prevent confusion over changes in payroll or tax deductions.
Addressing Misinformation and Public Concerns
Common myths debunked:
No new taxes have been introduced for the masses.
Minimum wage earners will not pay personal income tax.
Tax authorities cannot debit bank accounts without due process.
Capital gains tax on shares affects only very high-value transactions with generous exemptions.
Impact of misinformation: False narratives led to panic selling in the capital market, resulting in avoidable losses.
Use of data: Policy decisions were informed by household surveys, labor force data, and World Bank poverty thresholds adjusted for purchasing power parity (PPP).
Political economy considerations: While exemptions reduce internally generated revenue for some states, federation account allocations and improved compliance mitigate these effects.
Equity focus: The bottom 40% of workers earn below ₦70,000 per month and are fully exempt, while the top 2% of earners bear a higher tax burden.
Income Distribution and Tax Impact Overview
Monthly Income (₦)
Typical Group / Occupation
Tax Impact
Below 70,000
Junior workers, artisans, informal traders, subsistence farmers
Fully exempt from PIT
70,000 – 250,000
Teachers, retail workers, junior civil servants
Pay less tax
250,000 – 2,000,000
Middle-level professionals, senior civil servants, SME owners
Lower overall tax burden
Above 2,000,000
Top executives, business owners, content creators, influencers
Higher marginal tax rates
Approximately 96% of PIT revenue under the old system came from low-income earners an inequity now being corrected.
The top 2% of earners contribute most of the incremental revenue under the new regime.
Stakeholder Remarks
Joint Revenue Board: Emphasized strict compliance in payroll classification to avoid employer liabilities.
State Internal Revenue Services: Confirmed ongoing harmonization and noted broad taxpayer benefits.
Kano IRS: Shared experiences in criminalizing cash tax collections to reduce corruption.
Call to action: Employers were urged to train staff, understand the new laws, and adopt compliant technology solutions.
The reform balances fairness with fiscal realities. While exemptions reduce internally generated revenue for some states, improved federation allocations and broader compliance ensure sustainability.
Ultimately, the reform exempts the lowest earners, reduces the burden on the middle class, and ensures the highest earners contribute proportionately creating a fairer, more efficient tax system.
Overall Conclusion
Nigeria’s new tax reform law represents a comprehensive, equity-driven, and modernization-focused overhaul of the tax system. It corrects long-standing regressivity, reduces the burden on low- and middle-income earners, promotes business formalization, and ensures high-income earners contribute fairly. While implementation challenges remain, the reform is designed to drive economic growth, improve compliance, and enhance revenue without increasing tax rates or introducing new taxes. Clear communication, education, and stakeholder collaboration are critical to its success.
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