Everything You Need to Know About Nigeria’s Personal Income Tax Under the New 2025 Tax Act – Q&A Guide for Everyone
Introduction: Why This New Tax Law Matters to You
Q: What is the new Nigeria Tax Act 2025 and why should I care?
On Thursday, June 26, 2025, President Bola Ahmed Tinubu signed into law four major tax reforms, with the crown jewel being the new Nigeria Tax Act 2025. It ushers in a new era for Nigeria’s tax landscape, placing special focus on transparency, compliance, and relief for low-income earners. This Act modernizes and simplifies the system while aiming to increase the country’s tax base and reduce inequality.
Think of it like replacing a rickety, old car with a new electric one: it’s cleaner, faster, more efficient, and built for the future.
For the everyday Nigerian — whether you’re a salary earner, a small business owner, a landlord, or freelancer — understanding this law is the key to avoiding legal troubles and making better financial decisions. This article will break it down for you like a friendly neighbour who happens to be a tax pro.
1. Q: Who Is Now Exempt from Paying Personal Income Tax?
A: If your total annual income is ₦800,000 or less, congratulations — you no longer have to pay personal income tax.
Why it matters:
- That’s about ₦66,667/month.
- Millions of Nigerians, including junior workers and struggling business owners, will now keep more of their money.
2. Q: What Is Considered "Total Income" Under This New Act?
A: Your total income is like the full buffet of your earnings before you start picking what the taxman can eat. It includes:
- Assessable profits from your business, trade, or side hustle
- Salary/wages/employment income
- Dividends, interests, and other investments
- Other income from any source
- Capital gains from selling things like land, shares, or digital assets
Illustration: Total Income Pie
| Source | Amount (in ₦) |
|---|---|
| Salary | 1,200,000 |
| Profits from side hustle | 500,000 |
| Rental income | 300,000 |
| Digital asset gain | 100,000 |
| Total Income | 2,100,000 |
3. Q: How Is Taxable Income Calculated?
A: Taxable income = Total Income – Total Deductions
Total deductions can include:
- Losses from business or digital assets
- Capital allowances
- Exempt income (e.g., from NHF, NHIS, pensions)
- Final tax payments deducted at source (e.g., on dividends)
Example: If you made ₦2,100,000 but had ₦600,000 in deductions, your taxable income is ₦1,500,000.
4. Q: What Are Eligible Deductions I Can Claim?
A: Here are deductions you can lawfully subtract:
| Deduction Category | Example or Note |
|---|---|
| NHF (National Housing Fund) | Statutory deduction |
| NHIS (Health Insurance) | Your contributions count |
| Pension contributions | As per Pension Reform Act |
| Home loan interest | Only for owner-occupied houses |
| Life insurance premiums | On you or your spouse |
| Rent relief | Lower of 20% of annual rent or ₦500,000 |
5. Q: Can I Just Claim Deductions Without Evidence?
A: No. The tax authority can reject your deductions without proper documentation like receipts, statements, or loan agreements.
6. Q: What Happens If I Have a Loss in My Business?
A: Losses can be carried forward and deducted in future years until they’re fully recouped. But:
- You can't deduct more than the actual loss.
- Loss from digital assets can only offset gains from digital assets.
Example: If you lost ₦200,000 in your business this year, you can deduct it next year when your business makes a profit.
7. Q: What Is Presumptive Tax and Who Does It Affect?
A: Presumptive taxation is for people who don’t keep proper records. The government will estimate your income and tax you based on industry standards.
Example: Chinedu runs a small tailoring shop without proper books. He’ll be taxed based on average earnings of tailors in his area.
8. Q: How Are Fringe Benefits and Allowances Now Taxed?
A: If your employer gives you benefits (like car, accommodation, or furniture), you may be taxed based on their market value.
Examples:
- If your company gives you a car worth ₦3 million, the tax authority assumes 5% of that value (₦150,000) as part of your income.
- For free accommodation, you may be taxed up to 20% of your gross income.
9. Q: Are There Any Tax-Free Employer Benefits?
A: Yes. These are not taxable:
- Free meals or canteen services
- Uniforms or work equipment
- Relocation expenses (due to job transfer)
10. Q: What If I Don’t Declare My Rent Properly?
A: To enjoy the 20% rent relief (max ₦500,000), you must:
- Declare your actual rent
- Provide evidence like rent receipts or tenancy agreements
11. Q: Who Is Responsible for Paying the Tax – Me or My Employer?
A:
- If you’re an employee, your employer deducts your tax monthly (PAYE).
- If you’re self-employed, you must file and pay annually.
12. Q: Can I File My Tax Return Myself?
A: Yes! And you should.
Benefits:
- Check if your employer overpaid or underpaid
- Claim deductions
- Avoid legal trouble
13. Q: Are Digital Assets Now Taxed?
A: Yes. If you trade crypto or own digital property, gains are taxable. However:
- Losses from crypto can only offset crypto gains
Example: If you made ₦500,000 in crypto but lost ₦200,000 in another coin, you pay tax on the net ₦300,000.
14. Q: What Happens If I Don’t Pay or Underreport My Income?
A: You can be:
- Penalized (with fines and interest)
- Prosecuted for tax evasion
- Blacklisted or barred from public contracts
15. Q: How Does This New Law Help Me Save Money?
A: The law now makes it easier to:
- Avoid tax if you earn ₦800,000 or less
- Claim more deductions
- File online easily
It empowers you to plan your finances better and focus on growth.
16. Q: What Should I Do Right Now?
A:
- Know your income sources
- Track your expenses
- Get your documents
- File your taxes
Infographic: Steps to File Your Annual Personal Income Tax
Conclusion: The New Dawn in Nigeria’s Tax System
The Nigeria Tax Act 2025 isn’t just for accountants and tax officials — it’s for everyone who earns a naira. With clear rules, reliefs, and modern structures, it seeks to simplify life for citizens and make Nigeria a fairer place.
Your next steps?
Understand it, use it to your advantage, and share this knowledge with someone today.