Your Complete Guide to Personal Income Tax (PIT) in Nigeria
Tax season can feel like navigating a maze—especially when you're unsure about the rules. If you've ever wondered, "How does personal income tax (PIT) work in Nigeria?" or "What exactly am I paying taxes on?", this 2025 Q&A guide breaks it all down for you.
1. What is Personal Income Tax (PIT) in Nigeria?
Personal Income Tax (PIT) is a direct tax imposed on the income of individuals, families, trustees, and estates. Governed by the Personal Income Tax Act (PITA) 2011 (as amended), the amount you pay depends on your earnings.
If you earn income in Nigeria—whether as an employee, business owner, or freelancer—you're required to pay PIT.
2. Who Must Pay Personal Income Tax in Nigeria?
Nigeria's PITA specifies who falls under the tax net:
- Regular Individuals (Majority of taxpayers):
- Salary earners
- Business owners
- Self-employed professionals
- Special Personnel:
- Military personnel (Army, Navy, Air Force)
- Police officers
- Nigerian Foreign Service officers
- Non-residents earning Nigerian income (e.g., foreign freelancers with Nigerian clients)
- Itinerant Workers (Mobile taxpayers):
- Interstate transporters
- Roaming traders
- Multi-state contractors
- Communities & Families:
- Indigenous communities taxed on collective income (e.g., village income, communal business profits) when individual taxation isn't practical.
- Trustees & Estate Executors:
- Responsible for paying tax on inheritance income, trust fund earnings, and estate proceeds.
3. What Incomes Are Taxable Under PITA?
Nigeria's PITA covers a wide range of income sources:
- Employment Income (Most Common):
- Salaries, allowances (housing, transport, etc.), bonuses, commissions
- Benefits-in-kind (company cars, free housing)
- Overtime pay, leave allowances
- Business & Professional Earnings:
- Profits from trades/businesses
- Professional fees (doctors, lawyers, consultants)
- Freelance/contract income
- Property & Investment Income:
- Rental income (residential/commercial)
- Royalties, dividends, interest (with some exemptions)
- Miscellaneous Income:
- Prizes, awards (cash or kind)
- Employment-related gifts
- Compensation payments (unless for personal injury)
4. What is a Benefit-in-Kind (BIK)?
A BIK is any non-cash benefit from your employer with monetary value (e.g., company cars, free housing). These perks are taxable under Nigerian law.
Think your company perks are tax-free? Think again!
For details, check: How to Determine BIK Under PITA.
5. What is Gross Income Under PITA?
Your gross income includes all earnings minus non-taxable income, allowable expenses, and capital allowances—before reliefs (e.g., personal relief, pension contributions).
Example:
- Total earnings: ₦10 million
- Legitimate business expenses: ₦3 million
- Gross income for tax purposes: ₦7 million
Includes:
- Employment income (salary, bonuses, BIK)
- Business/trade profits
- Investment income (rent, dividends, interest)
- Other earnings (royalties, commissions)
6. What is Taxable Income?
Your taxable income (or chargeable income) is the base amount used to calculate your tax liability. It's determined as:
Gross Income – Allowable Deductions – Exemptions + Required Additions – Total Reliefs
Or simply:
Gross Income – Total Reliefs
7. What is Net Income Under PITA?
For salary earners, net income is:
Gross Income – Tax Liability – Pension (8% of salary) – Life Insurance Premium
Example:
- Salary: ₦2,000,000
- Life insurance: ₦2,000
- Pension: ₦160,000
- Tax liability: ₦155,220
- Net income: ₦1,682,780
8. What Are Allowable Deductions?
Section 20 of PITA permits deductions for:
- Personal relief
- NHF contributions
- Approved pension contributions
- Life insurance premiums
- NHIS contributions
9. What Are Tax-Exempt Items?
Certain incomes are not taxed, including:
- Estacode (foreign assignment allowances)
- Non-taxable portions of perquisites
- Certain government compensation payments
10. What is Personal Relief?
Personal relief (or Consolidated Relief Allowance, CRA) reduces taxable income before applying tax rates.
Calculation (Section 33, PITA):
Higher of (₦200,000 or 1% of Gross Income) + 20% of Gross Income
Example (₦3,000,000 income):
- 1% of ₦3,000,000 = ₦30,000 → ₦200,000 (higher)
- 20% of ₦3,000,000 = ₦600,000
- Total relief: ₦800,000
11. What is Effective Tax Rate (ETR)?
ETR is the actual tax burden as a percentage of total income:
ETR = (Total Tax Liability / Total Income) × 100
Example:
- Taxable income: ₦5,000,000
- Tax liability: ₦700,000
- ETR: (700,000/5,000,000) × 100 = 14%
12. What is Tax Liability?
This is the total tax debt owed after applying tax rates to taxable income.
13. Nigeria's PIT Rates (2025)
Graduated rates apply to taxable income:
| Taxable Income Band (NGN) | Tax Rate |
|---|---|
| First 300,000 | 7% |
| Next 300,000 | 11% |
| Next 500,000 | 15% |
| Next 500,000 | 19% |
| Next 1,600,000 | 21% |
| Above 3,200,000 | 24% |
14. How is PIT Calculated in Nigeria?
Follow these steps:
Step 1: Calculate Gross Income
= Total income – Non-taxable income
Step 2: Deduct Reliefs & Allowances
= Gross Income – CRA – Other Deductions (pension, NHF, NHIS, etc.)
Step 3: Apply Tax Rates
Use the graduated rates to determine your tax liability.
Example (₦3,800,000 taxable income):
- First ₦300,000 × 7% = ₦21,000
- Next ₦300,000 × 11% = ₦33,000
- Next ₦500,000 × 15% = ₦75,000
- Next ₦500,000 × 19% = ₦95,000
- Next ₦1,600,000 × 21% = ₦336,000
- Remaining ₦600,000 × 24% = ₦144,000
- Total Tax Liability: ₦704,000