Introduction
The Nigeria Tax Act (NTA) 2025 and the Nigerian Tax Administration Act (NTAA) 2025 establish a new framework for the administration of personal income tax (PIT), forming part of a broader tax reform initiative launched in 2024 by the Federal Government of Nigeria. These legislative changes aim to address long-standing challenges within the PIT system, including outdated income thresholds, inconsistent practices across states, and low compliance rates.
With Nigeria's tax-to-GDP ratio hovering around 10.8%, the need to strengthen non-oil revenues remains critical. The revised PIT framework introduces several key changes, such as an updated income exemption threshold, revised progressive tax bands, and a rent-based relief deduction. It also mandates the use of Taxpayer Identification Numbers (TINs), enforces digital filing requirements for employers, and standardises employer obligations across states.
These provisions are designed to simplify compliance, improve administrative efficiency, and expand the tax net. This article explores the core elements of the new PIT framework, which will take effect from 1 January 2026, outlines eligibility for specific reliefs, and evaluates the implications for individuals, employers, and tax authorities.
Key Provisions of the New PIT Framework
The 2025 PIT framework introduces several substantive changes aimed at improving equity, simplifying compliance, and modernising tax administration in Nigeria. These provisions reflect a shift toward targeted reliefs and digital-first enforcement, with implications for both taxpayers and employers.
a. ₦800,000 Annual Income Exemption
Under the new regime, individuals earning ₦800,000 or less annually are fully exempt from PIT. This exemption is automatic and does not require any formal application or documentation. It is designed to shield low-income earners from tax liability, thereby promoting inclusivity and reducing administrative burden for both taxpayers and tax authorities.
b. Revised Progressive Tax Bands
The PIT rates have been restructured to reflect a more progressive approach, with higher rates applied to higher income brackets. The new bands are as follows:
- ₦0–₦800,000: 0%
- ₦800,001–₦3,000,000: 15%
- ₦3,000,001–₦12,000,000: 18%
- ₦12,000,001–₦25,000,000: 21%
- ₦25,000,001–₦50,000,000: 23%
- Above ₦50,000,000: 25%
The top marginal rate has increased from 24% to 25%, applicable only to ultra-high-income earners. This adjustment is designed to increase tax progressivity at the top end of the income scale, while keeping the system relatively stable for middle-income earners.
c. Targeted Rent Relief Deduction
The revised PIT framework introduces a rent-based relief that allows eligible individuals to deduct 20% of their annual rent from taxable income, subject to a maximum deduction of ₦500,000. To qualify, taxpayers must provide valid documentation confirming rent payments.
This measure replaces the Consolidated Relief Allowance (CRA), which previously granted a standard deduction to all taxpayers regardless of housing status or actual expenses. Unlike the CRA, which was automatically applied and broadly accessible, the rent relief is conditional and applies only to individuals who incur and can substantiate rental costs. This marks a shift from a universal allowance to a more targeted, expense-linked deduction.
The potential impact of this change may vary across income groups. Low to middle-income earners who rent and can provide documentation may benefit from meaningful tax relief, particularly in urban areas with high rental costs. However, individuals who own their homes or live rent-free - regardless of income level - will no longer receive the standard CRA deduction. As a result, the new relief structure may offer greater benefits to renters while reducing deductions for non-renters, potentially raising equity concerns among taxpayers with similar incomes but different housing arrangements.
d. Mandatory Taxpayer Identification Number (TIN)
The use of Taxpayer Identification Numbers (TINs) is now mandatory for all individuals engaged in formal employment, pension contributions, or tax filing. Employers are required to verify and maintain accurate TIN records for all staff. This provision supports improved taxpayer tracking, facilitates data integration across agencies, and enhances the integrity of the tax system.
e. Digital Pay-As-You-Earn (PAYE) Filing
Employers must now submit monthly Pay-As-You-Earn (PAYE) returns electronically. This digital filing requirement is part of a broader push toward automation and transparency in tax administration. Non-compliance may result in penalties, increased audit exposure, and reputational risks. The shift to digital filing is expected to streamline processes, reduce errors, and improve real-time data access for tax authorities.
f. Unified Employer Obligations
The Act introduces standardised rules for payroll deductions, remittance timelines, and record-keeping across all states. This harmonisation addresses long-standing inconsistencies in state-level administration and reduces compliance complexity for employers operating in multiple jurisdictions. It also lays the groundwork for more coordinated enforcement and oversight.
Implications for Stakeholders
The revised PIT framework introduces new obligations and potential benefits for key stakeholders in Nigeria's tax ecosystem. These changes affect how employers manage compliance, how employees engage with the tax system, and how tax authorities administer and enforce PIT provisions.
a. Implications for Employers
Employers face a range of new compliance requirements under the 2025 PIT framework. These include:
- Payroll System Updates: Employers must revise payroll structures to reflect the new tax bands, income exemptions, and rent relief deductions.
- TIN Verification: Employers are responsible for verifying and maintaining accurate TINs for all employees.
- Digital PAYE Filing: Monthly PAYE returns must now be submitted electronically, requiring system upgrades and process changes.
- Standardised Obligations: Harmonised rules across States mean employers operating in multiple jurisdictions must align with unified procedures for deductions, remittances, and record-keeping. For instance, a company operating in Lagos and Rivers State previously had to navigate different PAYE filing formats and remittance procedures despite uniform legal obligations. With the new framework, both states are expected to adopt harmonised digital platforms and enforcement protocols, reducing administrative friction for multi-state employers.
b. Implications for Employees
The revised PIT framework presents both benefits and responsibilities for employees. Key implications include:
- Income-Based Exemptions: Individuals earning ₦800,000 or less annually are now exempt from PIT, significantly easing the tax burden for low-income earners.
- Rent Relief Eligibility: Rent-paying employees who can provide documentation may benefit from a rent-based deduction, offering additional financial relief.
- Mandatory TIN Registration: All employees must obtain and maintain a valid TIN. Beyond tax compliance, this may also facilitate access to formal financial services and government programs.
An employee earning ₦750,000 annually will now be fully exempt from PIT, whereas previously they would have paid tax under the old bands. Similarly, another employee earning ₦2.5 million annually and paying ₦1.2 million in annual rent could qualify for a ₦240,000 deduction, subject to the ₦500,000 cap on rent relief.
c. Implications for Tax Authorities
For State tax authorities charged with administering PIT, the new framework is expected to drive several key improvements in tax administration:
- Data Integration: The introduction of digital PAYE submissions and mandatory use of TINs will enhance access to consistent and reliable taxpayer data, especially concerning deductions and remittances. With digital filing, states would gain real-time access to PAYE data such as monthly tax deductions and employee TINs, thereby improving audit efficiency and minimising manual errors. While full payroll details may not be captured, the available data offers a more dependable foundation for tracking compliance and identifying anomalies.
- Standardised Procedures: Aligning employer obligations across states should streamline processes, reduce administrative inconsistencies and strengthen enforcement.
- Capacity Building: Authorities may need to invest in digital infrastructure, staff training, and taxpayer education to support effective implementation.
Administrative Structure and Coordination<
Under the Personal Income Tax Act (as amended) 2011, the administration of personal income tax is federally legislated, while state internal revenue services (SIRS) are primarily responsible for day-to-day administration, including assessment, collection, and enforcement. This dual structure has resulted in inconsistencies across states, particularly in areas like filing procedures, audit practices, and taxpayer engagement.
To address these disparities, the new framework introduces measures aimed at strengthening coordination between federal and state tax authorities. These reforms are designed to enhance consistency, reduce administrative fragmentation, and improve enforcement effectiveness. Key mechanisms for improved intergovernmental collaboration include:
- Shared Digital Platforms: States are expected to adopt common digital systems for PAYE filing, TIN verification, and taxpayer record management.
- Joint Enforcement Protocols: Federal and state authorities will be required to collaborate on audit procedures, data sharing, and compliance monitoring.
- Harmonised Administrative Procedures: Guidelines for employer obligations, taxpayer registration, and dispute resolution are being standardised to reduce interpretative discrepancies.
These measures are intended to create a more seamless experience for taxpayers and employers, particularly those operating across multiple states.
However, while the coordination framework is designed to improve efficiency, several challenges may affect implementation:
- Uneven Digital Infrastructure: Some states may lack the technical capacity to fully adopt digital systems, leading to non-compliance or partial compliance.
- Limited Awareness Among Small and Middle-Scale Enterprises (SMEs) and Informal Sector Participants: Smaller businesses and informal workers may be unaware of new requirements or lack the resources to comply.
- Need for System Upgrades and Training: Both employers and tax officials may require training and support to transition to the new digital and procedural standards.
Effectively addressing the potential challenges with the new PIT framework is essential to achieving its core objective, namely, administrative uniformity, greater transparency, and improved revenue mobilisation. The success of these reforms will largely depend on how well key stakeholders, particularly employers and tax officials, adapt to the new systems and processes.
Initial implementation may expose gaps in digital infrastructure, procedural clarity, and taxpayer awareness. To mitigate these challenges and maintain reform momentum, it will be important to adopt supportive measures such as phased rollouts, hybrid filing options, and targeted training programs. These interventions can help smooth the transition, reduce early-stage disruptions, and lay the groundwork for a more coordinated and efficient PIT administration system over the long term.
Conclusion
The Nigerian government's reform agenda represents a positive and necessary step toward addressing longstanding challenges within the country's tax system. These reforms signal a shift toward greater administrative consistency and digitalisation. However, their success will hinge on effective coordination, stakeholder adaptability, and sustained investment in infrastructure and capacity development.
With specific regard to PIT administration. there is still considerable work required to begin to fully unlock the potential benefits of the ongoing reforms. While PIT remains federally legislated and primarily administered at the state level, the introduction of shared digital platforms and joint enforcement protocols are intended to minimise inconsistencies and enhance the overall taxpayer experience.
Overall, the revised PIT regime reflects a strategic effort to modernise Nigeria's tax system, expand the tax base, and promote fiscal inclusivity. Its impact would vary depending on income level, employment status, and housing conditions, making stakeholder engagement and implementation support essential for long-term success.
As Nigeria transitions to a more structured and data-driven tax environment, these reforms present an opportunity to build a fairer and more transparent system, provided that implementation is inclusive, coordinated, and responsive to the realities of taxpayers and administrators.
The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.
