•Myths versus facts: Things you need to know about Nigeria Tax Act 2025

With the January 1, 2026 rollout of the new Nigeria Tax Act 2025, many Nigerians, particularly ordinary citizens, are battling uncertainty and confusion.

To worsen the narrative, social media posts have spread misinformation about new levies, inflated tax rates and flaunted radical changes that are not accurate. The new tax regime has a significant shift. It clearly passes the tax burden to the high income earners and provides relief to the low-income earners.

Overview

With the takeoff, one thing is certain: Days of opaque record keeping and lax tax management are over. Days of tax ignorance are also over because defaulters will have tax authorities to contend with.

Under the new framework, tax authorities are set to place greater emphasis on bank transaction records to assess taxable income, particularly for traders and self-employed Nigerians outside the PAYE system. Even modest earnings from side hustles could be treated as undeclared income, regardless of the taxpayer’s intent or the size of the inflow.

In the eyes of a data-driven tax system, visibility matters more than intent.

Nigeria practises a self tax assessment regime. It means that at the end of 12 months, you are required to come forward and tell the tax authorities what you made. Do not wait for them to come to you. Go to them. Be proactive.

Compliance

For companies, you are required to file tax returns (showing your profit and loss) between January and June 2026 for the 2025 financial year. That means you have six months in the New Year to file your tax returns.

For individual businesses, it is between January and March 2026. When you fail to make the disclosures, the tax authorities are free to assess you. At this point, you are now at their mercy.

There is what is called “deemed profit” where the government can predict what you ought to make as profit judging by the sector you are operating in and scope of work and bill you accordingly. The tax officials can, for instance, say that you made 30 per cent profit whereas you actually made 10 per cent and you have been over-billed. So, it is easier to come clean than to allow the authorities to pounce on you. Getting a tax consultant, adviser, accountant, etc is the ultimate priority for businesses because the consequences of not having one may have far more expensive outcomes.

You need a tax expert to guide you to operate and legitimately reduce tax as much as possible rather than evading it.  You need to have proper record keeping, accounting and transactional narration so you control the narrative and maintain transparency. That N500 million passed through your account does not mean you made that income.

Cash inflow is not revenue. For instance, if you are a builder and given N200 million to buy materials and N10 million professional fee. The N200 million is not your revenue and cannot be taxed. N10 million is your revenue and it is taxable. All these are to be clearly spelt out in your tax filings.

Taiwo Oyedele, chairman of the presidential fiscal policy and tax reforms committee, says the tax reform laws will mandate commercial banks to report accounts with N25 million quarterly turnover to tax authorities.

He added that the tax reforms increased the reporting threshold from N10 million to N25 million.

Myths vs facts

Myth 1: From January I, 2026, funds in my individual bank accounts will be frozen or have 25 per cent tax slammed on it and deducted from source.

Fact: It is not true. According to Taiwo Oyedele, Chairman of the Presidential Tax Reform Committee Chairman, banks, CBN, FIRS have no powers to unilaterally withdraw funds from customers’ accounts. Even if you have N1 billion in the account, nobody can debit your bank account.  “If you’re not paying your taxes, they write to you, you write back, you do final assessment, make it conclusive and then you go to court. It’s a long process.

“I have been in this space for three decades. I have not seen the power, which is in the law, one instance where they have used it in Nigeria before.

“No one has the power to debit your account. In the law, there is what we call power of substitution. In some countries, they will say garnishee order. That is what may happen,” Oyedele said.

For workers, there’s a Pay As You Earn tax deducted from source by employers. Under the new tax rule, those earning between 0 and N800,000 annual wage pay no tax. From N800,000 to N3 million annually will pay 15 per cent tax. From N3.0000001 million to N12 million will pay 18 per cent tax. From N12 million to N25 million will pay 21 per cent tax. From N25 million to N50 million will pay 23 per cent tax. Above N50 million will attract 25 per cent.

Myth 2: Businesses will collapse under a strangulating tax burden from January 1, 2026.

Fact: It is not true. For businesses, the reforms consolidate several levies and adjust key tax obligations: Small businesses, defined as those with annual turnover below ₦100 million and fixed assets below ₦250 million, will be exempt from corporate income tax (CIT), capital gains tax (CGT) and a new development levy. This aims to encourage entrepreneurship and protect emerging enterprises.

Larger corporations will see their corporate income tax rate reduced over time, from 30 per cent toward 25 per cent, while a development levy replaces multiple smaller levies such as the Tertiary Education Tax and IT levy.  A minimum effective tax rate of 15 per cent has been introduced for large multinational corporations, aligning Nigeria with global tax standards and countering profit shifting.  These shifts are designed not just to raise revenue, but to boost investment confidence and reduce administrative complexity.

Myth 3: Deposits into my bank account and transfers will be taxed till I become poorer.

Fact: It is a lie. Moving money around (via POS, transfers, deposits, or withdrawals) is not a taxable occurrence. What is taxed is income earned. This is why you must clearly state in the transactional narration what the funds are for. No room for vagueness.

Myth 4: I’m a student with no job but my parents and family send me handsome cash regularly and it will be heavily taxed.

Fact: No. It won’t. Financial support is not a taxable income. You’re not doing any business or earning a salary so you won’t pay tax. But let your account be tidy and self-explanatory enough to prove you’re not a conduit of illicit businesses because you have some explanation to do when caught. To be clear, tax authorities now monitor bank accounts of businesses more closely, leveraging technology and enabling laws.

Myth 5: Loans are now burdens because they are taxed.

Fact: It’s not true. Loans are not taxable because they are not income. You don’t earn loans.

However, the interest income earned by your lender will be taxed from their end.

Myth 6: As a sole proprietor, I now stand the risk of being peppered with multiple taxes like personal income tax and company income tax.

Fact: It is untrue. If registered as an enterprise (business name), you pay Personal Income Tax. But if registered as a limited liability company then you pay Company Income Tax.

Myth 7: As a shareholder, buying and selling shares is no longer attractive because of huge taxes.

Fact: It’s not true. As long as the shares you sold are not more than ₦150 million in value and the gain is not above ₦10 million. If it is higher than this threshold, the gain becomes taxable.

Myth 8: Pensioners and military personnel are in trouble because their pension and salaries will be taxed from January 2026.

Fact: No! Approved pension and retirement benefits are exempt from tax. The salaries of military officers are now tax-exempt.

Again, the disability pensions earned by the soldier or anyone in the armed forces will be completely tax-exempt.

Myth 9: No TIN, no banking

Fact: The Federal Inland Revenue Service (FIRS) has clarified that Nigerians do not need to obtain a separate, manual Tax Identification Number (TIN) before opening or operating a personal bank account. The requirement for a TIN, which becomes mandatory for financial services from January 1, 2026, is integrated with existing national identification systems.

For individuals, providing your National Identification Number (NIN) during bank Know Your Customer (KYC) processes is sufficient. The system automatically links the NIN to a generated TIN in the background, making you tax-compliant without needing an extra card or application.

For Businesses: Registered businesses are covered through their Corporate Affairs Commission (CAC) registration numbers, which are similarly integrated into the tax system.

Scope of Requirement: The requirement applies to “taxable persons,” which includes individuals earning income through trade, business, or any economic activity. It does not impose an additional burden on individuals who do not earn a taxable income, such as students or dependents, for strictly personal accounts.

Actionable steps

Individuals: Ensure your NIN is linked to your bank account. You can verify your TIN status using the Joint Tax Board (JTB) portal at tin.jtb.gov.ng.

Businesses: Ensure your CAC registration details are up to date and linked to your bank account.

High-Value Transactions: Be aware that from January 1, 2026, banks will be required to report accounts with monthly transactions exceeding ₦5 million to tax authorities as part of the new tax reforms.  The FIRS has urged the public to disregard misleading reports that suggest a separate, physical TIN is a mandatory requirement to access basic banking services.

Myth 10: There is no need to go into agriculture next year because of heavy taxes. 

Fact: It’s so untrue. Agricultural companies such as those in crop production, livestock, forestry, dairy and cocoa processing will enjoy a five-year tax holiday from the date they begin operation.

Myth 11: Creatives (authors, musicians, sportsmen) still enjoy tax exemptions on foreign income

Fact: No. They must now pay Nigerian tax on their income earned within Nigeria and outside.

Frequently Asked Questions

Are crypto gains taxable? Yes. Profits from crypto, NFTs and other digital assets are now taxed. Dividends, interests, rent, royalties earned from outside Nigeria are EXEMPT from tax, provided they are brought into Nigeria through approved channels (banks). All government bonds are exempt from tax.

What does rent relief entail under the new tax law?

From 2026, the government will allow tenants to pay less tax as a small relief for the rent they already pay. You can reduce your taxable income by 20 per cent of the rent you pay in a year. However, no matter how high your rent is, the maximum relief you can get is ₦500,000. For instance, if your yearly rent is ₦5 million, 20 per cent would be ₦1 million, but the law caps it at ₦500,000. So, you pay N950,000.

However, to enjoy this relief, you must declare your actual rent and provide the details to the relevant tax authority.

Will a foreigner earning a salary in Nigeria be taxed?

No, especially if their employer is a start-up or operates in tech or creative arts and their income is already taxed in their country of residence.

Key exemptions

Capital Gains Tax (CGT) exemptions are provided for retail investors, reinvestments, pension funds, Real Estate Investment Trusts (REITs), securities lending, corporate reorganisation, and mergers and acquisitions (M&A). These incentives are complemented by the allowance for capital loss deductions and incidental costs, the removal of withholding tax (WHT) on bonus shares and measures aimed at creating a level playing field between listed and unlisted entities, including those operating under the free zone tax regime.

Under the new tax law, stamp duty has also been waived on all documents related to the transfer of stocks and shares. In addition, businesses will benefit from lower operating costs through input Value Added Tax (VAT) credits on assets and overheads, alongside a planned reduction in the Companies Income Tax (CIT) rate from 30 per cent to 25 per cent.

Capital gains for individuals are now taxed at the applicable personal income tax rates instead of at a flat rate.

These changes create a more progressive tax system, meaning those who earn more will pay more, while those at the lower end may benefit from tax exemption.

VAT and consumption taxes

Value-added tax (VAT) remains at 7.5%, but the reform expands how it works: Vendors can now claim input VAT on a broader set of costs, improving business cash flow. Exported goods and services (non-oil) are zero-rated, while exemptions and refinements aim to expand the zero-rating beyond previous limitations.  Essential goods, including food, healthcare, and education, remain exempt to protect consumers.  This recalibration aims to balance government revenue with consumer protection.

Digital compliance and modernisation

The new tax regime also pushes Nigeria toward a digitised and transparent tax environment: Mandatory e-invoicing, real-time filing, and digital record keeping are now part of compliance, with penalties for non-compliance strengthened.

The government has floated more than 50 exemptions and relief measures targeting low-income households and key sectors, from personal income tax breaks to targeted incentives for exporters and strategic industries. (These include: Personal reliefs designed to significantly reduce taxable income for most workers, exemptions for essential services and goods from consumption taxes, tax holidays and incentives to spur investment in priority sectors.

The details of these exemptions are wide-ranging and reflect an attempt to balance the revenue needs of the government with the cost pressures on everyday Nigerians.

Mixed sentiments

Not everyone views the reforms in the same light.

On one hand, many citizens and experts have welcomed the progressive structure and the protections for low earners. The exemption for individuals earning below ₦800,000, for example, means that a large portion of the workforce will see no personal income tax liability at all.  On the other hand, there is anxiety and misunderstanding. Viral claims circulating online, such as assertions that everyone will face a blanket 25 per cent tax on all income, are misleading and have been debunked by fact checks.

Some Nigerians, particularly those in the informal sector or those unfamiliar with the tax code, worry about how compliance will be enforced and whether the changes will translate into real economic benefit. Others are concerned that new compliance requirements may burden small business owners and workers without adequate education or support.

Tax experts said the reforms are a major step toward aligning Nigeria with international norms, especially with regard to multinational taxation rules and digital asset inclusion. Some believe the changes could strengthen Nigeria’s attractiveness to foreign investors by creating a more predictable tax landscape.

Government officials have repeatedly stressed that the implementation will be gradual and consultative, and that authorities will provide guidance and support to help taxpayers adapt.

What Nigerians should do

With the January 1, 2026 effective date already here, taxpayers, whether individuals or businesses, should learn certain things now.

Understand your tax obligations. Familiarise yourself with the new brackets, exemptions and reliefs. Ensure your Tax ID and NIN are linked and ready.

Update your record-keeping and compliance systems. Businesses, especially, should align accounting practices with new requirements.

Seek professional advice. Tax consultants, accountants and legal professionals can help interpret specifics for your situation. In many ways, the success of these reforms will depend not just on the laws themselves but on how well they are communicated and implemented across Nigeria’s diverse economic landscape.

The January 1, 2026 rollout of Nigeria’s new tax regime marks a defining fiscal moment, a transition from a fragmented, outdated tax structure to a more streamlined, equitable, and growth-oriented system. While public debate and misunderstanding persist, the fundamental thrust of the reforms is to lay a foundation for a modern tax system that can support Nigeria’s economic ambitions and create a fairer environment for all taxpayers.

Credit: The Sun