The Nigeria Tax Act, 2025 marks one of the most significant changes to the country’s tax framework in decades. Effective from 1st January 2026, the law restructures how individuals, freelancers, digital workers, and small businesses are taxed, with a strong emphasis on fairness, transparency, and widening the tax base without punishing low-income earners.
This detailed Questions and Answers guide is based strictly on the official provisions of the Nigeria Tax Act, 2025, with a specific focus on individuals and small businesses. It explains what will change, what will not change, and what Nigerians should realistically expect when the law takes effect.
Effective Date of the New Nigeria Tax Act
The new Nigeria Tax Act officially takes effect from 1st January 2026. This means that income earned before this date will continue to be assessed under the old tax laws, while income earned from January 2026 onward will fall under the new framework.
There is no retroactive taxation. Any deductions, exemptions, or obligations introduced by this Act apply strictly to income earned from the commencement date.
Who the New Tax Law Applies To
The scope of the new tax law is broad. It applies to:
- All individuals earning income in Nigeria
- Salary earners and employees
- Self-employed persons and traders
- Content creators, influencers, freelancers, and digital workers
- Remote workers earning foreign income while residing in Nigeria
- Nigerians earning income abroad who are tax residents in Nigeria
If you earn income and you are considered a tax resident in Nigeria, the law applies to you unless a specific exemption is stated.
Bank Transfers, Deposits, and Account Balances
One of the biggest misconceptions surrounding the new tax law is the fear that bank transfers or account balances will be taxed. This is false.
Bank transfers, deposits, withdrawals, and POS transactions are not taxable events. Moving money between accounts does not trigger tax liability.
Likewise, simply keeping money in your bank account is not taxable. The tax system focuses strictly on income earned, not money already owned or moved.
However, tax authorities will have enhanced tools to monitor bank activity for compliance purposes. This does not mean your balance is taxed; it means undeclared income may be easier to detect.
Students, Unemployed Persons, and Low-Income Earners
If you are a student with no job or taxable income, you will not pay tax in 2026. The same applies to unemployed persons without income.
The law explicitly exempts individuals earning the national minimum wage or less, as well as those earning below ₦800,000 annually. This reinforces the progressive nature of the new system and protects low-income Nigerians.
Loans, Borrowed Funds, and Lending Apps
Loans are not considered income under Nigerian tax law.
If you borrow money from Fairmoney, a bank, or any other lender, you will not pay tax on the loan amount. The tax obligation applies only to the interest income earned by the lender, not the borrower.
This provision eliminates confusion around digital lending and protects borrowers from unjust taxation.
Small Businesses, Sole Traders, and Business Structure
For one-man businesses, tax treatment depends on registration status:
- If registered as a business name or enterprise, you pay Personal Income Tax
- If registered as a limited liability company, you pay Company Income Tax
Importantly, companies with an annual turnover below ₦50 million are exempt from company income tax. This is a major relief for small businesses and startups.
Shares, Investments, and Capital Gains
Profits from selling shares remain largely exempt under the new law.
If the total value of shares sold does not exceed ₦150 million and the gain does not exceed ₦10 million, no tax is payable. Gains above these thresholds become taxable.
This provision protects small investors while ensuring high-value transactions contribute fairly.
Pensions, Military Income, and Disability Benefits
The Nigeria Tax Act, 2025 maintains strong protections for pensions and military-related income.
- Approved pension and retirement benefits are tax-exempt
- Salaries of military officers are tax-exempt
- Disability pensions for injured armed forces members are fully exempt
These exemptions recognize service-related risks and retirement security.
Creatives, Foreign Income, and Global Earnings
Authors, musicians, athletes, and other creatives no longer enjoy blanket exemptions on foreign income.
Income earned both within and outside Nigeria is taxable if the individual is a Nigerian tax resident. This aligns Nigeria with global tax standards on worldwide income.
However, dividends, interest, rent, and royalties earned abroad are exempt if repatriated through approved Nigerian banking channels.
Crypto, NFTs, and Digital Assets
The new law clearly states that profits from cryptocurrency, NFTs, and other digital assets are taxable.
This ends years of ambiguity around digital asset taxation and places crypto profits firmly within the tax net.
Progressive Tax Bands Under the New Law
The Nigeria Tax Act, 2025 introduces updated progressive tax bands designed to reduce pressure on low and middle-income earners.
- First ₦800,000 @ 0%
- Next ₦2.2 million @ 15%
- Next ₦9 million @ 18%
- Next ₦13 million @ 21%
- Next ₦25 million @ 23%
- Above ₦50 million @ 25%
This structure ensures higher earners pay proportionally more while protecting those at the bottom.
Severance Packages and Termination Benefits
If you receive a severance package when leaving a job, amounts up to ₦50 million are tax-free.
Any excess above this threshold is taxed using the progressive tax bands. This protects ordinary workers while taxing unusually large payouts fairly.
Agricultural Businesses and Tax Holidays
Agricultural companies enjoy a five-year tax holiday from commencement of operations.
This applies to crop production, livestock, forestry, dairy, and cocoa processing. The policy is designed to encourage food production and agribusiness investment.
Government Bonds and Securities
Income from Federal and State Government bonds remains fully tax-exempt.
This encourages participation in government-backed investment instruments.
Rent Relief Under the New Tax Law
From 2026, individuals can claim rent relief equal to 20% of annual rent paid, capped at ₦500,000.
To qualify, the taxpayer must declare actual rent paid to the tax authority. This replaces the old Consolidated Relief Allowance model for many taxpayers.
Real-Life Tax Comparison Example
An individual earning ₦6 million annually benefits under the new law.
Under the old system, total tax payable was ₦896,000. Under the new law, applying rent relief and new tax bands, total tax drops to ₦780,000, resulting in a savings of ₦116,000.
This demonstrates that the reform is not merely about expanding revenue but also about fairness.
Remote Workers and Foreign Employees
Remote workers living in Nigeria but working for international organisations must pay Nigerian tax unless exempted by a treaty or diplomatic arrangement.
Foreigners earning salaries in Nigeria may be exempt if employed by startups or operating in tech or creative industries and taxed in their country of residence.
Final Thoughts
The Nigeria Tax Act, 2025 is not a law designed to punish ordinary Nigerians. It is a structural reform aimed at closing loopholes, taxing modern income streams, and protecting low-income earners.
Understanding the law early is critical. From freelancers and small traders to salaried workers and digital entrepreneurs, preparation and compliance will be key in 2026 and beyond.