Tax Laws For Dummies

What you need to know first

The Nigeria Tax Act, 2025, will take effect on January 1, 2026. This law changes who pays tax, how much they pay, and how some kinds of income are treated. It also introduces new rules for people without formal records. Knowing exactly how to declare your income, what surcharges mean, and what is truly exempt will protect your money and help you hold leaders accountable. (EY)

1) How to declare your income

There are two common situations: you are a salaried worker under PAYE, or you are self-employed / a freelancer.

If you are on payroll (PAYE)

1. Get your pay slip and year-end statement from your employer. This shows gross pay, pensions, and tax withheld.
2. Ask your employer for the exact amount of tax deducted and a formal tax certificate if available. Employers are required to deduct and remit PAYE.
3. Check if you have rent receipts, pension receipts, or NHIS receipts. Keep them. Under the new law, you will need documentary evidence to claim rent relief and other allowable deductions.
4. If your employer has done the PAYE correctly and you have no other income, you may not need to file a separate return. But if you earn extra income outside your job, you must declare it when filing your annual return. Use the official portal or the tax authority’s guidance for filing.

Picture this scenario:
You earn ₦120,000 per month from your job, and the employer deducts PAYE monthly. If you also do freelance gigs that bring in ₦200,000 for the year, you must declare that freelance income when you file your annual return.

If you are self-employed, a freelancer, or a business owner

1. Keep records. Sales receipts, invoices, bank statements, and a simple notebook or spreadsheet are enough to start. The law introduces simplified returns for informal earners, but you still need some proof of income. (PwC)
2. Register with the tax authority that applies to your location and type of business. The Nigeria Tax Act centralizes rules, but local tax offices will give filing instructions. (TAT)
3. Choose the correct return form and fill it. If you cannot produce full accounts, you may fall under presumptive tax. If that happens, the tax office will use a reasonable estimate to assess your tax. Keep asking for the written formula and copies of the assessment. (Mondaq)
4. Pay on time and keep proof of payment. If you are assessed under presumptive tax, get the assessment in writing and appeal if it seems unfair. The new system aims to create a formal process for appeals.

Picture this scenario:
You run a kiosk and earn roughly ₦1.2 million a year, but keep only sales notebooks. Register at the tax office, ask about presumptive tax rules for your trade, and keep a receipt book. That way, any assessment will be based on your records, and you can contest clearly inflated estimates.

2) Surcharges explained and how they might affect you

The Act includes provisions for certain surcharges. One widely reported example is a possible fuel surcharge, which has caused public concern. The government has said any surcharge will be implemented only with proper proclamation and published orders. As of the latest announcements, the government confirmed the new tax law will start on January 1, 2026, and any specific surcharge rules must be published before they take effect. That was reiterated when officials delayed urgent implementation steps to avoid adding immediate cost pressure. (Reuters)

What a surcharge does in practice
A surcharge is an extra charge added to a base tax or a product price. If a fuel surcharge is applied to petrol, the cost of fuel will go up by the surcharge percentage. That raises transport and goods costs across the economy. For households, it can mean higher transport, food, and utility bills even if your personal income tax does not change.

How to protect yourself

1. Watch official announcements and the national gazette. A surcharge cannot take effect until the government publishes it.
2. Budget for a cushion: if your commute or the goods you buy depend on fuel, set aside a small emergency buffer when prices change.
3. Follow the official guidance at tax portals and major professional advisors so you know whether a surcharge applies to you directly or indirectly.

3) What is exempt? (Common misunderstandings debunked)

The new law includes many exemptions and reliefs. Here is what commonly confuses people and the truth.

Truth 1: There is now a clear exemption for low earners

If your taxable income after allowable reliefs is ₦800,000 or less per year, you pay no personal income tax. This is designed to protect lower-income workers. People on the minimum wage will likely be exempt.

Myth: People say “everyone earning less than ₦1 million is fully safe.”
Reality: The exact threshold in the law is ₦800,000 after deductions, not a flat ₦1 million. Also, remember that taxable income is after allowable deductions and exemptions.

Truth 2: CRA is abolished, but you get rent relief instead

The old, consolidated relief allowance no longer exists in the same form. Instead, you can claim a rent relief deduction of 20 percent of your annual rent, up to a cap (check the final implementing regulations for exact limits), and other documented allowances. You must show receipts or other proof.

Myth: “You automatically get the same CRA without documents.”
Reality: Under the new rules, you need documentation to claim rent and other reliefs. No receipts means it will be harder to claim.

Truth 3: Compensation for job loss is more protected, but gratuity may be taxable

The exemption threshold for compensation for loss of employment is now much higher. Small payouts under that threshold may be tax-free. But gratuities and some lump sums are now more clearly taxable if they exceed the exemption levels. Keep documentation from your employer if you get any of these payments. (Mercans Global Payroll & PEO)

Myth: “All lump sums are tax-free.”
Reality: Only amounts under the stated exemption are tax-free. Above that, taxation rules apply.

Truth 4: Capital gains and digital income are taxable under personal income rules

Selling assets or earning from digital platforms is now within the taxable base for individuals. Capital gains are not automatically exempt just because they are from online sales, art, or crypto. They will be taxed as part of your income at the applicable rates.

Myth: “If I earn online from abroad or from crypto, it is not taxable in Nigeria.”
Reality: If you are a Nigerian resident or earn in Nigeria, whether in Naira or not, many digital incomes and gains are taxable. Residency rules and exact sourcing can change the position, so keep records and seek guidance.