Nigeria Payroll & Tax Regulatory Compliance
Upcoming Tax Reform in Nigeria: Key Implications for Payroll
A. Update
The Nigeria Tax Bill (“the Bill”) was officially signed into law by the President on Thursday, June 26, 2025. While the legislation has been enacted, an official commencement date is yet to be notified. However, there are indications that the said Bill will become effective from January 01, 2026.
In line with Nigeria’s National Tax Policy, any new tax legislation is expected to allow for a minimum of 90 days between enactment and implementation. This transition period is intended to give employers and businesses adequate time to align their payroll systems, processes, and related employee communications.
Key Proposed Payroll-Related Changes under the Bill:
Rent Relief Deduction (Replaces CRA)
The Bill introduces a new rent relief deduction, calculated as the lower of NGN 500,000 or 20% of annual rent paid by an individual. This replaces the existing Consolidated Relief Allowance (CRA) under the Personal Income Tax Act (PITA), which was previously computed as:
- 20% of annual gross income
- Plus the higher of NGN 200,000 or 1% of annual gross income
This change is expected to result in a lower relief value for many taxpayers.
Revised Personal Income Tax Rates
The Bill introduces a graduated tax rate structure ranging from 0% to 25%, replacing the previous 7%-24% scale. The proposed new rates are as follows:
| Annual taxable income (in NGN) | Rate of Tax |
|---|---|
| 0 - 800,000 | 0 |
| 800,000 - 3,000,000 | 15% of the amount exceeding NGN 800000 |
| 3,000,000 - 12,000,000 | NGN 330000 + 18% of the amount exceeding NGN 3000000 |
| 12,000,000 - 25,000,000 | NGN 1950000 + 21% of the amount exceeding NGN 12000000 |
| 25,000,000 - 50,000,000 | NGN 4680000 + 23% of the amount exceeding NGN 25000000 |
| > 50,000,000 | NGN 10430000 + 25% of the amount exceeding NGN 50000000 |
These rates will apply after all applicable deductions and exemptions have been applied.
Capital Gains Tax (CGT) Reform
Under this Bill:
- The exemption threshold for compensation for loss of employment will increase from NGN 10,000,000 to NGN 50,000,000.
- Capital Gains Tax, previously levied at a flat 10% rate, will now be aligned with the revised personal income tax rates based on income brackets.
Key Developments in The New Finance Act, 2020
A. Update
The President of Nigeria signed the Finance Act 2020 into law on 30 December, 2020. This reaffirms the Federal Government of Nigeria’s commitment to enact fiscal policy annually. Following are the highlights of the salient provisions of the Act:
- 1. Introduction of Significant Economic Presence (SEP) rules to the taxation of certain categories of non-resident individuals, executors or trustees. The Minister of Finance will issue rules to define SEP from a Personal Income Tax Act (PITA) perspective.
- 2. Revision of commencement and cessation rules to prevent double tax. This is to align with the prior amendment to Company Income Tax Act (CITA) in this regard. Tax will be applied on the basis of the individual’s accounting year.
- 3. Introduction of a definition of gross income, which is the basis for calculating consolidated relief allowance. Gross income is defined as income from all sources, excluding non-taxable income, tax-exempt income, income on which no further tax is payable, allowable business expenses and capital allowances.
- 4. Minimum tax is no longer applies to persons who earn National Minimum Wage or less. This category of employment income earners are also exempt from Personal Income tax (PIT) under the Third Schedule to PITA.
- 5. Annual premium paid during the year preceding the year of assessment to an insurance company in respect of insurance on the individuals’ life or the life of his spouse shall be allowed as a deduction
- 6. Employers are mandated to deduct Capital Gains Tax (CGT) on any compensation for loss of office paid to their exiting staff and remit same on or before the 10th day of the following month to the relevant tax authority.
Finance Act, 2020
A. Update
The Federal Government of Nigeria (FGN) has gazetted the Finance Act, 2019 (the Act) which was signed into law on 13 January 2020.
As per the amendments proposed in the Finance Bill, which became an Act on Jan. 13, 2020 following provisions are updated:
- 1. Pension contributions no longer require the approval of the state revenue authorities to be tax-deductible.
- 2. Banks will require individuals intending to open bank accounts for the purpose of their personal business operations to provide Tax Identification Numbers (TIN) as a precondition for opening or continuing the operation of such bank accounts.
- 3. Emails are now accepted by the tax authorities as a formal channel of correspondence with taxpayers.
- 4. Child relief (N2,500 per child up to a maximum of 4) and dependent relief (N2,000 per dependent for a maximum of 2) have been deleted.
- 5. The conditions attached to tax exemption on gratuities have been removed. Therefore gratuities are now tax exempt.
- 6. Compensation received for loss of employment of up to ₦10million is exempted from Capital Gains Tax.
Disclaimer: The information provided on this website does not constitute any legal advice, instead, all information and materials available on this site are for general information purposes only. Browsers of this website should contact their attorney should they wish to obtain advice on any particular legal matter. While Ramco has made reasonable efforts to ensure the accuracy of the information and materials contained on this website, it does not warrant or guarantee the accuracy or completeness, either express or implied. The information and materials provided on the website are provided "as is" and "as available”.
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