Taxes are confusing, but understanding them can save you money and keep you out of trouble. Whether you're an employee wondering about PAYE deductions, a business owner trying to understand company tax, or a freelancer figuring out your obligations—this guide covers it all.
Types of Taxes in Nigeria
Nigeria has multiple taxes administered by different authorities:
| Tax Type | Who Pays | Administrator |
|---|---|---|
| Personal Income Tax (PIT) | Individuals | State Internal Revenue |
| Company Income Tax (CIT) | Companies | FIRS (Federal) |
| Value Added Tax (VAT) | Consumers (via businesses) | FIRS |
| Withholding Tax (WHT) | Various | FIRS/State |
| Capital Gains Tax | Asset sellers | FIRS/State |
Personal Income Tax (PAYE) Explained
If you're an employee, your employer deducts Pay As You Earn (PAYE) tax from your salary before paying you. Here's how it works:
Tax Rates (Progressive)
| Annual Income (₦) | Tax Rate |
|---|---|
| First 300,000 | 7% |
| Next 300,000 | 11% |
| Next 500,000 | 15% |
| Next 500,000 | 19% |
| Next 1,600,000 | 21% |
| Above 3,200,000 | 24% |
📊 Example: Tax on ₦500,000 Monthly Salary
Annual income: ₦6,000,000
- First ₦300,000 @ 7% = ₦21,000
- Next ₦300,000 @ 11% = ₦33,000
- Next ₦500,000 @ 15% = ₦75,000
- Next ₦500,000 @ 19% = ₦95,000
- Next ₦1,600,000 @ 21% = ₦336,000
- Remaining ₦2,800,000 @ 24% = ₦672,000
Total annual tax: ₦1,232,000 (before reliefs)
Tax Reliefs: How to Pay Less Tax (Legally)
Nigerian tax law provides tax reliefs that reduce your taxable income:
Consolidated Relief Allowance (CRA)
Amount: ₦200,000 OR 1% of gross income (whichever is higher) + 20% of gross income
This is automatic for all taxpayers.
Pension Contributions
Amount: 8% of your monthly emoluments
Your mandatory pension contribution is tax-deductible.
National Housing Fund (NHF)
Amount: 2.5% of basic salary
Contribution to NHF reduces taxable income.
Life Insurance Premium
Amount: Actual premium paid
Life insurance premiums on your own life are deductible.
National Health Insurance (NHIS)
Amount: Actual contribution
NHIS contributions are tax-deductible.
💡 Maximize Your Tax Reliefs
Most employed Nigerians don't claim all their reliefs. If you have life insurance, voluntary pension contributions, or NHIS payments, ensure your employer factors these into your PAYE calculation. The difference can be hundreds of thousands of Naira.
Tax for Self-Employed and Freelancers
If you're self-employed, you're responsible for filing your own taxes:
- Register with your State Internal Revenue Service
- Keep records of all income and expenses
- File annual returns by March 31st each year
- Pay quarterly installments or once at filing
Deductible Business Expenses
Self-employed individuals can deduct legitimate business expenses:
- Office rent
- Internet and phone bills (business portion)
- Equipment and supplies
- Professional development
- Travel for business
- Staff salaries
Company Income Tax (CIT)
If you run a registered company in Nigeria:
| Company Size | Tax Rate |
|---|---|
| Small (turnover < ₦25M) | 0% |
| Medium (₦25M - ₦100M) | 20% |
| Large (> ₦100M) | 30% |
Value Added Tax (VAT)
VAT is charged on most goods and services at 7.5%. If your business turnover exceeds ₦25 million annually, you must:
- Register for VAT with FIRS
- Charge VAT on taxable supplies
- File monthly VAT returns
- Remit collected VAT to FIRS
VAT-Exempt Items
- Basic food items
- Medical and pharmaceutical products
- Educational materials
- Agricultural equipment
- Baby products
How to File Your Taxes
For Employees
Your employer handles PAYE. But you should:
- Verify deductions on your payslip
- Obtain your Tax Identification Number (TIN)
- File personal returns if you have other income sources
For Self-Employed
- Get your TIN from State Internal Revenue
- Keep all financial records
- Calculate taxable income (income minus deductions)
- Apply tax rates and reliefs
- File return by March 31
- Pay tax due
⚠️ Penalties for Non-Compliance
- Late filing: ₦25,000 for individuals, ₦50,000 for companies
- Late payment: Interest on unpaid tax
- Tax evasion: Criminal prosecution possible
It's always cheaper to file on time!
Tax Tips for Nigerians
- Get your TIN: Everyone should have a Tax Identification Number
- Keep records: Save receipts and bank statements
- Claim all reliefs: Don't leave money on the table
- File on time: Avoid penalties
- Use professional help: Tax consultants pay for themselves
- Plan ahead: Structure income to minimize tax legally
📞 Helpful Tax Resources
- FIRS: firs.gov.ng
- Joint Tax Board: jtb.gov.ng
- State IRSes: LIRS (Lagos), FIRS portal for federal taxes