The New Nigerian Tax Law Explained: What It Means for Your Salary and Take-Home Pay

On 26 June 2025, the President of Nigeria assented to the landmark Nigeria Tax Act 2025 (and associated tax-reform bills) after they were passed by the National Assembly. 

This new Nigerian tax law overhauls the country’s personal income tax regime and replaces the old system with which your personal income tax is being calculated. Many employees and freelancers are asking the same questions. 

Does this mean I’ll pay more taxes? What's changing? How do I calculate my new tax?

In this post, we unpack what this change means to your take-home pay and how you can prepare for the transition.

What Is the New Nigerian Tax Law?

The new Nigerian tax law  (Pay AsYou Earn rule) was introduced as a part of the government’s 2025 tax reform, and it is aimed at simplifying the Nigerian tax administration and improving fairness in how income taxes are calculated. Or in other words, “make income tax reflect the actual cost of living of each income bracket”.

By 2026, the amount of income tax you’re to pay to the government might reduce or increase based on certain factors such as the gross amount you earn, your statutory contributions(Pension, NHIS, etc.), or even the amount of rent you pay.

Why Was the Change Introduced?

One major reason for the change in Nigeria’s income tax law is to strengthen government revenue generation more transparently and sustainably. Over the years, the government has relied heavily on oil revenue, leaving personal income tax and other non-oil taxes largely under-optimized.

By reviewing the PAYE computation, the aim is to expand the tax net, reduce leakages, and ensure that employees contribute a fair and measurable portion to national revenue.

Another reason for the changes to the new Nigerian tax law  (Pay AsYou Earn computation) is to make the Nigerian income tax system more realistic and equitable, and this can be cited in the introduction of the new rent relief.

Yes, as stated earlier,  the amount you pay for rent is now a determinant of how much tax you pay. Under the current law, employees enjoy a relief on their income, which is simply a portion of their income that is not taxed. This is known as the Consolidated Relief Allowance (CRA).  This allowance is pegged at 20% of your gross income plus ₦200,000 (or 1% of your gross income, whichever is higher). The amount obtained from this is then exempted from tax. But in reality, gross income, being the base of this computation, did not truly reflect the cost of living faced by many Nigerians, especially with rising housing costs. Hence, rent relief was introduced.

The rent relief in this case allows you to deduct up to 20% of your annual rent (capped at ₦500,000 in total deductions) from your income before tax is calculated on it. Reflecting the real living expenses more accurately than the old CRA.

How the New Nigerian Tax Law Affects Your Take-Home Pay

Let’s make it practical.

Under both rules, your salary undergoes some statutory deductions such as Pension (8%), NHF (2.5%), and possibly NHIS. After that, the government calculates your taxable income, then applies your relief (CRA or Rent Relief), 

Here’s the big picture:

• If your annual rent is high, you’ll likely pay less tax under the new rule.

• If you don’t pay rent or your rent is low, your CRA under the old rule might have offered slightly better tax relief.
  
  

However, in addition to the rent relief, under the new rule, the new Nigerian tax law introduced a more progressive structure by exempting the first ₦800,000 of your chargeable income from tax. This means that the first portion of your income  after statutory deductions and rent relief  is completely tax-free.

When compared to the old rule, the first ₦800,000 of your income would have gone through multiple tax bands, starting with 7% on the first ₦300,000, 11% on the next ₦300,000, and 15% on the remaining portion up to ₦500,000.

In other words, under the old system, you would have paid tax on that entire ₦800,000, whereas under the new rule, that same portion of your income is now completely exempt from tax. This key change makes the new structure more favourable to you, especially with earners in the lower and middle-income brackets, as it allows you to retain a larger share of your earnings.

This shift also reflects the government’s broader goal of making the tax system fairer and more reflective of current economic realities. By raising the tax-free threshold to ₦800,000 and introducing rent relief, the new rule helps cushion the impact of inflation and rising cost of living.

Final Thoughts

The new Nigerian tax law marks a significant step toward a fairer and more realistic tax system. By combining rent relief with an ₦800,000 tax-free threshold, the government aims to ease the burden on everyday earners and align personal income tax with current living costs.

However, understanding exactly how these new tax bands apply to your own salary can be tricky  especially with the new exemptions and reliefs now in play. That’s why we’ve built a simple tool to help you see the numbers for yourself.

Try our Free Nigerian Income Tax Calculator to instantly find out how much PAYE you’ll pay and how the new law affects your take-home pay.