Personal Income Tax 2.0: What the New Finance Act Means for Your Payslip

If your April payslip looks different from March, you're not imagining it. The new consolidated tax bands are live, and for the first time in years, the government actually simplified something instead of adding another layer to it.

This isn't a tweak. It's the product of four tax reform bills signed by President Tinubu on 26 June 2025 — the Nigeria Tax Act, the Nigeria Tax Administration Act, the Nigeria Revenue Service (Establishment) Act and the Joint Revenue Board (Establishment) Act — which took effect on 1 January 2026. The same package renamed FIRS to the Nigeria Revenue Service.

The headline everyone quoted is the ₦800,000 annual tax-free threshold. But a threshold means nothing without knowing what happens above it, and that's where most of the "will I pay more or less" confusion is coming from.

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The Actual New Bands

These are the progressive bands now in force. Each rate applies only to the slice of income inside that band — which is why your effective rate is always lower than your top marginal rate.

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The Relief That Quietly Replaced CRA

The old regime ran on the Consolidated Relief Allowance — a two-part formula (the higher of ₦200,000 or 1% of gross, plus 20% of gross) that almost nobody outside a payroll department could recite. CRA is gone.

In its place sits something much simpler and, for renters, potentially more valuable: rent relief of 20% of annual rent paid, capped at ₦500,000 a year. If you pay ₦2.5 million or more in annual rent, you get the full ₦500,000 deducted from your taxable income. Most salaried Nigerians in Lagos and Abuja will hit that cap comfortably.

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Who Actually Benefits

This is the part worth being precise about, because "tax cut" headlines tend to flatten a story that's really about redistribution across income bands, not a blanket reduction for everyone.

• 01.

  Earners at or below ₦800,000 a year now pay nothing — a real change for entry-level salaries and for informal earners who do file.

• 02.

  Middle earners see the biggest proportional relief, because the 18% band now stretches all the way to ₦12 million instead of topping out far earlier.

• 03.

  Only income above ₦50 million attracts the new 25% top rate — the trade-off that funds the relief further down the scale.

The same reform package went further than personal income tax. Small companies — broadly, those under a ₦100 million annual turnover threshold — were exempted from companies income tax entirely, and VAT stayed at 7.5% rather than rising, which had been widely feared during the bills' passage.

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Run Your Own Numbers

Don't trust a general summary for your specific salary — the bands are progressive, so the effective rate you actually pay is always lower than your top marginal band. Plug in your gross annual figure below.

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Marginal vs. Effective: The Confusion That Costs People Money

This is the single most misunderstood idea in personal taxation, and the misunderstanding has real consequences — people have turned down raises over it.

The fear goes: "if a raise pushes me into the 21% band, I'll take home less." That is not how progressive taxation works. The higher rate applies only to the Naira above the threshold, never to your whole income. Crossing into a new band can never reduce your take-home pay.

Earning one Naira more moves that single Naira into the 21% band, costing 21 kobo. You keep 79 kobo. You are still better off. Your marginal rate is 21%; your effective rate remains close to 16%.

"Nobody in Nigeria has ever been made poorer by a pay rise through the tax system. If your net pay fell after a raise, look at pension and NHF deductions — not the tax bands."

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What the Calculator Deliberately Leaves Out

The tool below estimates PAYE. Your payslip has more lines than that, and the difference between the two is worth understanding so you can check your employer's arithmetic.

• Pension contributions. Under the Pension Reform Act, the standard split is a minimum 8% employee contribution against 10% from the employer. Your 8% is deducted from gross pay — and, importantly, pension contributions are deductible for tax purposes, so they reduce taxable income before the bands are applied.
• National Housing Fund. Where applicable, 2.5% of monthly income. This is the contribution that makes you eligible for the 6% NHF mortgage — worth knowing you are already paying for a benefit most contributors never claim.
• NHIS/health scheme deductions, where your employer operates one.

The practical consequence: because pension and similar statutory contributions come out before tax is computed, your actual tax bill will generally be somewhat lower than a gross-only estimate suggests. The calculator gives you a conservative ceiling rather than a precise figure.

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If You Are Not on a Payslip

PAYE is deducted at source for salaried employees. Freelancers, consultants and business owners carry the obligation themselves — and this is where the new regime changes behaviour most.

Personal income tax in Nigeria is administered by state revenue services, not the federal body, so a Lagos resident files with the Lagos State Internal Revenue Service. Direct assessment filings are generally due within the first few months of the year for the preceding year, and a tax clearance certificate — routinely demanded for government contracts, some visa applications and various registrations — depends on being current.

The genuinely new incentive is the ₦800,000 exemption. Under the old regime, low earners who filed still generated some liability. Now, a modest earner who files may owe nothing at all while gaining a documented income history — which is exactly the "legibility" that unlocks credit, as covered in our piece on the SME credit gap. Filing has shifted from pure cost to something closer to an asset.

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One Caveat Worth Flagging

None of this changes what happens to the Naira you take home once you spend it — inflation doesn't check your tax bracket before eroding your purchasing power. A bigger net salary this month is real progress, but it's only half the ledger. Keep tracking the other half.