09/01/2026
I finally settled down to read the emails my banks have been sending me about the new tax rules that is kicking off tomorrow, being January 1, 2026. It was filled with so much jargon, and I know some people likely do not understand all of the tax jargons. So, let me break it down in a layman's way.
If you earn a salary, your tax is deducted before you see your money (PAYE). Low-income earners pay less tax. If you earn small money YEARLY, you pay nothing at all. By small money, I mean 800k and below.
Higher earners pay more. In short, the more you earn, the more tax you pay. The less you earn, the less government disturbs you.
VAT (value added tax) rate still remains 7.5%. VAT is the tax added when you buy things, it used to be 5% until it was increased in 2020). You pay VAT on: Data, Cable TV, Eating out, Electronics, Some services but basic items like: Most raw food, Medicines, Baby products are still VAT-free.
Cost of living will still be expensive like it has always been.
If you sell on Instagram, Facebook, etc. Run a small business, do freelancing or online work, your income is now considered business income
Even though clients pay you online or from abroad. Government sees you as self-employed. Income is income, so tax applies to you also.
Small businesses with very low turnover may not pay company income tax, but you’re still expected to. Register your business, file tax returns (even if you pay ₦0). Government now wants visibility, your source of income must be traceable, not hidden.
Big companies, banks, telecoms, and foreign companies making money from Nigerians are now taxed harder. They now pay more company income tax, and extra taxes if they make “excess profits”
Online income is no longer “invisible.” Digital & Foreign Companies like, Streaming services, online platforms, foreign companies earning from Nigerians now have to pay tax in Nigeria, even if they don’t have an office here. If they make money from Nigeria, Nigeria wants a cut.
You may notice, ₦50 charges on bank transfers of 10k and above. That’s stamp duty, government tax on transactions and documents. This one is not new shaa, I think the sender & the receiver used to be charged for this before, but now only the sender will be charged. Meaning, if I send 10k & above to you, the #50 stamp duty charge will only be deducted from my own account and not yours as the receiver.
There are some tax free allowances like food, school, hospital, transportation, pension contribution and rent. Before your tax is calculated, the government excludes some of this money from your income. That money is not taxed. Basically, they don't tax everything you earn.
Let’s say someone earns:
Monthly salary: ₦200,000
Their breakdown looks like this:
Rent allowance: ₦40,000
Transport allowance: ₦20,000
Food allowance: ₦20,000
Pension contribution: ₦16,000
Medical allowance: ₦10,000
Total tax-free allowances = ₦106,000
Now government says:
“Okay, we won’t tax this ₦106,000 because it’s for living and pension.”
So…
Taxable income = ₦200,000 − ₦106,000 = ₦94,000
They calculate tax on ₦94,000, not ₦200,000.
If you sell a land, a property or any asset for profit, you must remite tax out of it.
The government does not automatically deduct tax from your bank account. Government does not dip hand into your bank account to collect tax.
You are expected to: Declare your income, File your tax return, pay what applies yourself.
Nobody will just wake up and remove money from your account.
The only time money is deducted automatically is, If you work in a company and your employer deducts tax from your salary, they send it to the government and you receive what remains
This system is called PAYE (Pay As You Earn) and is managed by Federal Inland Revenue Service and state tax offices.
So, you are expected to Keep records of your earning, and at the end of each year, file annual tax returns (even if income is small). As your income grows, you start paying the correct amount gradually
So, that's all I understood from the jargons. Hope this will help you understand better too.
Cc: Veronica Kosisochukwu
