Nigeria Tax Act 2025: 10 Key Changes Every Business Owner Must Know
Nigeria Tax Act 2025: 10 Key Changes Every Business Owner Must Know
The Nigeria Tax Act 2025 represents the most significant overhaul of Nigeria's tax system in decades. Whether you're a business owner, employee, or self-employed professional, these changes will directly impact your tax obligations and potential savings.
In this comprehensive guide, we break down the 10 most important changes you need to know right now.
1. New PAYE Tax Rates (Section 58)
The Pay-As-You-Earn (PAYE) tax brackets have been restructured to provide relief for low and middle-income earners:
Old vs New PAYE Rates
| Annual Income Range | Old Rate | New Rate (2025) | |---------------------|----------|---------------------| | First ₦300,000 | 7% | 7% (unchanged) | | Next ₦300,000 | 11% | 11% (unchanged) | | Next ₦500,000 | 15% | 15% (unchanged) | | Next ₦500,000 | 19% | 19% (unchanged) | | Next ₦1,600,000 | 21% | 21% (unchanged) | | Above ₦3,200,000 | 24% | 24% (unchanged) |
Key Insight: While rates remain the same, the tax-free allowances have increased significantly (see #2 below).
2. Increased Tax-Free Allowances
One of the biggest wins for Nigerian workers:
Consolidated Relief Allowance (CRA)
- Old: Higher of ₦200,000 or 1% of gross income
- New: Higher of ₦800,000 or 1% of gross income
Impact: Most employees will now have an additional ₦600,000 tax-free income annually.
Example:
- Salary: ₦5,000,000/year
- Old CRA: ₦200,000
- New CRA: ₦800,000
- Tax Savings: ~₦144,000/year
3. Small Company CIT Exemption (Section 56)
This is a game-changer for small businesses:
0% Corporate Income Tax for Small Companies
Eligibility Criteria:
- Annual turnover ≤ ₦50,000,000
- Total assets ≤ ₦250,000,000
Old Rate: 30% CIT + 4% Development Levy = 34% total
New Rate: 0% (complete exemption)
Impact: A small company with ₦10M profit saves ₦3.4M in taxes annually.
4. Enhanced Pension Deductions
Pension contributions are now more attractive:
- Employee contributions: Up to 20% of gross income (was 8%)
- Employer contributions: Up to 20% of gross income (was 10%)
- Total deductible: Up to 40% of gross income
Tax Planning Tip: Maximize pension contributions to reduce taxable income legally.
5. National Housing Fund (NHF) Deductions
NHF contributions are now fully tax-deductible:
- Contribution rate: 2.5% of basic salary
- Tax benefit: Reduces taxable income
Example:
- Basic salary: ₦3,000,000
- NHF contribution: ₦75,000
- Tax savings: ~₦18,000/year
6. Life Insurance Premium Deductions
New provisions for life insurance:
- Deductible amount: Up to 20% of gross income
- Maximum: ₦500,000 per year
Benefit: Protect your family AND reduce your tax bill.
7. Self-Employment Tax Simplification
Freelancers and consultants get clearer rules:
Quarterly Payment System
- Q1: March 31
- Q2: June 30
- Q3: September 30
- Q4: December 31
Allowable Business Expenses
- Office rent and utilities
- Professional subscriptions
- Equipment and software
- Marketing and advertising
- Travel (business-related)
Use our Self-Employment Tax Calculator to estimate your quarterly payments.
8. VAT Registration Threshold
Value Added Tax (VAT) registration is now clearer:
- Threshold: Annual turnover > ₦25,000,000
- Rate: 7.5% (unchanged)
- Exemptions: Basic food items, medical services, educational services
Action: If your turnover exceeds ₦25M, register for VAT immediately to avoid penalties.
9. Digital Tax Filing Mandatory
E-filing is now compulsory for all taxpayers:
Key Deadlines
- Individual returns: March 31 (following year)
- Company returns: June 30 (following year)
- Self-employed: Quarterly (see #7)
Penalty for late filing: ₦25,000 + ₦5,000 per month
Tip: Set up reminders now to avoid penalties.
10. Withholding Tax (WHT) Updates
New WHT rates for various transactions:
| Transaction Type | Old Rate | New Rate | |------------------|----------|--------------| | Dividends | 10% | 10% | | Interest | 10% | 10% | | Rent | 10% | 10% | | Professional fees | 5% | 5% | | Contracts | 5% | 5% |
Key Change: Stricter enforcement and penalties for non-compliance.
What You Should Do Right Now
For Employees:
- Use our PAYE Calculator to see your new tax liability
- Review your pension contributions (consider increasing to 20%)
- Claim all eligible reliefs (NHF, NHIS, life insurance)
For Business Owners:
- Check if you qualify for 0% CIT (CIT Calculator)
- Update your accounting system for new rates
- Register for e-filing on FIRS portal
For Self-Employed:
- Calculate quarterly tax payments (Self-Employment Calculator)
- Track all business expenses diligently
- Set up quarterly payment reminders
Need Help Understanding Your Tax Obligations?
The Nigeria Tax Act 2025 is complex, but you don't have to navigate it alone.
Try our free AI-powered tax assistant:
- Get instant answers to your tax questions
- Calculate your exact tax liability
- Discover legal deductions you're missing
Frequently Asked Questions
Q: When does the Tax Act 2025 take effect?
A: January 1, 2025. All tax calculations from this date use the new rates.
Q: Do I need to refile my 2024 taxes?
A: No. The Act applies to income earned from January 1, 2025 onwards.
Q: How do I claim the increased CRA?
A: Your employer should automatically apply it. Verify your payslip shows ₦800,000 CRA.
Q: Can I still use the old tax rates?
A: No. The Tax Act 2025 supersedes all previous tax legislation.
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Last Updated: January 15, 2025
Legal Disclaimer: This article provides general information only. Consult a qualified tax professional for advice specific to your situation.
Related Articles
- How to Reduce Your PAYE by ₦50k/Month (Legally)
- Small Business Tax Calendar 2025: Important Dates
- Self-Employment Tax Guide for Nigerian Freelancers
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