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A New Era for Personal Taxation
The NTA 2025 repeals and replaces the Personal Income Tax Act (PITA) 2011, addressing long-standing ambiguities and introducing a more transparent, inclusive, and equitable tax regime. The reforms are designed to align Nigeria’s tax system with global best practices while ensuring that taxation supports, rather than stifles, economic growth.Read more: Nigeria Tax Reform Act: What Businesses Need to Know
Key Provisions of the NTA 2025 and their Implications
- Expanded Definition of Chargeable Income: The Act now explicitly lists items such as: Prizes, winnings, and honoraria, grants, awards, laurels, etc.; profits or gains from transactions in digital or virtual assets; disposal of money or money instruments; profits or gains from the disposal of property or fixed assets; and securities; discounts or rebates, etc., under the scope of taxable income.This eliminates previous ambiguities surrounding the tax treatment of income from emerging sectors and informal sources, thereby widening the tax net and enhancing government revenue without increasing tax rates for compliant taxpayers. It reflects the government’s policy objective of modernizing the tax base to capture new forms of wealth and align Nigeria’s tax framework with global best practices [NTA 2025, Section 4].
- Introduction of Rent Relief Deduction: Individual taxpayers can now claim 20% of their annual rent (up to a maximum of ₦500,000) as an Eligible Deduction, provided valid tenancy documentation is provided. This provision is particularly beneficial for salaried workers and urban dwellers, offering meaningful relief from housing-related expenses [NTA 2025, Section 30 (2) (vi)].
- Abolition of the Consolidated Relief Allowance (CRA): The CRA, previously a blanket deduction for all taxpayers, has been repealed. In its place, the Act introduces a more itemized and transparent system of deductions, encouraging accurate reporting and aligning tax reliefs with actual expenses incurred.
- Enhanced Compensation for Loss of Office: The tax-exempt threshold for compensation due to loss of office has now been increased from ₦10 million to ₦50 million (only the excess above this new threshold will constitute chargeable gains). This change provides greater financial protection for individuals facing job termination or workplace-related injuries [NTA 2025, Section 50 (1)].
- Revised Progressive Tax Bands: The Act introduces a new progressive tax structure, adjusting rates from the previous 7%–24% under PITA to 0%–25% under the NTA. This ensures that:
- Low-income earners (earning the minimum wage and below /month) are exempt from income tax
- Middle-income earners benefit from reduced tax burdens
- High-income earners contribute a fairer share of their income towards national development [NTA Fourth schedule).
- Clarified Definitions for Key Tax Terms: To eliminate ambiguity and reduce disputes, the Act provides precise definitions for terms such as:
- Non-Resident Individual (NRI); Interest; Dividend; Royalty
- This clarity enhances legal certainty and simplifies compliance for both taxpayers and tax administrators [NTA 2025, Sections 7-8, 202].
Other Notable Provisions and Compliance Implications
Beyond the major reforms highlighted above, the Nigeria Tax Act 2025 introduces several additional measures that shape how individuals earn, report, and manage their tax obligations.- Taxation of Capital and Chargeable Gains: The Act consolidates the taxation of chargeable gains, bringing profits from the disposal of property, securities, or other assets directly within the personal income tax framework. This integration simplifies administration but also means that individuals must now evaluate the tax impact of every asset sale or transfer. Certain exemptions remain for personal residences and low-value personal assets.
- Clarified Residence and Source Rules: Sections 7 - 8 establish clearer tests for determining whether an individual is resident in Nigeria and whether income is derived from Nigerian sources. These provisions are especially relevant for Nigerians earning from remote or cross-border work, digital businesses, or offshore investments. Proper documentation of residence and income source will be critical for compliance.
- Broader Range of Allowable Deductions: In addition to the new rent relief, the NTA 2025 retains or clarifies deductions for pension contributions, National Housing Fund (NHF), and National Health Insurance Scheme (NHIS) contributions, as well as verified donations to approved charitable causes. These provisions reward documented savings and social contributions, encouraging a more structured financial culture.
- Presumptive Taxation for Informal Income Earners: To improve inclusion and widen the tax net, the Act empowers the tax authorities to apply presumptive assessment frameworks for individuals or micro-enterprises with incomplete records. This ensures that self-employed and gig-economy earners contribute fairly, while still providing mechanisms for appeal and voluntary disclosure.
- Digitalization and Enhanced Compliance Obligations: Complementing the NTA are reforms under the Nigeria Tax Administration Act 2025, which mandate electronic filing, use of Tax Identification Numbers (TINs), and stricter record-keeping for individuals. Taxpayers are therefore encouraged to adopt digital compliance tools and maintain proper documentation to avoid penalties.
- Effective Date and Transition Arrangements: Most provisions of the NTA 2025 relating to individuals take effect from 1 January 2026, giving taxpayers time to understand the new framework and adjust their financial and payroll systems accordingly. Transitional guidelines are expected from the Federal Inland Revenue Service (FIRS) and relevant State Tax Authorities to aid smooth implementation.
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Beyond Compliance: A Pathway to Financial Empowerment
The NTA 2025 is not merely a legislative update, it is a strategic tool for financial empowerment. By offering targeted reliefs and incentives, the Act encourages individuals to: Plan their finances more effectively, leverage available deductions and engage proactively with the tax system. For employers, the reforms necessitate a review of payroll systems, employee benefits, and vendor engagement processes to ensure full alignment with the new tax framework.Read more: Stransact expands horizon, unveils Deals and Advisory Services
