PERSONAL TAXATION UNDER THE NIGERIA TAX ACT 2025

INTRODUCTION

The Nigeria Tax Act 2025 came into effect on the 1^st day of January, 2026, which marked the overhaul of Personal Income Tax Act which was hitherto in force. This was a result of the legislators’ decision to have a unified law under which all income, assets, profits, gains, salaries, allowances, or any accruable fee chargeable to be subject to a single legislation. The effect of this is that new provisions are made for all chargeable income, including personal taxation. This paper highlights the provisions of the Act with respect to personal taxation and likewise its enforceability. It emphasizes the importance of personal taxation, whilst also begs the question as to whether or not the collection of such taxes is beneficial to the country. Prior to the introduction of the Nigeria Tax Act, taxpayers in Nigeria had difficulty with the computation and documentation of income chargeable by the state. It is apt that the sufficiency or otherwise of the new Act is tested against these issues.

MEANING OF PERSONAL TAXATION

Generally, tax was defined in the case of the compulsory exaction of money by a public authority for public purposes or raising money for the purpose of government by means of contribution from individual persons.[1] Personal taxation entails charges that are imposed on the income of an individual in a calendar year. Personal income refers to the total earnings or revenue received by an individual from various sources during a given period, typically a financial year. It encompasses all income earned from employment and non-employment activities.[2] An individual is subject to being taxed in Nigeria in pursuance of the Act.[3]

IMPORTANCE OF PERSONAL TAXATION

Taxation is important in many states of the world, because in most cases, it serves as a major source of revenue generation for the government. It is from it that infrastructures and social amenities such as: healthcare, education, security support, beneficial to the society, are made. It is a vital tool for economic stability and growth. Without the imposition of taxes, certain benefits derived from the government will be amiss.

ASSESSMENT OF PERSONAL TAXATION AND COMPLIANCE

Taxable income is the aggregate number of assessable profits from trade, business, profession or vocation. Taxable income also derives from employment income, income from investing activities, profits or income from any other source, and chargeable gains from the disposal of chargeable assets.[4] Therefore, if A is engaged in the business of selling grain; or B is an employee of XYZ Plc; or C is the receiver of any such income accruable to him; or D, an assignor of a legal estate, the income derived from such transactions are taxable income. However, any loss from arising from any of these transactions do not form the total income of an individual,[5] and therefore, are not subject to tax. Where an individual keeps no record with respect to taxable income, he shall be assessed on such terms and conditions as may be prescribed by the Minister on the advice of the Joint Revenue Board.[6]

For non-resident persons carrying on Nigeria, taxes are imposed on gains derived from chargeable assets, any asset located or deemed to be located in Nigeria, profits derived from trade, business, profession or vocation. In a nutshell, taxable income is the total income of an individual minus eligible deductions. Eligible deductions are contributions under the National Housing Fund, National Health Insurance Scheme, Pension Reform Act; annuity or premium for insurance for the individual or his spouse, and rent relief.[7]

The individual income tax rates are as follows:

1. First N800,000 at 0%;
2. Next N2,200,000 at 15%;
3. Next N9,000,000 at 18%;
4. Next N13,000,000 at 21%;
5. Next N25,000,000 at 23%; and
6. Above N50,000,000 at 25%[8]

The above shows that generally, a person is exempted from personal taxation when his total income is N800,000 or less. Above this threshold, and subject to the total income a person receives in a year of assessment exempting persons earning the Minimum Wage in line with the Minimum Wage Act.[9] It has been shown that taxpayer education is vital in the determination of personal income, and that the tax filing system heavily affects personal income compliance.[10] Therefore, the provisions of the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025 are vital for understanding the Nigerian tax system with respect to personal taxation.

Tax returns must be filed in each year of assessment by every taxable person whether or not he is liable to pay tax, and by non-resident persons liable to pay tax.[11] Likewise, a person ought to submit a self-assessment tax return with the relevant tax authority;[12] register with the relevant government authority and obtain a Taxpayer Identification for the purposes of compliance with tax obligations.[13]

ENFORCEMENT OF PERSONAL TAXATION AND FAILURE OF COMPLIANCE

The relevant tax authority is empowered by the Nigeria Tax Administration Act to notify any taxable person to complete and deliver to the tax authority any return, whether or not a person is liable to pay tax; appear in person for examination before the tax authority; produce for examination, books, documents, records or information relating to ant assets; provide orally or in writing any information specified in such notice; and grant the tax authority  access to records, data, or information stored in computers or electronic devices.[14] The tax authority also has the power to access lands, buildings, places, books, documents, that is in custody of the person,[15] and remove such books or documents.[16] Similarly, the relevant tax authority may request the assistance of any law enforcement agency in the discharge of its duties.[17]Likewise, it has the authority to investigate or cause to be investigated the violation of any tax law, whether or not it has been reported.[18] Penalty and interest which is a sum equal to ten percent of the amount of the tax payable  shall be added where any tax is not paid within the period prescribed under the Act.[19] The tax authority may pay a reward to any person in respect to any information which may be of assistance to it in the performance of its duties under the Act.[20]

Failure of compliance with the provisions of the Nigeria Tax Administration Act 2025 carry penalties. Failure to register by a taxable person carries the penalty of payment of N50,000 in the first month and N25,000,000 for each subsequent infringement. Failure to file returns carries an administrative penalty of N100,000 in the first month and N50,000 in the subsequent month which the failure continues. Likewise, failure to keep books i.e. accounts and records of income is liable to pay N10,000. Failure to grant access for the deployment of technology is liable to a penalty of N1,000,000 for the first day of default and N10,000 for subsequent breach. Also, failure to use fiscalisation system attracts N200,000 plus 100% tax due and interest at the prevailing Central Bank of Nigeria Monetary Policy rate per annum.[21] Furthermore, failure to attend to notices, requests and demands carries a penalty of N100,000 in the first day of default and N10,000 for each subsequent day of refusal to comply.[22] Failure to stamp dutiable instruments by any taxable person is liable to 10% of the duty and interest at the prevailing Central Bank of Nigeria Monetary Policy rate. In addition, failure to disclose all the facts and circumstances with respect to dutiable instruments or underpays any duty carries an administrative penalty of N100,000 or N50,000 on conviction or a term of imprisonment not exceeding three years. Similarly, failure to notify the tax authority of change of address within 30 days of such change or gives a wrong address carries an administrative penalty of N100,000 for the first month of the offence and N50,000 for each subsequent month the failure continues.[23]

ANALYSIS OF THE NIGERIA TAX ACT AND THE NIGERIA TAX ADMINISTRATIVE ACTS VIS-À-VIS PERSONAL TAXATION

The Nigeria Tax Act 2025 provided the rate at which personal income is deductible. It ranges from 15% to 25% subject to the total income realized. The tax system is a portrayal of progressive tax system, which imposes tax based on the income earned or realized by the taxpayer, as against flat rates, which levies the same percentage of tax regardless of disparity in the income of taxpayers. The rationale for the progressive tax system is that wealth redistributed in the society is carried by the rich persons of the society. However, it is arguable that this type of tax system punishes the rich and even the middle class (as the case may be), as it places higher burden on them to carry the major brunt of wealth distribution in the society. This discourages taxpayers from cultivating a desire to earn more income, as a bulk of it would be remitted to the state. It is submitted that the percentages imposed are hefty, and would serve to encourage the taxpayer to engage in tax evasion and tax avoidance.

With respect to regulations and compliance, the Nigeria Tax Act 2025 and the Nigeria Tax Administration Act both made provision for compliance with tax laws. This serves to ensure that taxpayers are aware of the tax payment to be made, how it is to be made, to whom it is made and timeline for filing of such taxes. This ensures that the tax system is both efficient and effective, hence, securing the smooth administration and implementation of taxes in Nigeria. Similarly, the imposition of penalties serves as persuasive methods to ensure that comply with tax payment within the stipulated time, and through the appropriate means.

CONCLUSION

The Nigeria Tax Act 2025 and the Nigeria Tax Administration Act 2025 have provided for the payment of personal taxes and have provided for progressive tax system, respectively. Both legislations have provided for the assessment of personal income tax in Nigeria, made compliance regulations and have imposed penalties accordingly for failure to comply with the provisions of the legislation. However, as much as the Nigerian tax system is progressive, certain drawbacks abound which may derail the purpose of the legislation as a tool for economic growth. Therefore, these drawbacks ought to be quashed. It is submitted that changes ought to be made with respect to the percentages imposed on personal income to prevent the rise of tax offences, as taxpayers may be wont to avoid and evade the payment of such taxes, thereby defeating the purposes of taxation. It is further submitted that in order to achieve optimal tax administration, increment in percentages should be based on direct comparison to application of tax proceeds.

REFERENCE(S):

[1] Matthews v Chicory Marketing Board (Vic) [1938] HCA 38

[2] Resolution Law Firm, ‘Personal Income Tax in Nigeria – What Individuals Need To Know’ (Mondaq, 27 June 2025) https://www.mondaq.com/nigeria/tax-authorities/1642852/personal-income-tax-in-nigeria-whatindividuals-need-to-know.

[3] Section 3(b) of the Nigeria Tax Act 2025 (NG)

[4] Section 28(2)(i)-(v) of the Nigeria Tax Act 2025 (NG)

[5] Section 28(3)(a)(b)(i)-(v) of the Nigeria Tax Act 2025 (NG)

[6] Section 29 of the Nigeria Tax Act 2025 (NG)

[7] Section 30(2)(a) -(vi) of the Nigeria Tax Act 2025 (NG)

[8] Fourth Schedule to the Nigeria Tax Act 2025 (NG)

[9] Section 58 of the Nigeria Tax Act 2025 (NG)

[10] Blessing U. Oladipo, et al, ‘Tax Administration and Personal Income Tax Compliance In Nigeria’ [April 2025] IJRPR 9337

[11] Section 13 of the Nigeria Tax Administration Act 2025 (NG)

[12] Section 34 of the Nigeria Tax Administration Act 2025 (NG)

[13] Section 4 of the Nigeria Tax Administration Act 2025 (NG)

[14] Section 57 of the Nigeria Tax Administration Act 2025 (NG)

[15] Section 58 of the Nigeria Tax Administration Act 2025 (NG)

[16] Section 59 of the Nigeria Tax Administration Act 2025 (NG)

[17] Section 62 of the Nigeria Tax Administration Act 2025 (NG)

[18] Section 64 of the Nigeria Tax Administration Act 2025 (NG)  

[19] Section 65 of the Nigeria Tax Administration Act 2025 (NG)

[20] Section 69 of the Nigeria Tax Administration Act 2025 (NG)

[21] Sections 100-104 of the Nigeria Tax Administration Act 2025 (NG)

[22] Section 108 of the Nigeria Tax Administration Act 2025 (NG)

[23] Sections 110-112 of the Nigeria Tax Administration Act 2025 (NG)