How is Tax Calculated in Nigeria? (2026 Tax Bands)

Ask most Nigerians how their tax is actually worked out and you'll get a guess — a vague sense that "some percentage" gets deducted, without much clarity on what that percentage is, what it's applied to, or why two people earning the same salary can end up paying different amounts. Some will mention the percentage they think they see on their payslip, but fewer can walk you through what number that percentage is actually applied to, or understand why their colleague earning almost the same gross salary pays noticeably more.

The truth is more mechanical than mysterious. Tax isn't calculated on your full salary — it's calculated on what's left after specific deductions are subtracted, and that remaining figure moves through a series of bands, each taxed at a different rate. Once you see the mechanics once, it stops feeling like a black box. More importantly, once you understand what's actually deductible and where the bands begin and end, you can stop overpaying through ignorance and start making informed decisions about salary structure, freelance work, or business setup that actually reflect how tax will treat them.

Watch: how your chargeable income moves through the tax bands, step by step.

Start here: gross income isn't what gets taxed

The single most common misunderstanding is assuming tax applies to your gross salary. It doesn't. What actually gets taxed is your chargeable income — your gross income minus every deduction you're legally entitled to claim. Get the deductions right, and the tax calculation that follows is just arithmetic.

Step 1: Know what counts as income

Your gross income includes basic salary, housing and transport allowances, bonuses, and any other regular payments from an employer — plus, separately, any freelance income, business profit, rental income, or investment returns you earn outside employment. Under the 2026 reforms, digital asset gains, prizes, and other non-traditional income streams are chargeable too, which wasn't always clearly the case before. If your income comes from foreign clients in dollars, see our guide on dollar income and Nigerian tax for how that's converted and taxed.

Step 2: Subtract your allowable deductions

The 2026 reforms scrapped the old Consolidated Relief Allowance entirely and replaced it with a simpler set of specific deductions:

• ✓ Pension: typically 8% of your pensionable pay (often basic + housing + transport, depending on how your employer structures your salary)
• ✓ NHF (National Housing Fund): 2.5% of basic salary — mandatory for public sector employees, and available to private sector employees where applicable
• ✓ Rent relief: 20% of the annual rent you actually paid, capped at ₦500,000 — you'll need your lease and rent receipts to claim it
• ✓ Life insurance premiums: qualifying premiums are deductible, up to specified limits

Whatever's left after these is your chargeable income — the number the tax bands actually apply to. For the full picture of what else can reduce this number, see our guide on legally reducing your tax in Nigeria.

Step 3: Apply the tax bands

The first ₦800,000 of chargeable income is completely tax-free — a straightforward zero-rate band that replaced the old relief formula, and the reason anyone earning at or near minimum wage now pays no PAYE at all. Above that, tax is progressive: each slice of income is taxed at a higher rate only as it crosses into the next band, not retroactively on everything below it.

Chargeable income band	Rate
First ₦800,000	0%
₦800,001 – ₦3,000,000	15%
₦3,000,001 – ₦10,000,000	18%
₦10,000,001 – ₦25,000,000	21%
₦25,000,001 – ₦50,000,000	23%
Above ₦50,000,000	25%

This reflects the band structure most consistently reported by major tax advisory firms following the Nigeria Tax Act 2025. Because some published summaries round the mid-range bands slightly differently, use the calculator on our homepage for a figure based on your exact numbers rather than relying on the table alone.

A full worked example

Let's say your gross annual income is ₦4,800,000, you pay ₦1,000,000 in rent a year, and your pension and NHF are calculated as usual.

1. 1Pension (8%): ₦4,800,000 × 8% = ₦384,000
2. 2NHF (2.5% of basic, assuming basic is ₦1,920,000): ₦1,920,000 × 2.5% = ₦48,000
3. 3Rent relief: 20% of ₦1,000,000 = ₦200,000, which is under the ₦500,000 cap, so the full ₦200,000 is deductible
4. 4Chargeable income: ₦4,800,000 − ₦384,000 − ₦48,000 − ₦200,000 = ₦4,168,000
5. 5Apply the bands: first ₦800,000 at 0% = ₦0. Next ₦2,200,000 (up to ₦3,000,000) at 15% = ₦330,000. Remaining ₦1,168,000 at 18% = ₦210,240
6. 6Total annual tax: ₦330,000 + ₦210,240 = ₦540,240 — or about ₦45,020 a month

Net annual take-home, after pension, NHF, and tax (rent is a relief on paper, not a payroll deduction, since you're already paying it yourself): ₦4,800,000 − ₦384,000 − ₦48,000 − ₦540,240 = ₦3,827,760, or roughly ₦318,980 a month.

Freelancers and business income work the same way — mostly

The bands and the 0% threshold apply regardless of whether your income comes from a salary, freelance clients, or a registered business. What changes is who's doing the calculating. An employer runs PAYE automatically every month for salaried staff. Freelancers and business owners are responsible for tracking their own income and expenses through the year and calculating what they owe themselves — usually a bigger source of end-of-year surprises than the tax bands themselves. See our guide on tax for freelancers and self-employed Nigerians for the full filing process.

Common questions