Who Pays Personal Income Tax in Nigeria?
Personal Income Tax (PIT) is one of Nigeria’s most important direct taxes. It is levied on the income earned by individuals whether from employment, business, profession, investments, or other economic activities. The tax system is governed by the Personal Income Tax Act (PITA) Cap P8 Laws of the Federation of Nigeria, 2004 (as amended), and administered primarily by state tax authorities across the country.
In 2025–2026, major reforms to Nigeria’s income tax regime came into effect, reshaping who pays tax, how much they pay, and who is exempted. These changes are intended to make the system fairer, simplify compliance, and increase take-home pay for lower-income workers while asking higher earners to contribute comparatively more.
Every Income-Earning Individual Is Generally Liable
According to the Lagos Internal Revenue Service FAQs, any individual who earns income whether from employment, business profits, fees, allowances, or other gains is subject to personal income tax and is constitutionally obligated to declare and pay tax on that income.
This broad principle applies to:
- Employees (public and private sector workers)
- Self-employed professionals and business owners
- Freelancers and remote workers
- Individuals earning investment income.
- Non-residents with income sourced in Nigeria
In essence, anyone citizen or non-citizen who earns income in Nigeria may be liable, subject to residency status and the source of earnings.
Pay-As-You-Earn (PAYE): Salaried Workers
For most employees, personal income tax is collected under the Pay-As-You-Earn (PAYE) system. This means:
- Employers are required by law to deduct tax from an employee’s salary monthly.
- Deductions include salary, wages, allowances, bonuses, pensions, and other emoluments.
These deductions are remitted to the relevant State Internal Revenue Service (SIRS) by the 10th day of the following month. PAYE applies whether the employee works in the public or private sector, and regardless of industry or occupation.
Self-Employed Individuals and Business Owners
Individuals who are self-employed or run businesses either as sole proprietors or partnerships must assess and pay their taxes directly:
- They compute taxable income after allowable deductions..
- They file annual tax returns with the relevant tax authority in their state of residence.
- Tax due must be paid on or before the deadlines specified by law.
What About Non-Residents and Special Cases?
The tax law also covers individuals who are not resident in Nigeria but derive income from Nigerian sources. This includes foreign professionals, contractors, or expatriates earning service fees or profits within the country.
Some special situations include:
- Itinerant workers individuals working in multiple states in a year. The state where they are found can collect tax, with credit given for taxes paid elsewhere.
- Trustees or executors managing estates — these may pay PIT on behalf of beneficiaries where income arises.
Tax Exemptions and Thresholds (2026 Reforms)
Recent reforms have changed who actually ends up paying tax:
Exemption for Low-Income Earners
Under the new tax regime that takes effect from January 2026, individuals earning very low incomes are exempted from personal income tax. Specifically:
The first ₦800,000 of taxable income is taxed at 0% meaning income up to around ₦100,000 per month will not attract tax.
This change is expected to exempt about one-third to over 90% of Nigeria’s workforce from PAYE, depending on how the reforms and thresholds are applied.
Higher Rates for High Earners
At the other end of the spectrum, new laws introduce progressively higher rates for high-income individuals, with top marginal rates reaching around 25% for the wealthiest taxpayers.
Residency and Global Income
Tax liability is based on residency, not nationality. Residents in Nigeria are generally taxed on their worldwide income, while non-residents are taxed on Nigeria-sourced income only.
Where and How Tax Is Collected
Most personal income tax in Nigeria is collected by State Internal Revenue Services (SIRS) including from residents working in all sectors under powers granted by PITA.
The Federal Inland Revenue Service (FIRS) collects PIT primarily for:
- Residents of the Federal Capital Territory (FCT)
- Certain federal public service employees (e.g., military and foreign service officers)
- Non-resident individuals earning income in Nigeria.
Conclusion
Personal Income Tax remains a cornerstone of Nigeria’s fiscal system. The law broadly requires any individual with taxable income to pay tax, either through employer deductions (PAYE) or direct filing. However, recent reforms have significantly raised exemptions for low-income earners and adjusted rates for higher earners, aiming to create a fairer and more progressive tax regime.
For businesses, professionals, and workers alike, staying informed about these rules is essential to meeting legal obligations and avoiding penalties.
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