The newly enacted Tax Reform Act, scheduled to take effect from January 2026, represents one of the most far-reaching changes to Nigeria’s tax framework in recent history. The reforms are designed to improve equity, ease the tax burden on low-income earners, and modernise compliance obligations for individuals and employers.
As trusted tax advisors, we have reviewed the Act and identified the most impactful provisions affecting individuals and businesses, with particular emphasis on income tax exemptions and reliefs.
Income Tax Exemptions and Reliefs for Individuals
1. Tax-Free Income Threshold
Under Section 163 of the Act, individuals earning ₦100,000 or less per month are fully exempt from personal income tax.
While this exemption removes the obligation to pay tax, it does not eliminate compliance responsibilities. Employers whose staff earn within this threshold are still required to:
- Register for PAYE, and
- File annual tax returns for both the company and its employees, where applicable.
The reform therefore distinguishes between tax liability and statutory compliance, a distinction employers must carefully observe.
2. Introduction of Rent-Based Tax Relief
The Act replaces the former fixed personal allowance of ₦200,000 with a more targeted rent-based relief.
Under the new regime:
- Taxpayers are entitled to a deduction of 20% of gross annual income,
- Subject to a maximum cap of ₦500,000 per annum,
- As a subsidy for rent paid.
For example:
- Where annual rent is ₦500,000 or less, the full amount is deductible.
- Where annual rent exceeds this amount, the deduction remains capped at ₦500,000, regardless of actual rent paid.
Taxpayers should note that documentary evidence of rent payment may be required to support this claim.
Some Allowable Deductions Retained Under the New Law
The Tax Reform Act preserves several long-standing deductions that continue to reduce taxable income. These include:
- Contributions to approved Pension Fund Administrators (PFAs)
- National Housing Fund (NHF) contributions
- National Health Insurance Scheme (NHIS) contributions
These deductions remain critical tools for tax planning and employee compensation structuring.
Conclusion
The 2026 Tax Reform Act marks a significant shift toward a more progressive and structured tax system in Nigeria. While low-income earners benefit from expanded exemptions, employers and taxpayers alike must remain attentive to compliance requirements and documentation standards.
Understanding these changes early allows you as an individual or a business owner to plan effectively, avoid penalties, and take full advantage of the reliefs provided under the law. For tailored guidance on how these reforms affect your income, payroll, or business operations, you can schedule an appointment by sending an email to info@mybizaccountants.com or via our website https://mybizaccountants.com/my-bookings/