By Emmanuel Odekina Iyede
How They Work, Who Pays What, and How Government Will Deduct Tax from Bank Accounts of Individuals and Companies
Tax talk fit dey heavy — so this one na plain English + some Pidgin to make everybody understand “wetin concern me?”. The new tax rules start 1 January 2026 and are some of the biggest reforms in Nigeria in years. PwC
1. What Are the New Tax Laws?
The Nigerian government combined old tax laws into a modern system under the Nigeria Tax Act (NTA) 2025 and related laws. These laws replace many older laws and modernise how income tax, corporate tax, capital gains tax, VAT and other levies work. PwC
The main goals:
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Make tax system simple and fair
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Protect low-income earners
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Bring more people and businesses into the tax net
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Boost government revenue for roads, health, schools and services
2. How Does the New System Work? (Layman View)
Personal Income Tax (PAYE) – Salary Tax
This one na the tax your employer deducts from your salary every month before your money reach your pocket.
Under the new system:
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First ₦800,000/year — No tax
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₦800,001 – ₦3,000,000 — 15%
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₦3,000,001 – ₦12,000,000 — 18%
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₦12,000,001 – ₦25,000,000 — 21%
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₦25,000,001 – ₦50,000,000 — 23%
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Above ₦50,000,000 — 25% PwC Tax Summaries
Pidgin: If you dey earn small money, Government no go chop your salary wella. But if your salary don big, dem go cut small higher percentage.
Also, the tax relief system changed — the old “consolidated relief allowance” is gone, replaced by rent relief (up to ₦500,000 deduction if you pay rent and show proof). Mondaq
3. How Will Government Deduct Tax from Your Salary and Account?
A. Salary (PAYE)
Your employer is responsible:
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They calculate how much tax you owe each month.
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They deduct it from your monthly pay (that’s what PAYE means — Pay As You Earn).
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They then remit (send) that money to the tax authority (the new Nigeria Revenue Service) on your behalf. Baker Tilly Nigeria
Pidgin: Your company go cut am first, then dem send am give Government so e no go reach you again.
B. Bank Accounts & TIN Requirement
Under the new law, every bank account must be linked to a Tax Identification Number (TIN). If you want to open or keep operating a bank account, you must provide a TIN. The bank uses this TIN to report your financial activities to the tax authority. SimplVest
This linkage enables:
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Automatic reporting of your income and transactions above certain limits.
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Easier enforcement — Government fit confirm your income through bank entries.
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Banks must pass tax payments through a Single Tax Account so tax money goes straight to Government. SimplVest
Pidgin: No TIN, no bank account. Bank go report your money moves to Government, so dem fit know how tax to take.
C. Withholding Tax (WHT)
This is tax deducted “at source” before money hits your account. For example:
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If your company pay you a benefit, dividend, rent or interest, the payer may have to deduct tax first and send it to Government.
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New WHT rules say deductions happen when the payment is made or settled. Tax News
Example: If you earn interest from a corporate investment, some tax might be deducted before the money enters your account. Reuters also reported a directive for banks and brokers to deduct 10% on interest from short-term securities. Reuters
4. How Do Companies Pay Tax?
A. Company Income Tax
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Small companies (turnover ≤ ₦100 million & assets ≤ ₦250 million) — 0% tax (full exemption). PwC Tax Summaries
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Medium and large companies — 25% corporate tax on profit. PwC Tax Summaries
Pidgin: If your business small small, no tax. If your company big, dem go take 25% from your profit.
B. Development Levy
This is a 4% levy on assessable profit for companies (not small ones) — replacing old multiple levies such as education tax and police trust fund. PwC
C. Effective Tax for Multinationals
Big companies (turnover over ₦50bn annually or part of a big group) must pay a minimum effective tax of 15% — so if their books show tax below that, they pay a top-up. PwC Tax Summaries
5. How Will Government Deduct Company Taxes?
Companies must:
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Calculate their taxes (monthly installments or yearly returns).
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Remit payments through banks or the Single Tax Account.
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File tax returns regularly showing income, deductible expenses, and tax owed.
If a company fails to remit tax, Government can:
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Charge penalties and interest.
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If a government ministry/agency owes money, the Accountant-General can deduct what is owed straight from their budget allocation and send to tax authority. Nigerian Investment Promotion Commission
Pidgin: Company no fit play hide. Bank + Government fit pull money sharp sharp if tax no paid.
6. What About Pensions and Gratuity?
Pensions
Pension contributions (money put into an approved pension scheme) can often be deducted or treated favorably, as long as documentation is proper. PwC Tax Summaries
Gratuity
This one is now treated as taxable income — so when a worker retires and gets gratuity, that lump sum can be part of their taxable income. Mondaq
Pidgin: Gratuity no go free again — Government fit tax am as part of your income.
7. How Does the Government Share the Taxes? (Federal vs State)
Under the new laws:
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Some taxes are for Federal Government (corporate tax, development levy, etc).
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Personal income tax (PAYE) goes to your State Government.
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VAT, withholding tax and others are shared by Federal, State and Local Governments under a formula (different percentages allocated to each tier). Nigerian Investment Promotion Commission
Pidgin: Salary tax go State. Company tax go Federal. VAT and others go share among all three.
8. Extra Things You Should Know
A. Wider Tax Net
These laws aim to tax newer income streams:
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Digital and foreign incomes for residents
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Gains from digital assets (crypto, NFTs, etc.)
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Expanded definition of taxable income for individuals and businesses PwC Tax Summaries
B. Penalty for Non-Compliance
Government now set stricter penalties for:
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Not registering for tax
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Filing late returns
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Not keeping proper records PwC
Pidgin: If you no register or no file returns correct, you fit pay fine plus interest.
9. Real-life Examples (Simple)
Worker Example
If you earn ₦6 million/year:
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First ₦800k – no tax
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Next ₦2.2m – 15%
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Remaining – 18%
Your employer will deduct monthly and send to Government — you don’t pay directly. PwC Tax Summaries
Small Business
If turnover = ₦80m and assets < ₦250m:
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You pay no corporate tax and no development levy — business keeps more money. PwC Tax Summaries
Big Company
If profit large:
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25% company tax
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4% development levy
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Possible minimum tax obligations PwC Tax Summaries
10. Why These Changes Matter
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Protects low earners (no tax on first ₦800k)
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Encourages small business growth
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Modernises tax system
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Closes loopholes
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Improves revenue collection efficiency via bank & TIN integration
These reforms are meant to make Nigeria’s tax system more fair and easier to administer — but they also mean everyone needs to understand and comply. PwC
