Key Terms Every (Nigerian) Taxpayer Should Know in 2025 and beyond

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Understanding tax can feel overwhelming, especially if you are new to it. Yet, with Nigeria moving into a new tax regime in January 2026, every Nigerian—whether an employee, entrepreneur, freelancer, or business owner—needs to understand basic tax terms.

This guide breaks down key terms in clear, simple language with a focus on Nigerian realities.

1. Taxpayer Identification Number (TIN)

• A unique number issued to every individual or business that pays taxes in Nigeria.
• It works like an identity card for tax purposes.
• You need a TIN to open a corporate bank account, apply for government contracts, or file your taxes.

Example: If you run a small shop in Lagos and want to register it properly, you’ll be asked for your TIN.

2. Pay-As-You-Earn (PAYE)

• A system where your employer deducts tax from your salary and remits it to the government on your behalf.
• Common for civil servants, bank workers, and corporate employees.

Example: If you earn ₦200,000 monthly, your employer withholds part of it for tax before paying your balance.

3. Value Added Tax (VAT)

• A consumption tax currently at 7.5% on goods and services.
• Paid by the final consumer, but collected by businesses and remitted to government.

Example: When you buy a ₦1,000 soft drink in a supermarket, part of that money is VAT which the supermarket must remit.

4. Personal Income Tax (PIT)

• A tax charged on the income of individuals, sole proprietors, freelancers, and professionals.
• The rate depends on how much you earn. Income up to ₦800,000 yearly will be tax-free from 2026.

Example: A freelance graphic designer making ₦2 million annually must register and pay PIT to the state tax authority.

5. Corporate Income Tax (CIT)

• A tax on the profits of registered companies in Nigeria.
• Rates vary depending on company size:
  • Small companies (turnover below ₦25m): 0%
  • Medium companies (₦25m–₦100m): 20%
  • Large companies (above ₦100m): 30%

Example: If a tech startup makes ₦30m profit in 2026, it pays 20% as CIT.

6. Withholding Tax (WHT)

• A tax deducted at source from certain payments such as rent, consultancy, dividends, or contractor fees.
• The payer deducts and remits it to government.

Example: If you hire a contractor for ₦1m, you may have to deduct 5% (₦50,000) as WHT before paying them.

7. Tax Clearance Certificate (TCC)

• An official document that shows you are up to date with your tax payments.
• Required for government contracts, certain business transactions, and even some visa applications.

Example: A business in Abuja bidding for a federal contract must present a valid TCC.

8. Development Levy (Effective 2026)

• A new 4% levy on assessable profits introduced in the 2025 Tax Reform.
• It replaces multiple older levies like the Tertiary Education Tax.

Example: A medium-sized company with ₦20m profit will pay ₦800,000 as development levy.

9. Tax Reliefs and Allowances

• Reductions allowed on taxable income to make tax more affordable.
• Includes pension contributions, National Housing Fund, Life Assurance Premiums, and Consolidated Relief Allowance (CRA).

Example: If you earn ₦1.5m a year but contribute ₦100,000 to pension, that ₦100,000 is deducted before tax is calculated.

10. Tax Evasion vs Tax Avoidance

• Tax Evasion: Illegally refusing to pay tax (a crime).
• Tax Avoidance: Legally reducing tax liability by using reliefs, exemptions, or smart structuring.

Example: Not declaring your freelance income = evasion. Claiming pension contributions = avoidance.

11. Nigeria Revenue Service (NRS)

• Formerly known as the Federal Inland Revenue Service (FIRS).
• From 2026, it becomes the main tax authority at the federal level with more digital enforcement powers.

12. Controlled Foreign Company (CFC) Rules

• Rules that prevent Nigerians from hiding profits in foreign companies.
• If you own a company abroad and don’t distribute the profits, the Nigerian government may still tax it.

Why These Terms Matter

If you understand these terms, you will:

• Avoid penalties and legal trouble.
• Plan your finances better.
• Comply with the 2026 tax reforms smoothly.
• Position your business for opportunities like loans, grants, and contracts.

Tax is no longer optional in Nigeria. The new system will be digital, strict, and data-driven. Knowing these basics now will save you stress later.

References (Full Links)

1. https://www.pwc.com/ng/en/publications/the-nigerian-tax-reform-acts.html
2. https://ng.andersen.com/president-tinubu-signs-2025-tax-reform-acts-into-law-new-regime-to-take-effect-from-january-2026/
3. https://www.ey.com/en_gl/technical/tax-alerts/nigeria-tax-act-2025-has-been-signed-highlights
4. https://assets.kpmg.com/content/dam/kpmg/ng/pdf/2025/06/The%20Nigeria%20Tax%20Act%20%28NTA%29%2C%202025.pdf
5. https://www.reuters.com/world/africa/nigerias-senate-passes-tax-reform-bills-boost-government-revenue-2025-05-09/