Preparing your payroll for the Nigeria Tax Act 2025
Example post — replace or remove before launch.
From 1 January 2026, PAYE in Nigeria is calculated under the Nigeria Tax Act 2025. For payroll teams, the change is more than a new set of percentages: the way taxable income is worked out has changed too. Here is what that means for each monthly run.
The bands
Personal income tax is now charged on six bands of annual taxable income:
| Annual taxable income | Rate |
|---|---|
| First ₦800,000 | 0% |
| ₦800,000 to ₦3 million | 15% |
| ₦3 million to ₦12 million | 18% |
| ₦12 million to ₦25 million | 21% |
| ₦25 million to ₦50 million | 23% |
| Above ₦50 million | 25% |
Each band is applied only to the part of income that falls inside it. Someone with ₦5 million of taxable income:
- pays nothing on the first ₦800,000;
- pays 15% on the next ₦2.2 million;
- pays 18% on the remaining ₦2 million.
No more consolidated relief allowance
Under the old rules, payroll applied a consolidated relief allowance (CRA) before working out tax, and tax started from the first naira. The 2025 Act removes the CRA. The tax-free first ₦800,000 takes its place.
If your spreadsheet or payroll tool still deducts CRA, it will under-deduct tax for most employees.
What reduces taxable income
Taxable income is annual gross pay minus:
- the employee's pension contribution: 8% of basic, housing and transport for staff in the pension scheme;
- National Housing Fund contributions, where your company deducts NHF;
- mortgage interest, where it applies;
- rent relief: 20% of annual rent, up to ₦500,000.
Getting these right matters as much as getting the bands right. Leaving out pension relief, for example, overstates taxable income for every pensioned employee.
From annual tax to a monthly deduction
PAYE is worked out on annual figures, but deducted monthly. In practice, payroll works out:
- Annual taxable income: annual gross pay minus the reliefs above.
- Annual tax: by applying the bands to that figure.
- The monthly deduction: one twelfth of the annual tax.
Here's an example, with:
- a monthly gross of ₦450,000;
- a salary split where basic, housing and transport make up 60% of gross;
- pension as the only relief.
The calculation:
- The monthly pension contribution is ₦21,600.
- Annual taxable income is ₦5,140,800.
- Annual tax is ₦715,344.
- The monthly PAYE deduction is ₦59,612.
How Praxis applies the Act
Praxis's payroll engine uses the six NTA 2025 bands by default and applies the same reliefs:
- employee pension;
- NHF, if your company opts in;
- mortgage interest;
- rent relief, capped at ₦500,000.
You can edit the bands in payroll settings, and reset them to the NTA 2025 schedule at any time. If a saved set of bands has a gap or overlap, Praxis uses the NTA 2025 bands rather than risk taxing someone incorrectly.
Contract staff and interns are paid a flat amount with PAYE only. The monthly PAYE schedule and the PAYE remittance report give each employee's TIN, gross pay and reliefs, ready for filing.
Before your next run
- Check your bands. Confirm they match the six bands above, with no gaps.
- Check you're not still applying CRA.
- Confirm which employees are in the pension scheme and which pay NHF.
- Collect rent and mortgage details from employees who qualify for relief.
This is general information, not tax advice. Speak to a tax adviser about your organisation's circumstances.