Your guide to understanding Nigerian tax terminology. Clear definitions for every tax term you need to know.
A summary of income, deductions, and tax liability that taxpayers must file with FIRS once a year. For individuals with PAYE as their only income, employers typically handle this. However, those with additional income sources must file their own annual returns by March 31st.
The total income on which tax is calculated after deducting allowable expenses and relief. For individuals, this is your gross income minus pension (8%), NHF (2.5% if applicable), and Rent Relief (if applicable). The first ₦800,000 of assessable income is tax-free as of 2026. For businesses, assessable profit is net profit adjusted for tax purposes, which determines Company Income Tax and Development Levy liability.
In Nigeria, Best of Judgment (BOJ) Assessment refers to a method used by tax authorities to estimate a taxpayer's income when they fail to file returns or provide incomplete information. This approach allows the tax authority to make an educated guess of the taxpayer's income based on available data. For example, if a business owner fails to keep proper records, the tax authority may use BOJ to estimate their taxable income. This method helps ensure tax compliance and prevents tax evasion in Nigeria.
Capital Gains Tax on Digital Assets refers to the tax paid on profits made from selling digital assets like cryptocurrencies or non-fungible tokens (NFTs). In Nigeria, this tax is charged when an individual or business sells a digital asset for a higher price than they bought it. For example, if someone buys a cryptocurrency for ₦100,000 and sells it for ₦150,000, they may be required to pay Capital Gains Tax on the ₦50,000 profit. This tax is governed by the Nigerian tax laws and regulations.
In Nigeria, Chargeable Income refers to the total income earned by an individual or company that is subject to income tax. It is the income that is taxable after deducting all allowable expenses and reliefs. For example, if an individual earns N1 million and has N200,000 in deductible expenses, their Chargeable Income would be N800,000. This amount is then used to calculate the income tax payable to the Federal Inland Revenue Service (FIRS).
A tax levied on the profits of registered companies in Nigeria. As of 2026, Nigeria uses a simplified two-tier system: Small businesses (annual turnover below ₦50 million) pay 0% CIT, while large businesses (turnover ₦50 million and above) pay 30% CIT. The previous middle tier (20% for ₦25M-₦100M) was removed. Large companies also pay 4% Development Levy on top of CIT.
⚠️ ABOLISHED IN 2026. CRA was a tax relief calculated as the higher of 20% of gross income plus ₦200,000, or 1% of gross income. It has been replaced by a simpler ₦800,000 tax-free threshold under the Nigeria Tax Act 2025 (effective January 1, 2026). If you see CRA mentioned in old documents or payslips from before 2026, note that it no longer applies.
A 4% tax on assessable profits introduced in 2026 for companies with annual turnover of ₦50 million or more. This levy replaces three separate levies that existed before 2026: Tertiary Education Tax (TET) at 2.5%, NITDA Levy at 1%, and NASENI Levy at 1%. The consolidated 4% Development Levy is actually 0.5% lower than the previous combined total of 4.5%, simplifying compliance and reducing the overall tax burden for large businesses.
The Education Tax (EDT) is a tax imposed on companies in Nigeria to fund education. It is a 2% tax on the assessable profit of a company. For example, if a company's assessable profit is N100 million, it will pay N2 million as Education Tax. This tax is used to support the development of education in Nigeria.
⚠️ NAME CHANGED IN 2026. FIRS has been renamed to NRS (Nigeria Revenue Service) as of January 1, 2026. The agency responsible for assessing, collecting, and accounting for federal taxes in Nigeria. If you see references to FIRS in old documents, websites, or forms dated before 2026, note that it now operates as NRS. The agency's functions remain the same - collecting taxes and enforcing tax laws.
The total amount earned before any deductions or taxes. For salary earners, this includes basic salary, housing, transport, and all other allowances and benefits received from employment.
⚠️ ABOLISHED IN 2026. NASENI Levy was a 1% charge on profit before tax for companies, used to fund the National Agency for Science and Engineering Infrastructure. As of January 1, 2026, it has been replaced by the Development Levy (4%) along with TET and NITDA. Companies with turnover ≥ ₦50 million now pay a single 4% Development Levy instead of multiple separate levies totaling 4.5%.
The amount of money you take home after all deductions (tax, pension, NHF, etc.) have been removed from your gross income. This is your actual disposable income.
A voluntary contribution scheme where employees contribute 2.5% of their basic salary to qualify for affordable housing loans. NHF contributions are tax-deductible, reducing your taxable income.
This is a government initiative that provides financial support to eligible Nigerian
⚠️ ABOLISHED IN 2026. NITDA Levy was a 1% charge on profit before tax for companies with annual turnover of ₦100 million or more, used to fund the National Information Technology Development Agency. As of January 1, 2026, it has been replaced by the Development Levy (4%) along with TET and NASENI. The new system is simpler with just one 4% levy for large businesses (turnover ≥ ₦50M).
The official name of Nigeria's federal tax authority as of January 1, 2026, formerly known as FIRS (Federal Inland Revenue Service). NRS is responsible for collecting all federal taxes including PAYE, Company Income Tax, VAT, WHT, and administering tax laws across Nigeria. The name change reflects a modernization of the tax system. Website: nrs.gov.ng (formerly firs.gov.ng).
A tax collection system where employers deduct income tax directly from employee salaries each month and remit to NRS (Nigeria Revenue Service). Under the 2026 tax system, PAYE uses 6 progressive tax bands: 0% (first ₦800,000), 15% (₦800k-₦3M), 18% (₦3M-₦12M), 21% (₦12M-₦25M), 23% (₦25M-₦50M), and 25% (above ₦50M). You only pay each rate on income within that specific band.
Mandatory retirement savings in Nigeria. Employees contribute 8% of their monthly emoluments (basic salary + housing + transport), which is deducted before tax calculation. Employers contribute an additional 10%.
Personal Income Tax (PIT) is a type of tax paid by individuals on their income earned in Nigeria. It applies to salaries, wages, and other forms of income, such as rents and investments. For example, if you work as an employee in Lagos, your employer will deduct PIT from your salary and pay it to the government on your behalf. The Federal Inland Revenue Service (FIRS) is responsible for collecting PIT in Nigeria.
Nigeria's income tax system where higher income is taxed at higher rates, but only the portion of income in each band is taxed at that band's rate. The 2026 system has 6 bands: 0% (first ₦800k), 15% (₦800k-₦3M), 18% (₦3M-₦12M), 21% (₦12M-₦25M), 23% (₦25M-₦50M), 25% (above ₦50M). Example: If you earn ₦5M, you pay 0% on first ₦800k, 15% on ₦800k-₦3M, and 18% only on ₦3M-₦5M.
A new tax deduction introduced in 2026 that allows you to deduct 20% of your annual rent from your taxable income. The deduction has three limits: (1) Maximum ₦500,000 per year, (2) Cannot exceed 20% of your gross annual income, and (3) You must provide proof of rent payment (receipts, bank statements, tenancy agreement). Example: If you pay ₦1,200,000 annual rent, your relief is ₦240,000 (20% of ₦1.2M), reducing your taxable income by that amount.
Businesses with annual turnover below ₦50 million pay ZERO Company Income Tax (0% CIT rate) as of 2026. This threshold was doubled from the previous ₦25 million limit, meaning twice as many small businesses now qualify for complete tax exemption. However, all businesses must still register with NRS and file annual tax returns regardless of whether they owe tax. This exemption supports small business growth in Nigeria.
Income ranges with different tax rates applied progressively. Nigeria's 2026 tax bands are: 0% on first ₦800,000 (tax-free threshold), 15% on ₦800,001-₦3,000,000, 18% on ₦3,000,001-₦12,000,000, 21% on ₦12,000,001-₦25,000,000, 23% on ₦25,000,001-₦50,000,000, and 25% on income above ₦50,000,000. Tax is calculated progressively - you only pay each rate on income within that specific band, not on your entire income.
A unique number issued by FIRS to identify taxpayers. Every individual and business liable to pay tax in Nigeria must have a TIN. It is required for filing tax returns, opening bank accounts, and business registration.
The first ₦800,000 of your annual income is completely tax-free under the Nigeria Tax Act 2025 (effective January 1, 2026). This means if you earn ₦800,000 or less per year (about ₦66,667 monthly), you pay zero income tax. For higher earners, only income above ₦800,000 is taxed. This replaces the old Consolidated Relief Allowance (CRA) system with a simpler, more generous threshold that benefits all taxpayers, especially lower-income earners.
The portion of your income that is subject to tax after all allowable deductions. For PAYE in 2026, your taxable income = Gross Annual Income minus: (1) 8% pension contribution, (2) 2.5% NHF if applicable, and (3) Rent Relief (20% of annual rent, max ₦500k, capped at 20% of gross income if applicable). The first ₦800,000 of taxable income is tax-free, and remaining income is taxed according to progressive bands.
⚠️ ABOLISHED IN 2026. TET was a 2.5% levy on the assessable profits of companies, used to fund tertiary education in Nigeria. As of January 1, 2026, TET has been replaced by the Development Levy (4%) along with NITDA and NASENI levies. Companies now pay one consolidated 4% Development Levy instead of three separate levies totaling 4.5%. If you see TET mentioned in documents dated before 2026, note that it no longer applies.
A consumption tax of 7.5% charged on most goods and services in Nigeria. As of 2026, new exemptions were added: Diesel (AGO), LPG (cooking gas), and CNG (compressed natural gas) are now VAT-free. Businesses with annual turnover exceeding ₦25 million must register for VAT and charge it on their invoices. VAT collected is remitted to NRS monthly.
An advance payment of income tax deducted at the source when payments are made for certain services or transactions. Key 2026 WHT rates: Directors' fees (15% for residents, 20% for non-residents), Professional/Management fees (5%), Construction/Agency fees (2%), Dividends (10%), Interest (10%), Rent (10%), and Royalties (10%). The person or company making the payment deducts WHT and remits it to NRS on your behalf.
Try searching for a different term or browse by letter above.
If you need clarification on a tax term or can't find a definition, we're here to help.
Explore our comprehensive guides and calculators.
Comprehensive guides explaining PAYE, VAT, business taxes, and more in simple terms.
Free tools to calculate your PAYE, business tax, and other tax obligations instantly.
Stay informed with the latest tax policy changes, reforms, and updates from FIRS.
Always Available