30/12/2025
NEW NIGERIA TAX LAWS 2026: LEARN HOW TO CALCULATE YOUR TAX
I promise you, this is the best explanation you will get on understanding just how to calculate your tax based on the new Tax Laws, especially as an individual and employee. Also learn how to reduce your tax by maximizing deductions and reliefs.
Let’s forget about all those complicated gibberish and focus on what concerns you. And I’ll use a real-life example - you earn 500K monthly.
ASSUMPTIONS
✔️Your monthly salary is #500,000
✔️Annual salary: #6,000,000
LEGITIMATE DEDUCTIONS
✔️Pension contribution: 8% ( I assume you contribute monthly for your pension of which 8% of your monthly salary is the maximum contribution by employees, according to the Law).
✔️ Life insurance: 2.5% (I assume you have a life insurance policy of which 2.5% of your monthly salary, is what you pay as premium).
✔️Health insurance: #150,000 per year (you also have health insurance with a premium of 150K annually).
✔️ Annual rent: #650,000 (this is what you pay annually as rent)
STEP 1: LET’S CALCULATE YOUR DEDUCTIONS
📌 Pension (8%)
8% * #6,000,000 = #480,000
📌 Life Insurance (2.5%)
2.5% * #6,000,000 = #150,000
📌 Health Insurance
Annual premium = #150,000
📌 Rent Relief
Government allows 20% of your annual rent (up to #500,000)
20% * #650,000 = #130,000
📌 Exemption Limit
Everyone gets #800,000 tax-free allowance. That means, the first 800K you earn in a year will not be taxed.
TOTAL RELIEFS & EXEMPTIONS
✔️ Pension: #480,000
✔️ Life Insurance: #150,000
✔️ Health Insurance: #150,000
✔️ Rent Relief: #130,000
✔️Exemption Limit: #800,000
Total deductions = #1,710,000
STEP 2: LET’S FIND OUT WHAT YOU WILL PAY AS TAX
🆖Annual Salary - #6,000,000
🆖Less Total Deductions - #1,710,000
🆖 Taxable Income - #4,290,000
You are NOT taxed on the full 6M annual salary, only on 4.29M.
For this income level, the effective tax rate is about 14% – 16%.
Estimated tax:
📌 Annual tax: ranges from #600,000 - #690,000
📌 Monthly PAYE: ranges from #50,000 - #57,000 (this is what you will pay monthly).
📗Note: This Tax is paid monthly, not once a year. If you are employed, it is automatically deducted by your Employer and remitted to Tax authorities. It is therefore very important that both you and your employer are well informed of the exact figures you are meant to pay so as to avoid surprises.
KEY TAKEAWAYS
Pension saves tax: it is better to be paying yourself for the future than paying too much Tax to the government. Your retirement contribution reduces what government taxes today.
Insurance is not a waste: Life & health insurance directly reduces your taxable income.
Rent relief matters: If you pay rent, claim it. You are entitled to it.
Good planning and the right information helps to lower tax legally: No tricks. No evasion. Just understanding the rules.
I hope this helps. Kindly share if you find this helpful.
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