Understanding Tax

Personal Income Tax in Nigeria: What It Means and How It Affects You (2025 Guide)

Key Points

Record Keeping: How to Avoid Paying Tax on Gross Income Here’s a critical part many people miss:Tax is charged on profit, not your total income — but only if you can prove your expenses
Instead of juggling personal tax rates, you can pay Company Income Tax (CIT) at 20% or 30%, with more deductions and legitimacy
If you earn money in Nigeria, as a freelancer, influencer, or small business owner, you need to understand how personal income tax (PIT) works
Start early: Get your Tax ID (TIN) Keep proper records File your taxes based on profit, not guesswork If you’re unsure how to start, Qrafteq can help you set up your business structure, TIN, and compliance system before 2026 hits
Personal Income Tax is a tax charged on the income of individuals including employees, sole proprietors, freelancers, consultants, and anyone earning money outside company structures

Seriously, most Nigerians don’t think about “personal income tax” until a government policy, employer, or bank request forces the issue. But as we approach the 2026 tax reform, the Federal Inland Revenue Service (FIRS) and state tax boards are tightening compliance. If you earn money in Nigeria, as a freelancer, influencer, or small business owner, you need to understand how personal income tax (PIT) works.

What Is Personal Income Tax (PIT)?

Personal Income Tax is a tax charged on the income of individuals including employees, sole proprietors, freelancers, consultants, and anyone earning money outside company structures.

It’s governed by the Personal Income Tax Act (PITA) and managed by either the FIRS (for residents earning across states or outside Nigeria) or your State Internal Revenue Service (for most individuals).

Simply put:
If you earn money as a person, not through a registered company, you’re expected to pay personal income tax.

Who Is Required to Pay Personal Income Tax?

Almost everyone with a source of income in Nigeria is covered, including:

Salary earners (deducted through PAYE)
Freelancers and gig workers
Influencers and content creators
Traders and artisans (hairdressers, tailors, mechanics, barbers)
Professionals (lawyers, doctors, consultants)
Landlords (rental income)
Entrepreneurs running unregistered businesses

So, if you receive payments directly into your personal account, you’re liable for PIT.

How Personal Income Tax Works in Nigeria

There are two main ways PIT is collected:

PAYE (Pay-As-You-Earn): Employers deduct tax from your salary monthly and remit it to the government on your behalf.
Self-Assessment: Freelancers, influencers, and business owners calculate their income, declare it to the tax authority, and pay based on their profit — not total earnings.

The rates are progressive, meaning the more you earn, the higher your tax rate (ranging from 7% to 24%).

Why This Matters More Now (Tax ID Becomes Compulsory)

Starting January 2026, every taxpayer in Nigeria, including individuals, will be required to have a Tax Identification Number (TIN) to operate legally. Without a TIN, you’ll struggle to:

Open or maintain a bank account
Get government contracts
Register a business or renew licenses
Receive payments from registered companies

Freelancers and influencers especially risk being locked out of brand deals or payments from formal organizations that now require a TIN before processing transactions.

Record Keeping: How to Avoid Paying Tax on Gross Income

Here’s a critical part many people miss:
Tax is charged on profit, not your total income — but only if you can prove your expenses.

If you don’t keep proper financial records, tax officials may assume every naira you earned is profit and tax you on the gross. That’s avoidable.

Keep track of your:

Business expenses (data, logistics, tools, ads, supplies)
Income (clients, brand deals, sales)
Receipts and invoices

Doing this right helps you pay less tax legally.

Recommended Accounting Apps for Freelancers & Small Businesses

To make record-keeping easier, use simple finance apps like:

Wave Accounting – Free invoicing and expense tracking
Zoho Books – Automated bookkeeping with bank sync
QuickBooks Self-Employed – Tracks mileage, income, and expenses
Kippa – Nigerian-friendly app for sales and customer tracking
Expensify – Best for receipt scanning and report generation
Bookkeeping by Wave – Easy to use for freelancers
FreshBooks – For client billing and time tracking
Sage Business Cloud – Ideal for small but growing enterprises
TallyPrime – Local accounting software used by many SMEs
Moniepoint Business – For Nigerian small business expense management

Why Registering as a Business Makes Tax Easier

If you’re earning consistently, registering as a Business Name or Limited Company can simplify your tax life. Instead of juggling personal tax rates, you can pay Company Income Tax (CIT) at 20% or 30%, with more deductions and legitimacy.

Final Word: Pay Smart, Not Hard

Personal Income Tax isn’t a punishment. The earlier it is take as structure, the better. Otherwise, consider the alternative by registering as a small business instead.

The new tax reforms mean hiding under “informal” won’t last much longer. Start early:

Get your Tax ID (TIN)
Keep proper records
File your taxes based on profit, not guesswork

If you’re unsure how to start, Qrafteq can help you set up your business structure, TIN, and compliance system before 2026 hits.

Want to Talk? 08036509056

Samuel Edet

Samuel Edet is a business structure consultant at Qrafteq, where we help Nigerian founders build businesses that survive beyond the registration excitement phase. We've helped over 200 businesses set up proper legal, financial, and operational infrastructure, the unsexy stuff that determines if you'll still be in business in two years.

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