Nigeria’s 2025 tax reform acts introduce major payroll changes that HR teams must prepare for before the January 2026 effective date.
These changes affect personal income tax, benefits, employee communication, payroll computation, and reporting requirements.
Below is a concise overview of the key payroll updates under the new Nigeria tax laws.
1. Updated Personal Income Tax Structure
Payroll teams must apply the new Personal Income Tax (PIT) rules, which include:
- PIT exemption for individuals with an annual income of ₦800,000 or less.
- A new Rent Relief enables individuals to claim 20% of their annual rent payments, with a maximum limit of ₦500,000 (subject to declaration and approval by the tax authorities).
- Tax exemption for severance payments up to ₦50 million.
Payroll Impact:
Expect adjustments in net pay for employees across multiple earning brackets.
2. Business Tax Adjustments Affecting Payroll
According to PWC, small companies now enjoy full exemption from:
- Company Income Tax
- Capital Gains Tax
- The Development Levy
Large companies, however, must implement:
- CGT increase from 10% to 30%
- A 4% Development Levy
- A 15% minimum effective tax rate for large local companies and qualifying multinationals
Payroll Impact:
These changes may affect compensation planning, particularly for organisations with profit-linked bonuses or share-based rewards.
3. VAT Adjustments on Employee Benefits
Essential services—including food, healthcare, education, and residential rent—are now zero-rated for VAT.
Payroll Impact:
Companies providing benefits within these categories will need to reassess the gross-to-net value of such perks.
Conclusion
The new Nigeria tax reforms for 2025 demand careful preparation from HR and payroll teams.
With new tax thresholds, digital compliance requirements, and penalties, organisations must ensure their payroll systems are fully ready ahead of January 2026.
SeamlessHR has already released the updated payroll system reflecting all new tax computations.
HR teams simply need to toggle on the tax reform settings once the new laws take effect in January 2026 to remain compliant.
