Simple Explanation for Everyone
Many Nigerians pay more tax than they should—not because tax rates are high, but because they don’t know what the law allows them to remove before tax is calculated.
Under the 2026 tax system, tax is no longer based on guesswork or blanket allowances. You only pay tax on what remains after approved expenses are deducted—as long as you can prove them.
1️⃣ If You Are an Employee (Salary Earner)
If you earn a monthly salary, these are the main items that can reduce your tax:
– Pension contributions (the money saved for retirement)
– NHF contributions (housing fund deductions)
– Health insurance payments (NHIS or approved schemes)
– Life insurance or annuity payments
– Rent relief
You can deduct 20% of your annual rent, up to ₦500,000
– Mortgage interest
Only the interest paid on a home loan for a house you live in
Important: These deductions only count if they are official and documented.
2️⃣ If You Are Self-Employed or Run a Small Business
If you work for yourself, tax is charged on your profit, not your total income.
You can deduct:
– Rent for your shop, office, or workspace
– Salaries paid to staff
– Electricity, internet, data, and office supplies
– Transport costs used only for business
– Interest on loans taken to run the business
🚫 What you cannot deduct:
– Personal spending (food, clothes, personal rent, vacations)
– Family or lifestyle expenses
Receipts and records are very important.
No proof = no deduction.
3️⃣ If You Own a Registered Business or Company
Companies can deduct most costs needed to run the business, such as:
– Staff salaries and training
– Office rent and utility bills
– Insurance and routine repairs
– Professional fees (lawyers, accountants, consultants)
– Research and product development costs
– Bad debts that can no longer be recovered
– Interest on business loans
⚠️ If taxes like WHT or VAT are not properly paid, the related expenses may be rejected, even if they are real.
❌ Expenses You Cannot Deduct
– No matter who you are, these cannot reduce your tax:
– Personal or private expenses
– Big purchases like cars or buildings
(These are treated differently under capital allowance rules)
– Fines and penalties
– Expenses without receipts or proof
Simple Truth to Remember
Two people can earn the same income and still pay different taxes — because one understands deductions and the other doesn’t.
In 2026 and beyond, tax savings come from knowledge, not tricks.
If you don’t know what to deduct, you will likely pay more tax than required by law.