Nigeria Tax Reform 2026: What Students and Small Businesses Need to Know
The Nigerian tax system has undergone significant changes in 2026. Both individuals and businesses must understand the new rules to avoid unnecessary taxes while maintaining compliance. This guide explains the key provisions, tax-free thresholds, applicable rates, and practical tips for students and small business owners.
Personal Income Tax (PIT) – The ₦800,000 Tax-Free Threshold
For individuals, the 2026 reform introduces a clear threshold: the first ₦800,000 of annual personal income is tax-free. Any income above this amount is subject to progressive tax rates defined by the Federal Inland Revenue Service (FIRS).
2026 Personal Income Tax Rates
| Taxable Income (Naira) | Tax Rate |
|---|---|
| ₦0 – ₦800,000 | 0% |
| ₦800,001 – ₦1,200,000 | 7% |
| ₦1,200,001 – ₦2,400,000 | 11% |
| ₦2,400,001 – ₦3,600,000 | 15% |
| ₦3,600,001 – ₦4,800,000 | 19% |
| ₦4,800,001 – ₦6,000,000 | 21% |
| ₦6,000,001 – ₦8,000,000 | 24% |
| ₦8,000,001 – ₦11,000,000 | 27% |
| ₦11,000,001 and above | 32% |
For students running small businesses or side hustles, only the income above ₦800,000 in a year will be taxed. For example, if a student earns ₦1,500,000 from tutoring or freelance work, the first ₦800,000 is tax-free, and the remaining ₦700,000 will be taxed progressively according to the rates above.
Read the full PIT guidelines on the FIRS website.
Company Tax (Small Businesses)
Businesses registered under the Corporate Affairs Commission (CAC) are subject to company tax rules. The 2026 reform distinguishes between small and standard companies.
- Small Companies: Companies with annual turnover ≤ ₦100 million and total assets ≤ ₦250 million are exempt from Companies Income Tax (CIT), Capital Gains Tax (CGT), and Development Levy.
- Standard Companies: Companies exceeding the small company thresholds are taxed at:
2026 Company Tax Rates
- Companies Income Tax (CIT): 25% of taxable profit
- Development Levy: 4% of assessable profit
- Capital Gains Tax (CGT): 30% on net gains from the sale of assets
Taxable profit is calculated as total revenue minus allowable business expenses. Allowable expenses include salaries, equipment purchases, utilities, repairs, and project-related expenditures. Money spent on legitimate business purposes before tax assessment reduces taxable profit.
Practical Tips for Managing Multiple Accounts
Many small business owners or students use multiple accounts such as GTBank, Opay, Access Bank, Moniepoint, or others. Here’s how the 2026 tax reform applies:
- All revenue generated for the business should ideally be received in a main business account.
- Transfers to personal accounts for owner use should be clearly documented as owner withdrawals or director drawings.
- Money moved between personal accounts, even if it exceeds ₦800,000, is not automatically taxed.
- Only personal income (salary, freelance income, dividends) above the ₦800,000 threshold is subject to PIT.
For instance, if a student running a small computer training business transfers revenue from the main business account to a personal GTBank account for equipment purchases, project costs, or personal savings, this transfer is not considered taxable personal income.
Director Withdrawals vs Salary
Owner withdrawals or director drawings are not personal income. Personal income tax applies only if:
- You receive a formal salary
- You earn dividends
- You earn freelance income outside the business
Proper documentation ensures that spending money on projects, equipment, or business expansion before a tax assessment is completely legal and reduces taxable profit rather than increasing tax liability.
Best Practices for Students and Small Businesses
- Use one main business account to receive all business revenue.
- Document all expenses and withdrawals to separate profit from owner’s personal use.
- Transfer funds to personal accounts for savings or personal projects with clear narration.
- Keep receipts for all major purchases including equipment, utilities, and project-related expenses.
- Monitor your annual revenue and profit to know if you exceed the small company threshold of ₦100 million turnover.
- Understand that PIT applies only to salary, dividends, or freelance income, not to withdrawals or business reinvestment.
- Best approach for the coming tax year: Get your business registered under CAC. For affordable registration, contact Alphayem on 07038543405 or click the WhatsApp icon on our contact page.
Summary
- Individuals enjoy a ₦800,000 tax-free threshold on personal income.
- Small companies with turnover ≤ ₦100 million are exempt from CIT, CGT, and development levy.
- Standard companies exceeding thresholds pay 25% CIT, 4% development levy, and 30% CGT on gains.
- Proper record-keeping and using a main business account for inflows protect both personal and business finances.
- Spending on legitimate business projects reduces taxable profit and is fully legal.
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