Mastering Income Tax in Nigeria: A Simple Guide for Entrepreneurs and Employees

Imagine earning your first big contract or your first salary raise, then realizing a portion of it goes to the government. Income tax might sound intimidating, but it’s the backbone of every nation’s financial system, funding roads, hospitals, and education.

For Nigeria’s growing class of founders, freelancers, and 9-to-5 workers, understanding income tax isn’t just about compliance, it’s about empowerment. Whether you’re an employee at a Lagos fintech or a small business owner in Kaduna, knowing how your taxes work keeps your finances clean, your records solid, and your stress levels low.

This guide, powered by Zaccheus, breaks down everything you need to know about income tax in Nigeria, how it’s calculated, who pays what, and how automation makes tax time effortless.

What Is Income Tax in Nigeria?

Income tax is a mandatory contribution individuals and companies make to the government based on their earnings.

In Nigeria, there are two major categories:

1. Personal Income Tax (PIT) — paid by individuals, employees, and self-employed professionals.

2. Company Income Tax (CIT) — paid by registered companies on their profits.

The governing body? The Federal Inland Revenue Service (FIRS) handles company taxes, while State Internal Revenue Services (SIRS) oversee personal taxes.

Personal Income Tax (PIT): What Employees and Self-Employed Nigerians Should Know

 Who Pays?

If you earn an income, whether as an employee, freelancer, consultant, or business owner, you’re liable to pay Personal Income Tax.

 How It’s Calculated

Nigeria uses a progressive tax system, meaning higher income attracts higher tax rates.

Suggested read: The Real Cost of Ignoring Tax Compliance in Nigeria

Here’s a breakdown of current PIT rates (as of 2025):

Before applying these rates, individuals enjoy reliefs like:

• Consolidated Relief Allowance (CRA): ₦200,000 or 1% of gross income + 20% of gross income.

• Pension, NHF, and Life Insurance Deductions (tax-exempt).

Example:
If Ada earns ₦3,000,000 annually, her taxable income is reduced by CRA and other reliefs before applying the above rates.

 PAYE System (for Employees)

For employees, taxes are deducted monthly under the Pay-As-You-Earn (PAYE) system by employers and remitted to the state tax authority.

Example: If you work in Lagos, your employer remits your PAYE to the Lagos State Internal Revenue Service (LIRS) by the 10th of the next month.

 Self-Employed or Freelancer?

You file your taxes directly through your state revenue service, often once a year. Failure to file can attract penalties of ₦50,000 for individuals or more for continuous defaults.

Company Income Tax (CIT): For Nigerian Businesses

 Who Pays?

Every registered company operating in Nigeria, whether local or foreign, must pay income tax on its profits, not just revenue.

 Current Rates (2025)

 How It’s Computed

CIT = Total Profit × Tax Rate

Suggested read: Consolidated Relief Allowance (CRA) in Nigeria: The Simple Tax Relief Everyone Should Understand

Companies can deduct allowable expenses such as:

• Salaries and wages

• Rent and utilities

• Repairs and maintenance

• Donations (within limits)

Filing is done annually through FIRS, usually within six months after the accounting year-end.

 Don’t Forget: Education Tax

All companies also pay 2% Education Tax on assessable profits, supporting tertiary education funding.

Withholding Tax (WHT): The Unsung Hero

Many entrepreneurs don’t realize that Withholding Tax is part of the income tax ecosystem.

It’s a prepayment of tax deducted at source, common for services, contracts, or rent.

Rates range from 5%–10% depending on the transaction.
Example: If Zaccheus hires a freelance writer for ₦100,000, ₦5,000 may be withheld and remitted to FIRS as tax credit.

Suggested read: Understanding the Impact of Inflation on Business Valuation

Common Income Tax Mistakes Nigerian Founders and Employees Make

1. Ignoring tax filing deadlines – Late filing attracts fines and potential blacklisting.

2. Misunderstanding reliefs – Many SMEs fail to claim allowable deductions, overpaying tax.

3. Mixing personal and business income – This confuses your books and compliance reports.

4. Manual errors – Excel mistakes cause miscalculations and under-remittance.

5. Neglecting updates – Tax laws evolve yearly; ignorance isn’t an excuse.

How Zaccheus Simplifies Income Tax for Nigerian Businesses

At Zaccheus, we believe finance should work for you, not stress you out. Our AI-powered CFO tool transforms how Nigerian startups, freelancers, and SMEs handle tax compliance.

Here’s how:

• Smart Calculations – Automatically computes PAYE, CIT, and WHT accurately.

• Real-Time Compliance Alerts – Get notified before penalties hit.

• Multi-Currency Support – Handle USD, GBP, and NGN effortlessly for global teams.

• Tax Filing Assistance – Generate reports ready for FIRS or LIRS submissions.

Zaccheus doesn’t just simplify taxes, it helps founders stay profitable, compliant, and calm.

Suggested read: How to Handle Financial Disputes Between Co-Founders

Whether you’re a solo freelancer in Enugu or a fintech startup in Lagos, Zaccheus gives you clarity, control, and confidence.

The Future of Income Tax in Nigeria

By 2026, Nigeria is set to embrace AI-driven tax automation, reducing errors and boosting compliance.
Expect more digital filing options, data sharing between FIRS and SIRS, and simplified self-assessment tools.

Businesses using smart finance tools like Zaccheus will stay ahead, saving hours weekly and avoiding costly penalties.

Conclusion: Make Taxes Work for You

Income tax doesn’t have to feel like a maze. With the right knowledge and Zaccheus in your corner, you can turn tax season into a moment of clarity instead of chaos.

From PAYE to company income tax, automation is the future. Ready to simplify your financial life?

 Visit www.zaccheus.com to explore how our AI CFO helps you calculate, file, and manage taxes effortlessly across Nigeria and beyond.