Understanding reliefs and exemptions in Nigeria’s 2026 tax reforms

BY MIDE ALABI

Tax relief is a legal allowance that reduces the amount of income on which tax is calculated. An exemption removes a particular income, transaction, or item from the tax net entirely. Reliefs and exemptions are not giveaways. They are tools that lawmakers use to align tax burdens with social priorities, to protect vulnerable groups, and to encourage particular economic activities. How they are designed and implemented determines whether they strengthen equity or simply create opportunities for avoidance.

On 26 June 2025, the president assented to a consolidated set of tax laws intended to overhaul Nigeria’s fiscal system. The Presidential Fiscal Policy and Tax Reforms Committee has since published 50 reliefs and exemptions that will take effect from 1 January 2026. These measures cover personal income tax, corporate taxes, capital gains, value-added tax, and a range of administrative charges. The list was published by the committee and reported widely by national outlets

This note follows my earlier pieces on the reform bills. My aim here is to explain precisely what each relevant relief means in practice. I remain cautiously optimistic. The design addresses many long-standing problems. Implementation will determine whether ordinary Nigerians actually benefit.

Personal income tax and worker protections

Key headline points are simple and consequential. Individuals earning the national minimum wage or less will be exempt from PAYE. Individuals with annual gross income up to ₦1.2 million will also be exempt. The committee set a reduced PAYE structure for incomes above those thresholds up to ₦20 million, though the published summaries do not provide a full rate table in the public statement. In short, the low end of the earnings distribution is shielded, and the middle is given targeted relief.

Several familiar deductions remain available. These include pension contributions to pension fund administrators, payments to the National Health Insurance Scheme, and National Housing Fund contributions. Interest on loans taken for owner-occupied houses qualifies as a deductible expense. Life insurance and annuity premiums remain deductible. Rent relief is set at 20 percent of annual rent, capped at ₦500,000. These are the routine items that reduce taxable income for salaried workers and professionals.

Gifts received by individuals are explicitly exempted from tax under the new framework. For workers who lose employment, compensation up to ₦50 million is tax-exempt. Pension funds, pensions and gratuities paid in line with the Pension Reform Act retain their exempt status. For retirees and those between jobs, this removes what would otherwise be a compounding financial shock.

Capital gains and property

The new rules exempt certain capital gains from tax. The sale of an owner-occupied house is exempt from capital gains tax. Personal effects or chattels with a value up to ₦5 million are excluded. The sale of up to two private vehicles per year is not subject to CGT. For share transactions, the reforms specify an exemption threshold that operates in two ways. Gains on share sales below ₦150 million per year, or gains of up to ₦10 million, are exempt. Where gains exceed thresholds, reinvestment of proceeds can preserve relief in some circumstances. Charities, pension funds, and non-commercial religious institutions also retain CGT exemptions. These provisions reduce tax friction for ordinary asset sales and for small-scale investors.

Corporate incentives for small firms, startups and agriculture

The corporate tax changes will matter most to small businesses. Companies with a turnover not exceeding ₦100 million and total fixed assets below ₦250 million will pay zero percent Companies Income Tax. Eligible startups that meet the committee’s labelling criteria are granted similar exemptions. These thresholds are higher than the old statutory minimum tax thresholds and are intended to ease compliance burdens for micro and small enterprises.

The law recognises employment as a policy objective. Employers who increase salaries, grant wage awards, or provide transport subsidies for low-income workers can claim an additional 50 percent deduction on those qualifying costs, known as compensation relief. A separate employment relief gives a 50 percent deduction for salaries of new employees who are retained for at least three years. Both measures are explicitly designed to incentivise employers to create and formalise jobs rather than to simply reduce tax bills. Agricultural businesses in crop production, livestock, and dairy qualify for a five-year tax holiday. Investors in labelled startups through venture capital funds, accelerators, or incubators will be exempt from tax on gains from those investments.

There are also straightforward administrative reliefs for smaller firms. Small companies are exempt from the 4 percent development levy and from withholding tax on their income and on payments to suppliers. This is intended to preserve cash flow and simplify supplier relationships for firms at the lower end of the revenue scale.

Value-added tax and daily consumption

A substantial part of the 50 items relates to VAT and consumption taxes. Basic food items are zero-rated. Rent is exempt. Education services and materials, health and medical services, and pharmaceutical products are zero-rated or exempt. Small companies with a turnover of ₦100 million or less need not charge VAT. Diesel, petrol, and solar power equipment are either exempt or subject to VAT suspension. The list further includes agricultural inputs such as fertilisers, seeds, seedlings, feeds, and live animals, and the purchase or lease of equipment for agricultural production. Disability aids and assistive devices are exempt. Items targeting households and families, such as baby products and sanitary towels, are also listed. These choices narrow the tax base on essentials while preserving VAT on non-essential goods.

The law also provides for a refund mechanism where VAT has been paid on assets and overheads used to produce VATable or 0 percent VAT goods. That provision matters for firms that invest in capital equipment or processing facilities for zero-rated outputs because it prevents a cumulative tax cost on production inputs.

Financial transactions, stamp duty and transfers

Several routine financial transactions no longer attract stamp duty. Electronic money transfers below ₦10,000 are exempt. Salary payments and intrabank transfers are exempt. Transfers of government securities, transfers of shares, and documents for the transfer of stocks and shares are listed as exempt from stamp duty. The practical effect is the removal of small frictions from savings and payroll operations.

Practical implications and immediate gaps

There are three practical points to stress. First, the published lists summarise categories and thresholds but do not include every operational detail. For example, the public statements indicate reduced PAYE rates up to ₦20 million, but the detailed rate schedule and exact brackets require the implementing regulations and guidance from revenue authorities. Until that guidance is published, taxpayers and employers will face uncertainty about banding and payroll implementation.

Then, revenue tradeoffs are real. Expanding exemptions reduces short-term revenue unless there are offsetting measures elsewhere or faster economic formalisation. The reforms are an attempt to widen the tax base and make compliance easier. Whether they produce net revenue gains while protecting vulnerable groups will show in the coming fiscal cycles.

Also worthy of concern is, from my review of the Nigerian Tax Act, particularly Section 163(3) of the NTA 2025, there appears to be a limitation to some of the incentives under discussion. The compensation relief (which allows a 50% additional deduction for salary increases, wage awards, or transport subsidies for low-income workers) and the employment relief (which provides a 50% deduction for salaries of new employees hired and retained for at least three years), are expressly restricted to the 2023–2025 calendar years. This raises a key question for both employers and policymakers: will these reliefs be retrospectively claimable or revalidated beyond 2025 when the new tax regime begins in full effect from 2026? It is an important technical point that deserves clarification, especially as businesses plan their compliance and compensation structures.

Lastly, I have opined on multiple occasions that reliefs only work when administration follows. Exemptions and deductions are only effective when tax officers apply them consistently and when taxpayers have clear instructions about documentation and claims. The committee has signalled outreach to journalists, influencers, and the public to reduce misinformation, but outreach must be matched with training for the officers who will implement the law at the point of collection.

What ordinary Nigerians should do now

If you are a worker, check your pay slip after January 2026 for changed PAYE deductions and confirm that allowable deductions are applied.

If you are a business owner, review turnover against the ₦100 million threshold and engage your accountant and possibly a lawyer on VAT obligations and refund mechanisms.

If you are an investor, note the CGT thresholds and the conditions for reinvestment relief.

Finally, follow official communication channels and the Nigeria Revenue Service for implementing regulations. The committee itself has urged citizens to rely on official sources for verification. Information from secondary sources should be taken cautiously, even from pages like mine. As always, I encourage you to make individual findings.

Conclusion

The fifty (50) reliefs and exemptions reflect a considered, if ambitious, attempt to align tax policy with social priorities. They are not a cure for deeper structural fiscal challenges. They do, however, lower visible burdens for many low-income earners and small businesses and create incentives for employment and investment in specified sectors. My position remains cautious and constructive.

The law on paper is a step forward. The test will be clarity in the implementing regulations, uniform application across states, and the capacity of the tax authorities to administer these changes fairly.

Mide Alabi Esq, a Lagos-based lawyer, can be contacted via [email protected]