One of the biggest changes is the introduction of a new progressive tax structure, with rates ranging from 0% to 25%.

You may have seen people saying things like “income above ₦800,000 will be taxed at 15%” or “the highest tax rate is now 25%.”

Those statements can be misleading if you don’t understand how progressive tax works.

The rate does not apply to your entire income once you cross a threshold.

It applies to the portion of your chargeable income that falls within each band.

So what are the new tax bands?

Under the Fourth Schedule of the Nigeria Tax Act 2025, after applicable reliefs and exemptions have been considered, chargeable income is taxed as follows: (Nigerian Investment Promotion Commission)

Chargeable income Tax rate

First ₦800,000 0%

Next ₦2,200,000 15%

Next ₦9,000,000 18%

Next ₦13,000,000 21%

Next ₦25,000,000 23%

Above ₦50,000,000 25%

The first ₦800,000 is therefore taxed at 0%.

But that doesn’t mean someone earning above ₦800,000 suddenly pays tax on their entire income at 15%.

That is where the progressive structure comes in.

What does “progressive” actually mean?

Imagine your chargeable income is ₦5 million.

The calculation does not look like this:

₦5 million × 18% = ₦900,000.

Instead, the income is divided across the applicable bands.

The first ₦800,000 is taxed at 0%.

The next ₦2.2 million is taxed at 15%.

The remaining ₦2 million falls into the 18% band.

That gives:

₦0 + ₦330,000 + ₦360,000 = ₦690,000 in tax.

So although ₦5 million reaches the 18% band, the entire ₦5 million is not taxed at 18%.

This distinction is important.

What happens when your income moves into a higher band?

The same principle applies at higher income levels.

If your chargeable income is ₦13 million, only the portion above ₦12 million enters the 21% band.

The calculation is:

First ₦800,000 at 0% = ₦0

Next ₦2.2 million at 15% = ₦330,000

Next ₦9 million at 18% = ₦1.62 million

Remaining ₦1 million at 21% = ₦210,000

Total tax = ₦2.16 million

So the fact that your income crossed ₦12 million does not mean the entire ₦13 million is suddenly taxed at 21%.

Only the amount within that band is.

What about the ₦800,000 tax free band?

This is one of the changes that will matter most to lower income earners.

Under the new structure, the first ₦800,000 of chargeable income is taxed at 0%. (Nigerian Investment Promotion Commission)

So an individual whose chargeable income is ₦800,000 or less has no personal income tax payable under this rate schedule.

But there is an important distinction between income and chargeable income.

The bands are applied after the relevant reliefs and exemptions have been taken into account. The Nigeria Tax Act also introduced changes to personal reliefs, including a rent relief of 20% of annual rent paid, subject to a ₦500,000 maximum and the applicable conditions. (KPMG)

This means you shouldn’t simply look at your total earnings and apply the bands without first understanding what counts as chargeable income.

What does this mean for freelancers?

This matters beyond employees on a monthly salary.

A Nigerian freelancer earning from local or international clients also needs to understand how their chargeable income is determined.

For example, if you make money from design, writing, consulting, software development or another independent service, your tax calculation isn’t simply:

Money received × tax rate.

You need to properly determine the income that is subject to tax and account for the relevant deductions, reliefs and exemptions before applying the progressive bands.

This is one reason keeping proper records throughout the year matters.

Your invoices show what you earned.

Your receipts and supporting documents help establish your expenses and other relevant transactions.

Your contracts can explain where particular payments came from.

By the time you need to calculate your tax, you have a clearer picture of the numbers instead of trying to reconstruct everything from bank statements.

What about the 25% rate?

The highest rate under the new schedule is 25%, and it applies only to chargeable income above ₦50 million. (Nigerian Investment Promotion Commission)

Again, this does not mean someone earning ₦51 million pays 25% on the entire ₦51 million.

The first portions are still taxed at 0%, 15%, 18%, 21% and 23% according to the bands they fall into.

Only the amount above ₦50 million enters the 25% band.

That is the basic idea behind progressive taxation.

The important thing to remember

The new tax bands are easier to understand when you stop thinking of them as a single tax rate.

Think of your chargeable income as being divided into sections.

Each section is taxed at its own rate.

So when your income moves into a higher band, only the additional income entering that band is taxed at the higher rate.

For freelancers, remote workers and small business owners, understanding this is only part of the process.

You also need to know what income you have earned, what qualifies as chargeable income, what reliefs or exemptions apply to you and what records support your calculation.

That is where good financial organisation becomes useful.

LessaTax helps you keep your income, expenses, invoices, receipts and supporting documents organised throughout the year, so you have a clearer picture when it is time to deal with your tax.

The new 2026 tax framework may look complicated on paper.

But the basic principle behind the progressive bands is simple:

You don’t pay the highest rate on everything you earn. You pay different rates on different portions of your chargeable income.

This article is for general educational purposes and should not be treated as individual tax advice.

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