Understanding where your money goes — without the confusion. Types of Taxes in Nigeria. If you live, study, work, or run a business in Nigeria, taxes are already part of your daily reality. From buying food on campus, transferring money through your banking app, to earning a salary or allowance, a portion of that money finds its way to the government.
For students and young professionals especially, the Nigerian tax system can feel overwhelming. There are unfamiliar acronyms everywhere (FIRS, VAT, PAYE), and it’s often unclear who collects what, why it’s deducted, or how it affects you long-term.
This guide breaks down how taxes work in Nigeria, the major types you should know as a student or graduate, and why taxes matter — not just to the government, but to your everyday life.
What are taxes?
Taxes are compulsory payments made by individuals and businesses to the government.
Think of taxes as a shared responsibility. If everyone in a student hostel contributes money to fix a generator, everyone benefits from light. In the same way, when citizens pay taxes, the government uses that money to build roads, fund public universities, maintain hospitals, and provide essential services.
Taxes are a key pillar of Nigeria’s economy. They make up a significant part of government revenue and help keep public systems functioning.
Overview of the tax system in Nigeria
Nigeria’s tax system didn’t appear overnight. Its roots stretch back to pre-colonial times when kingdoms like the Sokoto Caliphate collected levies and tributes.
During British colonial rule, formal tax structures were introduced, beginning in Northern Nigeria in 1906 and expanding to Western and Eastern regions by 1927. Policies such as the Companies Income Tax Ordinance of 1939 laid the foundation for the modern system.
After independence in 1960, Nigeria continued refining tax administration by introducing reforms, laws, and regulatory bodies to improve collection and compliance. The result is the multi-layered tax system in place today.
Tax authorities in Nigeria
Tax collection in Nigeria happens at three levels to ensure efficiency and proper distribution of funds across the country.
- Federal Inland Revenue Service (FIRS): Established in 1943 under the Federal Board of Inland Revenue (FBIR), FIRS collects federal taxes such as Company Income Tax and VAT.
- State Internal Revenue Service (SIRS): Created in 1993, SIRS manages state-level taxes like Personal Income Tax and road taxes.
- Local Government Revenue Authorities (LGRAs): Introduced in 1976 through local government reforms, LGRAs collect grassroots taxes such as tenement rates, market fees, and motor park levies.
Together, these bodies ensure taxes are collected, managed, and allocated appropriately.
Nigeria’s tax collection hierarchy
Types of taxes in Nigeria
Nigeria’s taxes fall into two broad categories:
- Direct taxes: Paid directly by individuals or businesses based on income or profits.
- Indirect taxes: Paid on goods and services, usually collected by businesses on behalf of the government.
Below are the key taxes every student, graduate, or business owner should understand:
1. Personal Income Tax (PIT)
If you earn a salary — including during internships or entry-level jobs — this tax applies to you. Employers deduct it automatically and remit it to the government.
The rate is progressive, ranging from 7% to 24%. This means higher earners pay more.
FIRS manages PIT for Federal Capital Territory (FCT) residents and federal employees, while state tax authorities handle it for other residents.
2. Company Income Tax (CIT)
This tax applies to businesses and is paid to FIRS.
- Large companies earning over ₦100 million annually pay 30% of profits.
- Medium-sized companies earning between ₦25 million and ₦100 million pay 20%.
- Small businesses earning below ₦25 million are exempt.
Oil and gas companies do not pay CIT; instead, they pay Petroleum Profit Tax.
3. Value Added Tax (VAT)
VAT is a consumption tax charged on goods and services at 7.5%. Businesses add it to prices, collect it from consumers (including students), and remit it to FIRS.
4. Withholding Tax (WHT)
WHT is an advance payment of income tax. It applies to payments such as contracts, rent, dividends, interest, and royalties.
A portion of your income is withheld and sent to the government. If you file your taxes properly, WHT credits can reduce what you owe later.
5. Petroleum Profit Tax (PPT)
This tax applies to oil and gas companies and is a major revenue source for Nigeria.
- Joint ventures with NNPC pay 85%.
- Companies under production-sharing contracts pay 50%.
6. Education Tax (TETFund Tax)
This tax funds universities and polytechnics across Nigeria — including institutions students attend. Companies pay 2% of assessable profits toward this fund.
7. Capital Gains Tax (CGT)
CGT is charged at 10% on profits from selling assets such as land, shares, or machinery. It only applies when a profit is made.
8. Stamp Duties
Stamp duties apply to legal documents and electronic transactions.
For example, the ₦50 charge on deposits above ₦10,000 in bank accounts is a stamp duty.
9. Customs and Excise Duties
Customs duties apply to imported goods, while excise duties apply to locally manufactured goods like alcohol and tobacco.
The Nigeria Customs Service collects these taxes for the federal government.
10. Property Taxes
Property owners pay various taxes, including:
- Capital Gains Tax
- Stamp Duty on property transfers
- Rent tax
- Development levies
These are collected by federal, state, and local governments.
11. National Information Technology Development Levy (NITDL)
This levy funds IT development in Nigeria. Companies with ₦100 million or more in turnover pay 1% of profit before tax.
Affected sectors include telecoms, internet companies, banks, insurance firms, and financial services.
Why should you pay taxes?
- Taxes drive development: They fund roads, schools, hospitals, and basic amenities.
- It’s a civic responsibility: Paying taxes helps you avoid penalties, fines, or restrictions.
- Taxes keep government running: From public servants’ salaries to security and administration.
- They help redistribute wealth: Higher earners pay more, helping reduce inequality.
- Taxes create jobs: Infrastructure and public projects generate employment opportunities.
The impact of taxes
Taxes shape daily life in several ways:
- Personal and corporate taxes: Affect disposable income and business decisions.
- Consumption taxes (VAT): Increase the cost of goods and services.
- Sector-specific taxes: Ensure key industries contribute fairly.
- Education and property taxes: Support public infrastructure and access to education.
The tax system in Nigeria
Nigeria uses three major concepts to keep taxation structured:
- Progressive tax system: Higher earners pay more, easing the burden on low-income individuals.
- Proportional tax system: Businesses pay fixed rates based on size.
- Decentralised tax system: Different levels of government collect different taxes, ensuring efficient development.
Frequently asked questions about Nigerian taxes
- What are Nigeria’s direct taxes?
PIT, CIT, CGT, and PPT. - How many kinds of taxes exist in Nigeria?
Direct taxes and indirect taxes. - Difference between VAT and WHT?
VAT is paid by consumers on goods and services, while WHT is deducted from income. - Who collects VAT?
FIRS. - What is the 7.5% tax?
VAT. - How is tax calculated?
It depends on the tax type — PIT is progressive, CIT is fixed by company size, VAT is 7.5%, and PAYE is deducted from salaries. - What is tax evasion?
Illegally avoiding taxes by underreporting income, failing to file returns, or hiding assets. - Penalties for non-compliance:
Late filing fines, registration penalties, and possible jail time, enforced by FIRS and SIRS.
Conclusion
Taxes may not be exciting, but they’re unavoidable. For students, interns, employees, and business owners alike, understanding how Nigeria’s tax system works can save you from costly mistakes and legal trouble — and help you make smarter financial decisions as you grow.
