The recent signing of Nigeria’s 2025 Tax Reform Acts marks a monumental shift in the country’s fiscal landscape. These new laws, set to take effect from January 1, 2026, consolidate and modernize the tax system, with far-reaching implications for both employees and human resources (HR) departments. A key challenge for businesses will be to adapt their payroll and HR systems to the new regulations seamlessly. This is where a robust and agile software solution like Excellium becomes indispensable.
Key Benefits of the 2025 Tax Reforms for employees and HR
The new tax acts, including the Nigeria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service (Establishment) Act, and the Joint Revenue Board (Establishment) Act, are designed to simplify compliance and provide relief to low-income earners.
Benefits for Employees:
• Increased Personal Income Tax (PIT) Exemption: The most significant change for many employees is the new tax-exempt threshold. Individuals earning up to NGN800,000 per annum are now fully exempt from personal income tax. This will lead to a considerable increase in net pay for low-income workers.
• Progressive Tax Rates: A new, more progressive tax regime with updated tax bands means that higher earners will contribute a larger share of the tax burden, while lower and middle-income earners may see a reduction in their tax liabilities.
• Rent Deduction: The introduction of a 20% rent deduction, capped at NGN500,000,
offers a welcome relief to employees, reducing their taxable income and increasing their
take-home pay.
• Higher Exemption for Loss of Employment: The tax-exempt threshold for compensation
for loss of employment has been raised to NGN50 million, providing a stronger financial
safety net for employees.
Impact on HR Departments:
The reforms bring a dual challenge for HR. First, they must ensure existing contracts and
compensation structures are compliant. Second, they need to adapt their payroll systems to
accurately reflect the new rules. The changes require a complete overhaul of how payroll is
calculated and reported, presenting a significant administrative challenge. The HR team’s role
now includes:
• Updating Payroll Calculations: Recalculating taxes based on the new tax bands,
exemption thresholds, and deductions (like the rent deduction).
• Communicating Changes: Clearly explaining the changes to employees, managing
expectations around their new net pay, and addressing any questions about the new tax
regime.
• Ensuring Compliance: The new Nigeria Revenue Service (NRS) is expected to be a
digitally enabled body with real-time reporting requirements. This means HR must
ensure all payroll data is accurate, timely, and compliant to avoid penalties.
• Rethinking Compensation and Benefits: The new tax landscape may influence
compensation strategies, particularly for housing allowances or other benefits that can
be structured to be more tax-efficient for employees