In this fast-changing bulaba economy, knowing your way around tax laws is essential if you want to succeed financially and stay on the right side of the law. Recent tax reforms have brought in some big changes for both individuals and business owners, especially depending on how your business is registered. Being informed now gives you a real edge.
Whether You’re Salaried or Self-Employed: A Fresh Approach to Paying Tax
The new Personal Income Tax Act (PITA) has introduced a progressive tax system that feels fairer. Instead of paying one fixed rate on all your income, you’re taxed at different rates depending on how much you earn. Here’s a quick look at the annual tax brackets in simple terms:
₦0 – ₦800,000: 0% tax (No tax! Great news if you’re earning less.)
₦800,001 – ₦3,080,000: 15%
₦3,080,001 – ₦12,320,000: 18%
₦12,320,001 – ₦24,640,000: 21%
₦24,640,001 – ₦49,280,000: 23%
Above ₦49,280,000: 25%
Let me give you two real-life-style examples to make it clearer:
Let’s say Ndudi earns ₦1 million per month, which adds up to ₦12 million a year. Before, she might have gotten taxed heavily with a flat rate. Now, her income is taxed progressively. Her first ₦800,000 isn’t taxed at all. The next ₦2,280,000 is taxed at 15%, and the remaining ₦8,920,000 is taxed at 18%. This way, her tax bill feels more manageable.
Nnamdi is a Content Creator, his income varies, but on average, he makes about ₦250,000 a month (₦3 million a year). Thanks to the new system, his first ₦800,000 is tax-free. Then, he pays 15% only on the next ₦2.2 million. This new approach gives him much-needed relief compared to a flat tax rate.
For Business Owners: Business Name (BN) vs. Limited Liability Company (LTD)
Here’s where things get interesting and where your decision can save, or cost you a lot of money.
Business Name (BN): Higher Taxes, Personal Risk If your business is registered just as a Business Name, your profits are treated as your personal income. That means those progressive tax rates above apply, potentially costing you a big chunk of your earnings. For example, if your business makes ₦1 million monthly, that ₦12 million annual profit is taxed at those same personal income rates—meaning a hefty tax bill.
Limited Liability Company (LTD) An LTD is legally separate from you. This separation changes the tax game because corporate taxes kick in here, governed by the Companies Income Tax Act (CITA).
If your LTD makes less than ₦50 million a year, you pay 0% corporate tax! Yes, zero. It’s a huge win for startups and small businesses who want to grow without heavy tax burdens.
If your turnover goes above ₦50 million, you pay a clear, flat 25% tax on profits, making it predictable and easier to plan your finances.
Why You Should Upgrade Your Business Name to an LTD
For entrepreneurs, this one choice can save you millions. LTDs offer much better tax efficiency and protect your personal assets from business risks. The new tax reforms are designed to encourage more businesses to formalize and grow, and taking the step to become an LTD puts you on strong footing for the future.
Remember, this isn’t just about paying taxes, it’s about making smart moves that help your business thrive long term.
If you want to dive deeper, there’s a helpful video explaining the household tax policy in simple terms. It shows why households earning ₦250,000 a month or less are considered poor and won’t pay tax under the new rules