The More you earn, the more you pay

The More you earn, the more you pay

By Abdulrauf Aliyu

It was the start of 2026, and Nigeria had just rolled out its new tax law. I was excited but also nervous because this year I had multiple sources of income, while my colleague, Tobi, only earned a salary. We decided to sit down and see how the law would affect our take-home pay.

I earn a monthly gross salary of ₦500,000, split into ₦300,000 basic, ₦130,000 housing allowance, and ₦70,000 transport allowance. I also make extra money from training programs, prize competitions, property gains, and a small business I run. Tobi, on the other hand, earns a similar salary but has no extra income.

Let us say, under the new tax law, both of us deduct pension (8% of gross) and NHIS (5% of basic salary) from our taxable income. I also get rent relief because I pay ₦1.5 million a year in rent, which reduces my taxable salary further. After these deductions, my taxable salary portion comes to ₦5,070,000 for the year.

Then, I add all my extra earnings: ₦1,500,000 from training programs, ₦500,000 from winning an essay competition, ₦2,000,000 from selling a property, and ₦450,000 from my business. This brings my total taxable income to ₦9,520,000. Tobi, however, has no extra earnings, so his total taxable income remains at ₦5,070,000 — the same as the taxable portion of his salary.

When applying the new tax brackets, the first ₦800,000 is tax-free for both of us. The next ₦2,200,000 is taxed at 15%, and the remaining portion at 18%. My total annual tax comes to ₦1,503,600 before accounting for any withholding tax already deducted. After subtracting the ₦200,000 withheld from my extra income, my final tax payable is ₦1,303,600. Tobi, meanwhile, only pays ₦697,200 in tax because he has no other income.

The difference in our chargeable incomes is striking. My total taxable income is ₦9,520,000, while Tobi’s is ₦5,070,000. That’s a difference of ₦4,450,000, which represents all the extra earnings I made outside my salary. This difference explains why my tax is almost double Tobi’s, even though our salaries are the same.

This experience showed me how the new tax law affects people differently depending on their income sources. While salary earners like Tobi have a predictable tax burden, people with side income, business profits, or other gains must plan carefully, keep records of expenses, and understand deductions like pension, NHIS, rent relief, and business expenses under the “wholly and exclusively” rule. The new system rewards organization and transparency, and it reminded me why keeping track of every naira earned and spent is so important.