Nigeria is set to implement a new tax regime from 1 January 2026 following the signing into law of four major tax reform legislations on 26 June 2025. These reforms consolidate several existing tax laws into a unified framework aimed at simplifying tax administration and improving compliance nationwide.
For Muslim individuals and professionals, the Nigerian Tax Act (NTA) 2025 presents important opportunities for lawful tax relief, including avenues that align with Shariah-compliant financial principles.
Overview of the Nigerian Tax Reforms
The tax reforms replace multiple previously existing federal tax laws with four principal Acts:
- Nigerian Tax Act (NTA) 2025
- Nigerian Tax Administration Act (NTAA) 2025
- Nigerian Revenue Service Act (NRSA) 2025
- Joint Revenue Board Act (JRBA) 2025
Under Nigeria’s Constitution, taxation remains within the exclusive legislative authority of the Federal Government, meaning these reforms apply uniformly across the country.
The laws are designed to take effect from 1 January 2026, allowing individuals and institutions time to understand and prepare for compliance.
Definition of Taxable Income Under the New Law
Section 28 of the Nigerian Tax Act 2025 introduces the concept of “Total Income of an Individual Taxpayer.” This is defined as the total income earned by an individual minus eligible deductions allowed under the Act.
Taxable income includes:
- Earned income from employment and professional services
- Unearned income such as rent, dividends, interest, capital gains, and winnings
Lawful Tax Deductions Available to Individuals
Section 29 of the Act lists deductions that may be claimed by individuals, provided they are properly declared and supported with documentation. These deductions are particularly relevant for Muslims seeking halal and lawful financial planning.
1. Pension Contributions
Contributions made under the Pension Reform Act 2014 or state pension schemes are deductible. This includes voluntary pension contributions, which provide an additional lawful means of reducing taxable income.
2. National Health Insurance Contributions
Payments made under the National Health Insurance Scheme (NHIS) or approved state health insurance schemes qualify as tax deductions.
3. National Housing Fund (NHF) Contributions
Contributions to the National Housing Fund are deductible, whether made through formal employment, informal arrangements, or cooperative societies.
4. Home Financing and Mortgage Costs
Interest paid on loans for owner-occupied residential housing is deductible. Importantly, Muslims who finance homes through Shariah-compliant arrangements such as:
- Murabaha
- Ijarah Muntahiya bi Tamlik
- Ijarah Summa Iqtina’
may lawfully claim the profit or rental component as a deductible expense, subject to tax authority approval.
5. Life Insurance and Family Takaful
Premiums paid on life insurance policies or deferred annuities are deductible. Muslims who subscribe to Family Takaful instead of conventional life insurance may also claim similar tax relief, as both serve equivalent protective purposes.
6. Rent Relief
The Act introduces a rent relief of 20% of annual rent paid, capped at ₦500,000, provided the rent is accurately declared. This replaces the former Consolidated Relief Allowance under earlier tax laws.
Documentation and Compliance Requirements
The Act makes it clear that deductions:
- Must be claimed in writing
- Must be supported with verifiable documentation
- May be disallowed where evidence is insufficient
Proper record-keeping is therefore essential for individuals seeking to benefit from these reliefs.
Islamic Perspective and Observations
While the Act accommodates several Shariah-compliant financial instruments, it does not currently recognise Zakat payments as deductible expenses. In countries such as Malaysia and Indonesia, Zakat is integrated into the tax system as a recognised relief for Muslims. The absence of such recognition in Nigeria remains a subject of discussion within the Muslim community.
Conclusion
The Nigerian Tax Act 2025 introduces a structured and unified tax framework that offers lawful opportunities for tax relief. For Muslims, understanding these provisions and aligning financial planning with Shariah-compliant instruments can help ensure both legal compliance and faith-based financial integrity as the new regime takes effect in 2026.
Allah knows best.
