Tax is not by Bank narration: Clearing the confusion around Nigeria’s new tax law
Since the new tax reform took effect on January 1, 2026, conversations around tax have increased and so has the confusion. One major myth that keeps resurfacing is the belief that bank transaction narrations will be used to automatically deduct tax from your account.
This concern has been clearly addressed by Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee. According to Taiwo Oyedele, the new laws do not give government agencies the power to “auto-debit” citizens’ bank accounts based on transfer descriptions.
The truth about Bank narrations
Whether you label a transfer as “Salary,” “Gift,” “Support,” or “Refund,” it does not trigger a tax deduction. Bank narrations are not the basis for taxation. However, keeping clear narrations is the best practice for your own record-keeping. It helps you distinguish between taxable income and non-taxable inflows (like a friend paying you back for lunch) so that when you file your returns, you aren’t paying tax on money that wasn’t actually “income.”
How tax actually works in 2026
Under the new system, Nigeria has moved toward a “Trust and Verify” model. Individuals and businesses are expected to self-declare their income at the end of the year via the Nigeria Revenue Service (NRS) portal.
The process is simple:
- Declare: Log into the NRS portal using your NIN (which now serves as your primary Tax ID).
- Separate: Identify what is “Taxable Income” vs “Non-Taxable” (gifts, loans, or refunds).
- Deduct: Apply your reliefs (like the new Rent Relief) to reduce your taxable amount.
- Pay: The system calculates the tax based on your declaration.
Note: For formal employees, tax is still handled via the PAYE (Pay As You Earn) system by your employer.
The new personal income tax (PIT) structure
The new tax reform is designed to be progressive. This means the more you earn, the higher the rate.
- The ₦800,000 Rule: If your total annual taxable income is ₦800,000 or less, you pay 0% tax.
- The Threshold: You are only taxed on the amount above ₦800,000.
- Exemptions: Even if you earn income, if your final “taxable income” (after deductions) falls below the threshold, you owe nothing.
A quick illustration
Many people fear that a higher tax bracket means they lose a huge chunk of their money. Let’s look at a freelancer or business owner earning ₦5,000,000 a year.
Under the 2026 law, you don’t just pay tax on ₦5 million. You first subtract allowable deductions, such as the 20% Rent Relief.
| Steps | Description | Amount |
| Gross Income | Total earned in the year | ₦5,000,000 |
| Rent Relief | 20% deduction (up to ₦500k) | ₦500,000 |
| Taxable Income | The amount taxed | ₦4,500,000 |
The tax breakdown on ₦4.5m:
- First ₦800,000: 0% = ₦0
- Next ₦2.2 million: 15% = ₦330,000
- Remaining ₦1.5 million: 18% = ₦270,000
- Total Tax Paid: ₦600,000
In this scenario, you keep ₦4.4 million. Your effective tax rate is only 12%, not the scary 18% people often quote!
How to file your taxes
Tax filing is now fully digital. The NRS website (https://nrs.gov.ng/) is the central hub for registration, filing, and payment.
- Self-Filing: Most individuals can complete their filing in under 10 minutes.
- Consultants: Using a tax professional is optional. It is recommended only if your business interests are complex.
The 2026 tax reform is about fairness. By understanding the law, it helps reduce fear and misconceptions and it is only then you can start taking advantage of the reliefs and exemptions the law provides.
NOW TO THE NEWS
Vale launches Savings Challenges with even more rewards
At Vale Finance, we are turning smart money moves into a fun, rewarding experience with our new saving challenges, designed to help customers save smartly while still enjoying life. The new challenges: First Million Challenge, Multi-Millionaire Challenge, Fund your Bae(Valentine’s edition), Back to School Challenge (3rd term), and NYSC savings challenge are designed to help our users save towards their goals.
These goal-based saving challenges offer an opportunity to put money aside for both long and short-term needs such as school fees, building wealth during service year, or even working towards saving that first million, while earning extra rewards.
The thrilling part is, participants stand the chance to earn up to 13% interest on their savings, plus an extra 5% bonus, making it not just a smart way to save but also a chance to earn more value for their money.
Vale encourages both new and existing users to take advantage of the opportunity to turn saving into an engaging and rewarding experience.
Naira Slips Slightly in First Trading of 2026
The naira weakened slightly to ₦1,431 per US dollar at the official foreign exchange market on the first trading day of 2026, a modest depreciation of about 0.14% from ₦1,429/$1 at the end of 2025. This minor pullback comes after a period of strong appreciation in the final days of 2025, when the naira strengthened from ₦1,451/$1 on December 24 to ₦1,429/$1 by December 31.
Looking back, the naira has shown significant resilience over 2025, starting the year at ₦1,538.50/$1 and gradually appreciating through sustained policy measures and market interventions. The recent depreciation is largely seen as normal post-holiday adjustment, reflecting renewed demand from market participants.
Analysts suggest that the naira’s near-term stability will depend on Central Bank of Nigeria policy direction, global oil price trends, and foreign exchange inflows. If FX supply remains steady and policies consistent, the currency is expected to maintain relative stability in the early months of 2026.
Nigeria and Other Developing Countries Face Historic Debt – World Bank
According to the World Bank’s latest 2025 International Debt Report, developing countries, including Nigeria, are facing a historic debt squeeze, with total external liabilities reaching $8.9 trillion in 2024.
Between 2022 and 2024, these nations paid $741 billion more in debt repayments than they received in new financing, the largest shortfall in at least 50 years, putting growing pressure on public finances.
Nigeria, an IDA-eligible country, received significant support from the World Bank, with $18.3 billion more in new financing than repayments, including $7.5 billion in grants, while bilateral creditors largely retreated. The country’s external debt rose to around $47 billion by June 2025, highlighting ongoing debt pressures for its over 200 million population. High debt levels also have social impacts: in heavily indebted countries, including Nigeria, many residents struggle to afford basic nutrition, while billions are spent on interest that could fund education, healthcare, and infrastructure.
The report also notes a growing reliance on domestic financing, which supports local capital markets but carries risks. Heavy domestic borrowing can crowd out private-sector lending and increase refinancing costs due to shorter maturities. World Bank analysts warn that while current global financial conditions may improve, developing countries must use this period of relative stability to strengthen fiscal policies and avoid over-reliance on external and domestic debt.
CBN Projects 4.49% Economic Growth, Inflation to Ease in 2026
The Central Bank of Nigeria (CBN) has projected 4.49% economic growth and inflation easing to 12.94% in 2026, driven by stable foreign exchange markets, rising oil output, and ongoing structural reforms. Foreign reserves are expected to reach $51.04 billion, while the cost of lending is projected to decline, supporting broader efforts to strengthen the domestic economy.
Governor Olayemi Cardoso highlighted that 2025 marked a transition from crisis management to laying the foundation for sustainable recovery, with Nigeria’s economy growing 4.23% in Q2 2025—the fastest pace in four years. Inflation moderated from 34.6% in November 2024 to 14.5% in November 2025, marking eight consecutive months of decline and restoring households’ purchasing power.
The CBN expects the recovery to be supported by stronger non-oil growth, domestic production, and improved FX liquidity. The current account surplus is projected at $18.81 billion, underpinned by oil and gas output, domestic refining capacity, remittances, and growing exports. Portfolio investment inflows and external borrowing are expected to maintain a net borrowing position, reflecting continued investor confidence. Monetary policy will remain data-driven and focused on price stability, with the apex bank ready to adjust interest rates as inflation moderates.
The Director-General, the West African Institute for Financial and Economic Management (WAIFEM) Dr. Baba Musa, noted that while macroeconomic gains in growth, inflation moderation, and investment confidence are promising, the challenge remains to translate these into tangible benefits for citizens, including jobs, incomes, productivity, and social welfare. The recovery is also underpinned by growth in services, agriculture, telecommunications, domestic refining, digital services, and the creative economy, highlighting emerging opportunities for job creation and revenue generation.
