Taxation is one concept every business owner in Nigeria should understand to avoid running into legal issues with authorities. Though it’s a popular business concept, few entrepreneurs understand what tax is and how the Nigerian tax system works.

Today’s blog post is targeted at helping you understand taxation in Nigeria and how you can stay on the right side of the law.

What is Tax?

Tax is a compulsory contribution you make to state revenue. The government levies the contribution to workers’ income and business profits or added to the cost of some goods, services or transactions. Asides being compulsory, paying taxes is considered a civic duty.

What are the common types of Taxes in Nigeria?

Tax payment is a phenomenon that many Nigerians are ignorant of. Many individuals, small business owners or startups are not familiar with the various types of taxes in Nigeria. This unfamiliarity makes them overlook paying taxes, which often lead them to the legal consequences of tax evasion.

Why is this so?

Because not knowing why, when to, and how to pay your taxes as a Nigerian citizen of one doing business in Nigeria is not a genuine reason in the law court.

To help you avoid troubles evading tax, we’ve explained the major types of taxes in Nigeria you should be aware.

Personal Income Tax (PIT)

This is the most common type of tax in Nigeria. Personal Income Tax is the tax imposed on individuals or entities (taxpayers). It varies based on the taxpayer’s taxable income.

Value Added Tax (VAT)

This is the consumption tax placed on any product or service. This type of tax is paid by any individual, corporate body or organization that consumes a product or service. It’s usually added to the cost of the product or service by the product/service provider.

Companies Income Tax (CIT)

This is a mandatory tax for companies incorporated in Nigeria.  These incorporated companies pay this tax whether they’re based in Nigeria or not.


Petroleum Profit Tax (PPT)

This tax is imposed on any resident company or person in charge of a non-resident company which is exploring or producing petroleum in Nigeria.

Stamp Duties

This is a tax on documents concerning individuals or companies. Examples of these documents include an article of association between companies, financial transactions, lease agreements, mortgages etc. which is payable under the stamp duties act.

Why should you pay taxes?

The government uses the taxes you pay for various things including;

  • To provide public services: The government uses taxes to run the economy and provide basic amenities like road, power and water. Some sectors like the health sector, defence, education etc. are run with taxpayers’ money.
  • Taxpayer’s money also represents a bulk of the fund used in paying public workers’ salaries.

Who collects taxes in Nigeria?

Certain tax authorities handle the administration of tax in Nigeria. However, the appropriate body that handles a tax is dependent on the type of tax.

There are three (3) authorities that collect taxes in Nigeria. They are:

Federal Board of Inland Revenue

The federal government collects tax through the Federal Board of Inland Revenue. This Agency administers revenue laws which deal with taxes paid by those who stay in the Federal Capital Territory and taxes that are paid by corporate bodies (Limited Liability Companies). They are responsible for accounting to the Federal Government for all taxes collected.

State Inland Revenue Board

This agency primarily administers the Personal Income Tax Act. It is under the State Government although some states institute additional revenue statute. This agency account to the state government for all revenue collected.

Local Government Revenue Authorities

The local government collects taxes through the Local Government Revenue Committee. They’re responsible for the assessment and collection of all taxes, fines and rates under a local government.


Before you proceed with starting your business in Nigeria, you must understand how taxation works in Nigeria. This will help you start your business on the right foot. For further information, you can decide to consult with a tax lawyer to help you navigate your way through the system.