What is a Progressive Tax System?
Nigeria uses a progressive tax system. Instead of charging one flat percentage on your entire salary, your income is split into “buckets”. Each bucket has its own rate, so different parts of your salary are taxed differently.
Key insight: You never pay the highest tax rate on your entire income—only on the portion that falls into that bucket.
Picture a shopping basket. The first item costs ₦0, the next item costs 15%, the third item costs 18%, and so on. You keep adding portions of your salary into these buckets until your whole income is accounted for.
The 6 Tax Buckets (NTA 2025)
Section 58 of the Nigeria Tax Act (NTA 2025) defines the six progressive buckets below. Every taxpayer moves through them in this order:
| Bucket | Annual income range | Bucket size | Tax rate |
|---|---|---|---|
| Bucket 1 | ₦0 – ₦800,000 | ₦800,000 | 0% (tax-free) |
| Bucket 2 | ₦800,001 – ₦3,000,000 | ₦2,200,000 | 15% |
| Bucket 3 | ₦3,000,001 – ₦12,000,000 | ₦9,000,000 | 18% |
| Bucket 4 | ₦12,000,001 – ₦25,000,000 | ₦13,000,000 | 21% |
| Bucket 5 | ₦25,000,001 – ₦50,000,000 | ₦25,000,000 | 23% |
| Bucket 6 | ₦50,000,001 and above | Unlimited | 25% |
What this structure guarantees:
- Everyone, no matter their salary, gets the first ₦800,000 completely tax-free.
- Only the naira amount that lands inside a bucket is taxed at that bucket’s rate.
- You never pay 25% on your entire income—only on the portion that exceeds ₦50 million.
Why a progressive tax is fairer
Progressive taxation is designed to be kinder to lower earners while still asking high earners to contribute more. Here’s how that plays out in real life:
1. Protects low-income earners
The first ₦800,000 per year (about ₦66,667 monthly) is tax-free for everyone.
- If you earn ₦50,000/month (₦600,000/year) you pay zero tax.
- More of your salary goes toward rent, food, and transport.
2. Fair to every salary level
- Rates apply equally to everyone for the same bucket.
- Someone earning ₦10 million pays the same 0% on their first ₦800k as someone earning ₦1 million.
3. Raises don’t punish you
- Only the extra amount above a threshold is taxed at the higher rate.
- Every raise still increases your take-home pay.
4. Transparent and predictable
- The brackets are written into law (NTA 2025, Section 58).
- No guesswork—every employer uses the same rules.
Example: Sarah earns ₦200,000 per month
Let’s walk through how a progressive system works with a real number. Sarah is new in her career and earns ₦200,000 every month.
Monthly salary: ₦200,000 | Annual salary: ₦2,400,000
Step 1 – Convert to annual income
Monthly salary: ₦200,000
Annual salary: ₦200,000 × 12 months = ₦2,400,000 per yearNow let’s pour her ₦2.4 million into the tax buckets.
Step 2 – Fill the buckets in order
BUCKET 1 (₦0 – ₦800,000) @ 0%
├─ Amount filled: ₦800,000 (full bucket)
├─ Tax: ₦800,000 × 0% = ₦0
└─ Remaining income: ₦1,600,000
BUCKET 2 (₦800,001 – ₦3,000,000) @ 15%
├─ Amount filled: ₦1,600,000 (this is all she has left)
├─ Tax: ₦1,600,000 × 15% = ₦240,000
└─ Remaining income: ₦0 (buckets 3–6 untouched)Total income accounted for: ₦800,000 + ₦1,600,000 = ₦2,400,000 ✓
Sarah never reaches the higher brackets, so only Bucket 2 generates tax.
Step 3 – Total annual tax
Tax from Bucket 1: ₦0
Tax from Bucket 2: ₦240,000
────────────────────────
Total annual tax: ₦240,000Sarah pays ₦240,000 in income tax each year.
Step 4 – Convert to a monthly deduction
Monthly tax = ₦240,000 ÷ 12 = ₦20,000So ₦20,000 is taken from her salary every month.
Step 5 – What does she actually take home?
MONTHLY
Income: ₦200,000
Tax: -₦20,000
────────────────
Take-home: ₦180,000
ANNUAL
Income: ₦2,400,000
Tax: -₦240,000
────────────────
Take-home: ₦2,160,000Sarah keeps ₦180,000 per month (₦2,160,000 per year) after tax.
Step 6 – Sarah’s effective tax rate
Even though Sarah reached the 15% bracket, her true tax rate is still lower because the first bucket was taxed at 0%.
Effective rate = (Total tax ÷ Total income) × 100
= (₦240,000 ÷ ₦2,400,000) × 100
= 10%Sarah’s effective tax rate is 10%, not 15%.
- • The first ₦800,000 was tax-free.
- • Only ₦1.6 million was taxed at 15%.
Free Nigerian tax calculator
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