Average rate against marginal rate.
Effective tax rate
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Marginal rate
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Income tax
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Two rates, two different jobs
People often quote one tax rate and mean either of two things. Your marginal rate is the rate charged on your very last naira of income, the rate that would apply to a raise or a bonus. Your effective rate is your total tax bill divided by your chargeable income, the share of your income that actually goes in tax. This calculator shows both side by side so you can see how far apart they are, because confusing the two leads to bad decisions, like turning down extra work in the belief that tax will swallow most of it.
The input here is chargeable income, the figure left after your reliefs and allowable deductions have already been taken off. Under the 2025 reform the relief regime itself is in transition, so rather than rebuild that part, the tool starts from the chargeable figure you give it and applies the progressive scale. If you are not sure of your chargeable income, work it out separately and confirm the current relief rules with the Federal Inland Revenue Service or your state internal revenue service first.
The six-band scale this tool applies
Nigeria taxes personal income progressively, slicing your chargeable income into bands and charging a higher rate on each higher slice. The bands this calculator models run as follows, and you should confirm the current figures with the FIRS because the reform has been moving them: the first NGN 800,000 is tax-free at 0 percent; the next slice up to NGN 3 million is taxed at 15 percent; up to NGN 12 million at 18 percent; up to NGN 25 million at 21 percent; up to NGN 50 million at 23 percent; and anything above NGN 50 million at 25 percent. The key point is that moving into a higher band only taxes the income in that band at the higher rate, never your whole income.
A chargeable income of NGN 6,000,000
Take the default. With NGN 6,000,000 of chargeable income, the first NGN 800,000 is free. The slice from NGN 800,000 to NGN 3,000,000, which is NGN 2,200,000, is taxed at 15 percent, giving NGN 330,000. The remaining NGN 3,000,000, from NGN 3,000,000 up to NGN 6,000,000, falls in the 18 percent band, giving NGN 540,000. Total tax is NGN 870,000. Divide that by NGN 6,000,000 and the effective rate this calculator shows is 14.50%, while the marginal rate, the rate on your top naira, is 18%. The gap between 14.50% and 18% is the whole point: your average burden sits well below the rate on your last naira.
| Band | Amount taxed | Tax |
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Why the average always trails the top rate
The effective rate is dragged down by the lower slices every taxpayer enjoys. The first NGN 800,000 costs nothing, the next band is only 15 percent, and only the income above those thresholds reaches the higher rates. So even someone whose top naira sits in the 25 percent band carries an effective rate noticeably below 25 percent, because most of their income was taxed in the cheaper bands underneath. The higher your income climbs, the closer your effective rate creeps toward your marginal rate, but it never catches it.
A practical use of this: when you are offered extra income, judge it against your marginal rate, not your effective rate. The new money is taxed at the top, so at NGN 6,000,000 of chargeable income an extra NGN 100,000 of work is taxed at 18 percent and you keep NGN 82,000. You are never worse off for earning more, which is the reassurance the progressive structure is designed to give. A common mistake is to look at the marginal rate and assume your entire salary is taxed at it, which badly overstates your real bill.
Why is my effective rate so much lower than the rate I was told I am on?
Because the rate you were told is almost certainly your marginal rate, the rate on your top band, while your effective rate averages in the tax-free floor and the lower bands beneath it. Only your highest slice is taxed at the headline rate, so the average comes out lower. That is normal and is exactly what this calculator illustrates.
Does the effective rate include my pension and other deductions?
No. This tool works on chargeable income, the amount after reliefs and deductions, so pension contributions and similar deductions have already been removed before the figure reaches the calculator. Your effective rate against gross pay would be lower still. Because the reform is reshaping which deductions are allowed, confirm what reduces your chargeable income with the FIRS or your state internal revenue service.