Who Files Annual Tax Returns In Nigeria Under The 2025 Tax Reforms: The Employer Or The Employee?

Introduction

Nigeria's tax framework has recently undergone significant reform aimed at improving economic efficiency and easing the cost of doing business. On 26 June 2025, President Bola Ahmed Tinubu GCFR, assented to four major tax bills, marking one of the most comprehensive overhauls of Nigeria's tax system in recent history. The core provisions of the Nigerian Tax Act, 2025 and the Nigerian Tax Administration Act, 2025 took effect on 1 January 2026 and now apply nationwide.

A key area of practical importance for taxpayers is the obligation to file annual tax returns, particularly for individuals in paid employment. Under Nigeria's personal income tax regime, taxpayers generally submit self-assessment returns to enable the tax authority determine liability for the relevant year of assessment. In practice, however, taxpayers and employers have faced uncertainty about who must file annual returns and in what circumstances.

This article examines the relevant provisions of the Nigerian Tax Administration Act, 2025 (NTAA) and analyses them against standard practices in the United States and the United Kingdom, with specific focus on employer and employee filing responsibilities. It also highlights the consequences of non-compliance and identifies lessons Nigeria can draw from the comparative analysis.

Background: the 2025 Consolidation and the New Administration Framework

Nigeria's major taxes are now consolidated into a single statute known as the Nigerian Tax Act, 2025 ("the NTA" or "the Act"). The Act repeals several key statutes, including the Capital Gains Tax Act, the Casino Act, the Companies Income Tax Act, the Deep Offshore and Inland Basin Production Sharing Contracts Act, the Industrial Development (Income Tax Relief) Act, the Income Tax (Authorised Communications) Act, the Personal Income Tax Act, the Stamp Duties Act, the Value Added Tax Act, and the Venture Capital (Incentives) Act.

The NTA, 2025 also makes consequential amendments to a wide range of sector-specific and regulatory statutes, including the Nigeria Export Processing Zones Act, the Oil and Gas Free Trade Zone Act, the National Information Technology Development Agency Act, the Petroleum Industry Act, the Tertiary Education Trust Fund (Establishment, etc.) Act, the National Agency for Science and Engineering Infrastructure Act, the Customs, Excise Tariffs, etc. (Consolidation) Act, the National Lottery Act, the Nigerian Minerals and Mining Act, the Nigeria Start-up Act, the Export (Incentives and Miscellaneous Provisions) Act, and the Cybercrime (Prohibition, Prevention, etc.) Act. It also revokes the Value Added Tax Act (Modification) Order 2021 and amends the Companies Income Tax (Significant Economic Presence) Order, 2020 and the Petroleum (Drilling and Production) Regulations 1969.

The objective of the NTA, 2025 is to establish a unified and modern tax regime governing the taxation of income, transactions, and instruments in Nigeria. The Act applies to companies, enterprises, individuals, families, trustees, and estates. Complementing this framework is the NTAA which sets out the institutional structure for tax administration, defines the powers and duties of tax authorities, prescribes offences and penalties, and outlines taxpayers' compliance obligations, including filing and reporting requirements. With effect from 1 January 2026, both Acts are fully enforceable across Nigeria.

The Filing Obligation Problem the New Framework Seeks to Fix

One source of long-standing uncertainty within Nigeria's personal income tax system concerns the obligation to file annual tax returns, particularly for employees. This uncertainty largely arose from how some tax authorities interpreted section 41 of the Personal Income Tax Act (PITA) 2004 (as amended). Although the provision primarily addressed self-employed individuals, some tax authorities applied it broadly to impose filing obligations on employees, even where employers already operated a Pay-As-You-Earn (PAYE) system. This approach created compliance risks for taxpayers and resulted in inconsistent enforcement practices.

The NTAA addresses this issue directly. It provides clearer guidance on the respective responsibilities of employers and employees, particularly in relation to PAYE deductions, annual returns, and information disclosures. By clarifying these obligations, the Act reduces uncertainty, aligns compliance expectations, and promotes a more predictable tax administration environment.

The Legal Framework Before the Nigerian Tax Act, 2025 (NTAA)

Before the enactment of the Nigerian Tax Act, 2025 and the NTAA, PITA governed the filing of annual tax returns for employees and employers. Under this framework, the allocation of filing responsibilities was not always clear.

Section 81(2) of PITA expressly placed the obligation to file annual returns for employees on employers. Employers were required to submit a return to the relevant tax authority detailing all emoluments paid to their employees in the preceding year, not later than 31 January of each year. Non-compliance attracted penalties under section 81(3) of PITA, which imposed criminal liability on defaulting employers.

Alongside this employer-focused obligation, section 41 of PITA required every taxable person to file annual tax returns without notice. However, the provision did not expressly address whether an employee was still required to file a separate return where the employer had already complied with section 81 by filing on the employee's behalf under the Pay-As-You-Earn (PAYE) system.

In practice, this lack of clarity led to divergent interpretations. Some tax authorities took the view that section 41 applied to all taxable persons, including employees, and therefore required employees to file annual returns even where their employers had already filed under section 81. This position, adopted without judicial clarification, created uncertainty for taxpayers. While some employees complied with this interpretation, others resisted on the basis that their employer's filing obligations under PITA sufficiently covered their tax reporting responsibilities.

This uncertainty set the stage for the reforms introduced under the NTAA, which now seek to clarify the respective filing obligations of employers and employees.

Key Changes Under the Nigerian Tax Administration Act, 2025

Against the backdrop of the uncertainty under PITA, the Nigerian Tax Administration Act, 2025 (NTAA) introduces clearer, more structured filing obligations. In particular, sections 11 and 14 set out what employers must do and what employees must do, and the Act aligns enforcement with a more administrative (rather than criminal) approach.

1. Employer's responsibility (annual employer return): Section 14 requires employers to file annual tax returns for their employees on or before 31 January each year. This obligation largely reflects the earlier employer-filing framework under section 81(2) of PITA.
2. Employee's responsibility (personal annual return, even where the employer files): Section 14(3) introduces a clear rule: employees must file their own annual tax returns even if their employer has already filed returns relating to emoluments paid under PAYE. The obligation applies even where the employee records a nil or negative return. This change resolves the prior uncertainty under section 41 of PITA. It also reflects a practical point: an employer can only report what it pays to the employee. The employee must disclose any other sources of income (where applicable) and file accordingly.
3. Penalties for non-compliance (administrative fines rather than criminal sanctions): The Act replaces the criminal-style consequences that applied under provisions such as sections 81(3) and 94 of PITA with administrative penalties for failure to file. Section 96 of the 2025 NTAA imposes a penalty of ₦100,000 for the first month of default and ₦50,000 for each subsequent month the default continues. This marks a clear shift from the former PITA approach.
4. Administrative assessment (tax authority assessment where returns are not filed): The 2025 Act introduces "Administrative Assessment" under section 34, replacing "Best of Judgment Assessment" under section 54(3) of PITA. Under the old approach, the tax authority often assessed tax based on estimates or assumptions where returns were not filed. Under the new approach, it may assess tax based on available records and information where a taxable person fails to file the required returns.

Global Snapshot of Tax Filing Obligations

The clarification of employer and employee filing obligations under the NTAA aligns Nigeria's tax administration more closely with established international practice. In most mature tax systems, employers play a reporting and withholding role, while individual taxpayers retain primary responsibility for their personal tax returns. A brief look at the United States and the United Kingdom illustrates this approach.

United States

In the United States, employers are responsible for withholding payroll taxes and reporting employee earnings to the tax authorities. Employers issue Form W-2 to employees annually and file payroll returns with the relevant authorities. Employees, however, remain responsible for filing their own individual income tax returns (Form 1040), even where taxes have been fully withheld at source. Failure to comply typically attracts administrative penalties, rather than criminal sanctions.

United Kingdom

The United Kingdom operates a similar structure under the Pay-As-You-Earn (PAYE) system. Employers withhold income tax and National Insurance contributions and provide employees with annual earnings statements (P60). Employees must file personal tax returns where they have additional income or fall within the self-assessment regime. As in the United States, non-compliance generally results in financial penalties, not criminal prosecution.

Key Takeaways for Nigeria

Nigeria's post-2025 framework reflects these international practices in several important respects:

• Employers continue to withhold taxes and file payroll-related returns, while employees retain responsibility for their personal tax filings.
• Requiring employees to file returns even where employers have complied under PAYE aligns with global practice, particularly where individuals may have other income sources.
• The shift from criminal sanctions to administrative penalties mirrors the enforcement approach in the US and UK, which prioritises compliance through financial penalties rather than prosecution.
• The use of administrative assessments and structured penalties reinforces a data-driven and predictable compliance environment.

Taken together, these changes position Nigeria's tax filing framework within mainstream international practice, while providing greater clarity for both employers and employees.

Conclusion: The Path Forward

Nigeria's move to a clearer filing framework under the Nigerian Tax Administration Act, 2025 builds on the international model discussed above: employers report and remit PAYE-related information, while individuals remain responsible for their own annual tax position. The Act therefore requires diligence on both sides. Employers must meet their January filing obligations, and employees must file their annual returns even where no tax is due.

The shift to administrative penalties also changes the compliance tone. Rather than relying primarily on criminal sanctions, the Act now uses escalating financial penalties to drive timely filing. This approach increases predictability, but it also raises the cost of delay. Employers and employees should therefore treat annual filing as a routine compliance deadline, not an optional step.

Effective implementation will depend on the continued development of robust taxpayer databases and information-sharing systems, particularly for identifying income outside the PAYE framework. As the system matures, accurate enumeration and reliable records will support fair assessments and consistent enforcement.

Overall, the NTAA represents a meaningful step towards a more structured and transparent tax administration system. If employers and employees adjust their internal processes promptly, and if data systems continue to improve, the reforms can strengthen compliance outcomes and reduce the uncertainty that characterized the pre-2025 regime.

Navigating the 2025 Tax Reforms with SimmonsCooper Partners

To minimise compliance risk and avoid unnecessary disputes, employers and employees should adhere to applicable tax filing requirements and stay informed about their rights and obligations under Nigerian tax law. For guidance on the Nigerian tax reforms, support with annual filing obligations, or assistance in resolving tax disputes, please contact Samuel Oyenitun.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.