I remember when I got my first job. I was so excited by the prospect of making real money that I made a common mistake most entry-level staff make which was dividing my annual pay by 12 and expecting the result to be my monthly pay. I was shocked when I got my first payslip and realized that my salary was significantly lower than what I had hoped for because my taxes had been deducted at source. Employers, in a bid to be tax compliant, most times do not explore means of reducing their employees’ tax liability. This article aims to explain how we can reduce our tax liabilities through tax avoidance. Please note that there is a difference between tax avoidance and tax evasion. While tax avoidance entails exploring loopholes in the tax law to reduce the amount of tax to be paid, tax evasion is simply not paying your taxes. Tax evasion is a crime and is not encouraged. Now that we sorted that out, let us discuss how we can reduce our tax liability.

The most effective way of reducing your personal income tax liability is through the use of income tax saving options. Income tax savings options are expenses that are tax-deductible according to the Personal Income Tax act as amended. This means that these expenses will be deducted from your income before your tax liability is computed, thereby reducing your taxable income. Such expenses include Voluntary Contribution to Pension Fund Administrators, contribution to the National Housing Fund, interest expense on mortgages amongst others. This article will focus on the three options listed.

Voluntary Contribution to your Pension Fund Administrator involves making an additional non-statutory contribution besides your statutory pension to your PFA. This amount shall not exceed one-third of your monthly statutory pension contribution. The Voluntary Contribution is deducted from your monthly income before your tax liability is computed, thereby reducing your taxable income and the tax to be paid (Taxaide, 2020). Here is the catch, 50% of your voluntary contribution is treated as a contingent liability by your Pension Fund Administrator and can be withdrawn by you two years after contributing. The remaining 50% is treated as a fixed contribution just as your statutory pension and will be available to you when you retire.

Another way of reducing your tax liability is by paying interest on a mortgage facility. This involves securing a loan for the building or buying a residential property. The interest on that loan will be offset against your income in the computation of your tax liability. The Lagos State Internal Revenue Service (LIRS) clarifies the type of mortgage that qualifies for this tax exemption. LIRS defines an owner-occupied residential house as any residential property on which an individual has incurred expenditure on the purchase, construction, or conversion for their occupation. This excludes all temporary fixtures such as painting, furniture, and electrical equipment (PWC, 2017). In essence, what this means is that for the interest on your mortgage to be able to reduce your tax liability, it has to be for a house you occupy or are planning to occupy and not a building that will be used for commercial purposes.

The last tax reduction method we will be discussing is a contribution to the National Housing Fund (NHF). The National Housing Fund was established in 1992 by Act 3 of the 1992 Law of the Federal Republic of Nigeria. The Fund was created to enable all Nigerians in all sectors of the economy have access to affordable housing loans. Participants of the Fund are required to remit 2.5% of their monthly basic salary to the Federal Mortgage Bank of Nigeria. Section 23 of the NHF act states that any contribution or refund made to the Fund shall be exempted from personal income tax. This means that it will be deducted from your monthly salary, thereby reducing your tax liability. Contribution to the Fund is mandatory and failure to comply attracts strict penalties. However, the contribution grants you access to a housing loan of up to NGN 15 million at a low interest rate of 6% for as long as 30 years so it is not all bad.

The list of options for reducing your tax liability above is not exhaustive. However, whichever method you decide to adopt should be within the context of the law. I hope we have been able to answer your questions on how you reduce your tax liability.

Please share with friends and families, drop your comments in the comment box, and engage with us via our social media platforms @ broadstreetfinancialreview on Facebook, Instagram and LinkedIn; @ broadstreet_fin on Twitter.

Thank you for reading and look out for our next article!


Federal Mortgage Bank of Nigeria. (n.d.). Federal Mortgage | NHF. Retrieved July 27, 2021, from

Nowacki, L. (2021, May 10). The Mortgage Interest Deduction 2021: A Guide To Limits And What Qualifies. Rocket Mortgage.

PWC. (2017, September 29). LIRS clarifies conditions for tax deductibility of interest on property loan. Tax & Business Matters – Nigeria.

Taxaide. (2020, February 21). How To Reduce Your Personal Income Tax (PIT) Liabilities: The Voluntary Pension Contribution (VPC) Option! – Taxaide. Taxaide – Website.

Taxaide. (2020b, July 7). Personal Income Tax (PIT) Savings Option Part 2: National Housing Fund (NHF) – Jennifer Ezediaro – Taxaide. Taxaide – Website.


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