Personal Income Tax (PIT) and Pay As You Earn (PAYE)
PIT is levied on individuals’ including employees, partners in a partnership, unincorporated trust, joint ventures, families and communities. It is imposed based on source and residency rules. Personal Income Tax is paid in two ways: Pay As You Earn (PAYE) – this is how people in paid employment pay their taxes whereby employer deduct at source, and by direct assessment.
- Taxable Employment Income – means the gross income covering salaries, wages, fees, allowances or other gain or profit from employment including compensations, bonuses, premiums, benefits in kind, gratuities, superannuation, and any other income derived solely by reason of employment, less non-taxable income, income on which no further tax is payable and tax-exempt items (See below) as provided in the 6th schedule to the Personal Income Tax Act.
It is important to note that Benefits in Kind (BIK) such as official cars, accommodation, etc provided to an employee by the employer are considered to be part of the employee’s total emoluments for a particular period.
- Taxable Business Income – This includes business income derived by individuals, business enterprise, partnership, trusts and other unincorporated entities which have business place of operations in Nigeria less allowable business expenses and capital allowances.
PIT rate is applied on a graduated scale and taxable income bands as set out below:
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Every taxable person is liable to a minimum income tax of 1% of their gross income, except those earning the approved national minimum wage or below. This is triggered where actual tax payable after all reliefs and allowances is less than 1% of gross income.
Tax exempt items include
- Pension Contribution; National Housing Fund; National Health Insurance Scheme; Life Assurance Premium & Gratuity.
Applicable reliefs and allowable deduction
- Consolidated relief of higher of N200,000 and 1% of taxable gross income, plus 20% of taxable gross income.
Reimbursements and Exemptions
- It is important to note that reimbursement for expenses incurred in the performance of employment duties are not taxable, provided there is no element of gain recorded by the employee.
- Interest earned from treasury bills, government and corporate bonds are exempted from PIT while withholding tax at 10% is the final tax on other interests and dividend received by an individual.
- Interest paid on mortgage loan for owner’s occupied property in any year is granted as a relief in the following year.
- Individuals such as self-employed persons; high net worth and those on direct assessment are to file annual PAYE returns relating to preceding year not later than 31 March.
- Employers are required to file annual PAYE returns on behalf of their employees not later than 31st January every year.
Due date for payment
The tax deducted from employees’ income are remitted on or before the 10th day of the month following the payment of salary.
- 10% per annum of the amount plus interest at the prevailing market lending rate, usually between 15% to 21%.
- Failure to file annual employee tax returns and individual self-assessed tax returns attracts N500,000 and N50,000 respectively upon conviction
Kindly click the link below to download the Personal Income Tax Law