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Personal Income Tax (Amendment) Act, 2011 (“PITAM”) is the principal act for the taxation of employees in Nigeria. Employees pay tax based on residency. Thus, an employee would be tax resident if
the employee works fully (or partially) in Nigeria or
the employer is in Nigeria or
the employer has a fixed base in Nigeria.
Also, an expatriate employee may be liable to tax in Nigeria unless;
the employee stayed less than 183 days in any 12-month period;
the employer is not resident in Nigeria;
the non-resident employer bears the employee cost; and
the employee has paid tax in another country.
Once residency is ascertained, an employee pays income tax on worldwide income. Worldwide income refers to income received within and outside Nigeria. Meanwhile, income chargeable to personal income tax (PIT) includes any salary, gains, profit, benefits, and allowances arising from employment. The statutory tax allowances and reliefs available to reduce the taxable income are:
Consolidated relief allowance: the higher of NGN200,000 per annum or 1% of annual gross income, plus 20% of annual gross income
Premium on life insurance policy
Contribution(s) to an approved pension fund, National Health Insurance Scheme, National Housing Fund
Payroll tax is one of the statutory deductions. A full review of payroll, tax and social security deductions in Nigeria is here.
Tax rates, Returns and Due dates
Nigeria adopts a Pay-As-You-Earn (PAYE) system in calculating personal income tax of employees. This is called PAYE tax. This tax rate progresses from 7 percent to 24 percent of taxable income. The taxable income band ranges from NGN300,000 to above NGN3.2 million in a year. However, a minimum tax of 1 percent of gross income applies where an individual has no taxable income or the PAYE tax is lower than the minimum tax. Furthermore, an employer is responsible for deducting monthly PAYE tax from employees’ salary and remitting same to the relevant tax authority, through designated banks, within 10 days of the next month.
Other annual PAYE tax returns which an employer should file are Form H1 and Form A. Form H1 is an annual employer’s tax return showing the names, annual gross income and PAYE taxes of employees in the preceding tax year. In practice, Form G is filed alongside Form H1. Form G shows details of the annual PAYE tax paid and the corresponding receipts. The due date for filing of Form H1 is 31 January of the following year. On the other hand, Form A is an annual declaration of individual income and claims for allowances and reliefs form. 31 March of the current year is the due date for filing Form A.
P.A.Y.E. (Pay As You Earn) is a Personal Income Tax (PIT).
PIT is a tax that is imposed on individuals who are either in employment or are running their own small businesses under a business name or partnership.
PIT is being governed by the PIT Act 1993 i.e. Decree No. 104 of 1993.
Individuals are taxed on a sliding scale between 5% and 25%.
Residents are taxed on their worldwide income. Non-residents are subject to tax only on Nigeria regardless of their length of stay.
Expatriate employees of a resident company who are in Nigeria for the purpose of their employment.
Expatriate employees of non-resident company who are in Nigeria for more than 183 days in a 12-month period. A husband and wife are taxed separately.
Foreign nationals resident in Nigeria are subject to tax on their worldwide income provided that the foreign income is brought into or received in Nigeria.
Expatriates are not given any special tax treatment.
Payroll deduction is the mandatory PIT of the employees of each company that must be deducted by the employer/company. This is popular known as pay as you earn (PAYE). It is a deduction of tax of employees at source using the companies as tax agent for collection purpose.