Personal Income Tax in Nigeria
Resident and non-resident individuals of a nation are subject to personal income tax (PIT) imposed upon them by that nation’s government. The income tax policy in Nigeria has gone through major updates in recent times. Individuals, whether resident or non-resident, in Nigeria are subject to tax under Personal Income Tax Act (PITA) as amended in 2011. According to PITA, the PIT is imposed by three tiers of the government – Federal, state and local, with each having its clearly demarcated jurisdiction. PITA mentions that there are certain categories of individual who pay their taxes to the Federal government. These categories contain resident individuals belonging to the Armed forces, the police, the External Affairs, residents of Abuja Federal Capital Territory (FCT) and non-residents.
Earnings of resident individuals, referred to as personal income, include income derived outside Nigeria. There are few classes of individuals who are specifically exempted from tax under PITA. The personal income tax is imposed on different sources like labour, pensions, interest and dividends. The benchmark used for tax calculation from individuals is known as the Top Marginal Tax Rate. The PIT is composed of direct assessment for self-employed individuals, and Pay As You Earn (PAYE) for salaried individuals. PAYE is a method of collecting PIT from the salaries and wages of individuals through deduction at source by employers as provided by relevant sections of the PITA. The tax is usually collected from an individual by the government of his/her residential state. The income tax rate of resident individuals varies from 7 per cent to 24 per cent on the basis of taxable income. The minimum tax rate is 1 per cent of gross income if the taxable income is below N 300,000.
Tax on non-resident Nigerians is levied on income which is based on Nigerian sources. A non-resident’s income from employment or business is taxed in the manner similar to that of a resident Nigerian. Expatriate employees of a non-resident company who are present in Nigeria for more than 183 days in a 12-month period, shall be considered as resident individuals for PIT if their employment costs are charged to a Nigerian company or borne by a fixed base in Nigeria. However, if the expatriates are liable to tax in another country that has entered into a double tax avoidance treaty with Nigeria, then such individuals shall be exempted from PIT in Nigeria.
Besides individuals, personal income tax is also collected from communities, families and trustees. PIT on a community is imposed in accordance with the law of the corresponding domicile territory. PIT on communities is levied when it is found impracticable by relevant tax authorities to assess individual incomes. A family recognised under any law or custom in Nigeria is subject to PIT if the interests of individual members of the family are indeterminate or uncertain. Trustees of settlements or trusts and executors of any estate of a deceased person are subject to PIT, and it is imposed by relevant tax authority whose territorial jurisdiction is decided by Second Schedule of PITA.
Non-taxable deductions under PITA include National Housing Fund contributions, National Health Insurance Scheme contributions, Life Assurance Premium, National Pension Scheme and gratuities.
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