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Nigerian Tax › Tax › Personal Income Tax in Nigeria

 December 20th, 2017  | Nigerian Tax, Tax

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.

The personal income tax in Nigeria stands at 24% as per the 2011 amendment. The older rates that were imposed by the government have also been revised in the 2011 amendment and it has made sure that the person earning over 3.2 M Nigerian Naira are charged at the revised rate of 24% as compared to the older rates for which the threshold was set at 1.6 M Nigerian Naira and the rate of tax was 25%. There are several other changes that have been made in the personal income tax act. Few of them are listed as below:

  1. The tax rate on the gross income has been augmented from 0.5% to 1%.
  2. According to the amendment the appeal against the unresolved case will be decided by the Tax appeal tribunal.
  3. The government has also removed the 1% bonus on filing the early assessment for all the individual tax payers.
  4. Interest on the WHT or withholding tax will be the same as that of the interest of the monetary policy of the Central Bank of Nigeria.
  5. Previously the filing date of the income tax return was 31st March that has been changed to 31st
  6. The 5% of the total revenue collected by the tax authorities of any genre has to be withholding to make sure that the administrative expenses are met.
  7. Tax officers or inspectors are now bound to contact the high court to seek the warrants in case any of the individual tax payers has not submitted the return within time as per the rules and regulations defined by the law.
  8. Corporate bonds that have been purchased by the individuals are exempted from tax as compared to the law that prevailed before.
  9. Individual tax clearance certificates are now mandatory to change the ownership of cars and other vehicles and land title transfer.

Following is a table that has been drawn specifically to highlight and segregate all the changes that have been made within the personal income tax law in 2011.

Old Bands

Old Rates New Bands New Rates
First      N30,000 5% First        N300,000 7%
Next      N30,000 10% Next        N300,000 11%
Next      N50,000 15% Next        N500,000 15%
Next      N50,000 20% Next        N500,000 19%
Above   N160,000 25% Next        N1,600,000 21%
Above     N3,200,000 24%

The amendment in the act was finalized on 14 June 2011 but it was presented to the public in the 4th quarter of the same year which made it almost impossible for some personal income tax payers to file the returns and for which the government was severely criticized. All the tax experts of the country also criticized the government saying that the amendment should have been presented to the public on the date it was formulated, drafted and finalized. All the expatriates also fell prey to personal income tax especially the ones the countries of which did not have a double tax agreement with Nigeria.

There are several tax laws that have been implanted by the government of Nigeria. One such tax is the personal income tax that has very important and basic features that should be understood by the individuals to make sure that the calculations never become an issue.  The personal income tax in Nigeria is calculated according to the 2011 amendment. The rates as well as the imposition of the tax returns have been changed in this regard. In Nigeria the individuals are taxed if they meet any of the following conditions:

  1. The individual is a Nigerian and making a livelihood in the country. In simple words all local Nigerians who earn and live in the country are liable to pay personal income tax.
  2. The business is liable to personal income tax if it is being operated in the country. All the Nigerian companies that are operating within the country are taxed according to their income and when it comes to foreign or nonresident companies the tax is charged as per the profit that is made in this regard.

Formerly the personal income tax rates were different which were changed totally after the 11th amendment and for the same reason the personal income tax is also imposed according to the mentioned amendment. According to this amendment the consolidation tax free allowance has been changed to N200, 000 or 1% of gross income whichever is higher. In addition to 20% of gross income is also charged as tax by the government. The reimbursements and expense claims are still applicable within this law and the person can enjoy these benefits without any issue. The personal income tax exemption for the expats is only possible if the individual provides the proof that the tax returns are being filed at the home country.

The personal income tax is one of the basic requirements that the individual job or businessman needs to fulfill to ensure that the smooth processing of the public affairs run by the government keeps on moving. The amount of the personal income tax is also calculated by several income tax agents that are affiliated to number of companies working within the economy and providing the user with ease and satisfaction to carry on their affairs within time without getting into any hassle of tax calculation. The personal income tax payer also needs to file tax within the government designated banks and other channels that are authorized by the government to do so and before the tax period ends the government also runs several campaigns to create the general public awareness so that the payment of tax is never late.

PAYE calculator can be found online free of charge.

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