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:
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
|Annual taxable income (NGN)||Rate||Tax payable per annum (NGN)|
|Above NGN3,200,000||24%||Multiply only the excess amount over NGN3.2 million by 24%. For example, an annual taxable income of NGN5 million is (5-3.2) million * 24% = NGN432,000.|
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.
Updated: 25 August 2020
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