Personal income tax rates in Nigeria

In Nigeria, certain laws regulate and provide for the taxes to be paid to the government. Personal income tax is one of them. Personal income tax is a tax imposed on individuals and is applied to several sources of income from salaries and wages, pensions, dividends, and interests on loans. Personal income is a key source of revenue for the Nigerian government.

In this article, we shall go over what personal income tax means in detail, the concept of PAYE, allowable deductions, and other related information you should know. Let’s get to it.

What is personal income tax?

Personal income tax (PIT) is a direct tax imposed on the incomes of persons, families, communities, trustees, and executors of settlements. In Nigeria, the government is required by law to collect personal income tax (PIT). Personal income tax is governed by the Personal Income Tax Act, Cap. P8 LFN 2004 (as amended).

Regardless of the institutions or firms, personal income taxpayers work for, personal income tax must be paid to the Inland Revenue Service of the state in which the taxpayer works. Institutions and firms include federal, state, or local governments as well as privately-owned organizations.

Only the employees of the Nigerian Ministry of Foreign Affairs, non-resident Nigerians and foreigners, police, and military officers are exempt from paying personal income tax to the Federal Inland Revenue Service (FIRS).

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Personal Income Tax Rate in Nigeria

The rate of income payable is determined by the amount of taxable income for which the individual is responsible. Taxable income is the basis on which the income tax system assesses a person’s tax liability and determines how much they must remit in that year. Usually, it comprises all or a portion of the revenue, excluding expenses and other deductions.

Therefore, a simple formula for calculating the tax rate would be 

• Income – Allowable Expenses, and Deductions
• Taxable income/Tax rate = Tax Due

The taxable income tax brackets and corresponding tax rates are shown in the table below yearly.

Yearly income (Nigerian Naira ₦)	Personal income tax (PIT) rate (%)
First 300,000	7
Next 300,000	11
Next 500,000	15
Next 800,000	19
Next 1,600,000	21
Next 3,200,000	24

Note that employees are no longer subject to tax or pay-as-you-earn (PAYE) deductions if their monthly earnings are less than the national minimum wage, which is currently at NGN 30,000.

How is personal income tax paid?

There are two methods of paying personal income tax, which are:

1. Pay-As-You-Earn (PAYE)

PAYE is a system where personal income taxes are withheld by the employer from their employees’ wages or salaries and remitted to the right tax authority.

The tenth day of every month is the deadline for PAYE remittance. The 31st day of January of the following year is the deadline for the remittance of PAYE returns.

2. Direct assessment

This method is for self-employed individuals. Self-employed persons will remit a return of their income from the past year without being asked or given notice.

They will remit the appropriate PIT to the right tax authorities. The 31st of March of every year is the deadline for the submission of tax returns.

Section 3 of the Personal Income Tax Act states that the following incomes are liable to tax:

1. Profit or gain from buying and selling for any period that a business, occupation, or skill may have been exercised.

2. Any wage, salary, allowance, or other profit or gain from employment, including incentives, premiums, bonuses, or other perks, that is permitted, granted, or given to any temporary or permanent employee incurred by them in the exercise of their duties and from which it is not intended that the employee should make a profit.

3. Profit or gain, along with any premium, resulting from a right given to any other individual to use or occupy any property.

4. Discount, interest, or dividend.

5. Any annuity, charge, or pension.

6. Any gain or other payment that does not fall under this subsection’s paragraphs (a) to (e), inclusive.

What are the allowable deductions?

Deductions to pension or other retirement scheme funds, trade unions, or schemes authorized by the Pension Reform Act are among the allowable deductions for employees and have a minimum rate of 8%.

Under the PAYE system, a deduction of 10% of gross rent is permitted. Such amounts are subtracted from the overall income to reach the ascertainable taxable income, from which the PAYE to be remitted to the government is derived.

What are the benefits of paying personal income tax?

A bonus of 1% of the tax due will be given to the person who submits a return of tax assessment on their income within the allotted time frame and there is no default in the payment agreement.

They would have access to demand a tax clearance certificate as proof of the performance of one’s civic duty if they were obliged to apply any or all of the provisions listed in Section 85 (4) (a) to (v).

What are the penalties for the non-payment of personal income tax?

According to the stipulated income tax laws, failure to pay taxes is a punishable offence, and it can lead to the imposition of extra penalties equivalent to 10% of the taxes that were not paid or remitted. It also includes the taxes that were due and any expenses incurred in recovering the amounts owed.

You can read the full text of the Personal Income Tax Act 1993 for more understanding. The Personal Income Tax Amendment modified the law in 2011. This has been amended by the 2019 and 2020 Finance Acts.

Conclusion

Regardless of the legal restrictions placed on taxation, it is a fundamental tenet that tax funds be used to fund initiatives that are relevant to and helpful to the country’s population. In addition, the government put in place programs like the National Housing Fund Plan, the Pension Fund Scheme, the Social Insurance Trust Fund, and others to help ensure the working population’s health, housing, and financial stability.

A true nation is one whose government is made up of, by, and for the people, as is frequently stated. To protect the social and economic prosperity of the nation, the government and its people must work together.

The constitution grants the powers to collect personal income tax to both the Federal Government and the States. Nonetheless, the Federal Government has reneged the powers to collect personal income tax to states to boost their revenue.