An Overview of Personal Income Tax in Nigeria

In every country, it is normal to pay different types of taxes to the local authorities. After collecting the money, the government will use these funds to handle various projects that will serve the people.

One of the common taxes – in Nigeria – is the Personal Income Tax (PIT). However, many people do not have an idea of what personal income tax is all about. So if you fall into this category of Nigerian citizens, this post will give you an overview of personal income tax in Nigeria. Now let’s get started and learn more about this type of tax.

What is Personal Income Tax?

This type of tax is paid by people who work for federal, state, local, and private controlled organizations. It is also paid by people who run local businesses in Nigeria.

In each state, the Internal Revenue Service collects these payments from employed or self-employed individuals. For instance, if you live in Lagos, you will have to send your PIT to the Lagos State Internal Revenue Service.

Although state revenue offices do not receive the taxes of police or military officers, they take payments from the civilian staff of the Nigerian Police Force and Nigerian Army. However, people who work in the Federal Capital Territory or Ministry of Foreign Affairs will pay their taxes to the Federal Inland Revenue Service (FIRS).

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The Federal Inland Revenue Service also collects taxes from people who stay abroad and work in Nigeria. Besides, FIRS also receives personal income tax from police and army officers.

Types of Personal Income Tax?

In Nigeria, there are two types of personal income tax. They are

  1. Pay As You Earn (PAYE)
  2. Direct Assessment

As expected, each type of personal income tax has slight differences and applies to various situations.

Pay As You Earn (PAYE)

Under this arrangement, an employer removes the personal income tax from an employee’s salary/wage and pays it to the concerned revenue service. The deadline for this payment falls on the 10th day of the following month. As for the required documentation (tax returns), the employer would have to submit them on or before the coming year’s 31st of January.

Direct Assessment

This arrangement concerns people that run local businesses (self-employed). Here, the entrepreneurs pay their income tax – by themselves – to the relevant revenue service.

Individuals must also submit the required documents that report their profits or losses made in the previous year. The deadline for the payment of the tax and filing of returns falls on the 31st of March.

How to Calculate Personal Income Tax in Nigeria

There are two ways to calculate the Personal Income Tax. However, the easiest method is to log on to the online tax calculator of the Federal Inland Revenue Service (FIRS) or any State Internal Revenue Service. Then use the following steps to determine your PTI – either as an employee or entrepreneur.

  • Choose your employment status – employed, self-employed, or partnership.
  • Scroll to the section labeled ” Part A – Income” and fill in the required details and calculate the tax.
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If you don’t want to use the calculator, use the following steps:

  •  Find the gross annual income ( sum of salaries, bonuses, allowances, pensions, rent, fees, compensation, business income, premium, percentage ownership, and interests)
  • Calculate the relief allowances (sum of contribution to the government-owned schemes and funds, life assurance payments, gratuities, rent/business expenses, debt recovered, and CRA.
  • Find the taxable income by subtracting the result from step 2 from the gross annual income.
  • Use the applicable rate (from the table below) to calculate the annual tax deduction. For instance, the first ₦300,000 attracts a 7% rate, and so on.

N.B. You can use this method to calculate your PAYE or make a direct assessment.

Personal Income Tax Rates

Here is a table showing the various personal income tax rates in Nigeria.

Annual Taxable Income Tax Rate Tax Payable Per Annum
First ₦300,0007%₦21,000
Next ₦300,00011%₦33,000
Next ₦500,00017%₦95,000
Next ₦1,600,00021%₦336,000
Above ₦3,200,00024%Multiply only the excess amount over ₦3.2 million by 24%. For example, an annual taxable income of ₦5 million is ₦(5-3.2) million * 24% = ₦432,000

Penalties for Non-Payment of Personal Income Tax in Nigeria

Yes, there are penalties for missing out on your Personal Income Tax payments. Under the Personal Income Tax Act of 1993, failure to pay the tax attracts an extra 10% of the annual tax. Besides, it also comes with a 6-month jail term with the option of a fine.

Wrapping Up

As an employee or entrepreneur, it is compulsory to pay your taxes. With this overview of personal income tax in Nigeria, you should know the type of taxation that applies to you. Besides, you can also choose the best method to calculate your taxes.

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However, the easiest way to find your taxable income is to use an online calculator of the Federal Inland Revenue Service. Some top firms, like KPMG and Deloitte, also offer online platforms for calculating tax.

But if you need extra help with the personal income tax, you can seek the services of a  trusted tax consultant.