Table of Contents
- 1 Personal Income Tax in Nigeria
- 2 Taxable Income
- 3 Pay As You Earn (PAYE) Taxes
- 4 PAYE Taxes are calculated thus:
- 5 Direct Assessment Tax & Self Assessed Tax
- 6 Personal Income in Nigeria Tax Reliefs
- 7 The summary of the amendment is as follows:
- 8 Importance of Taxation to a Country
Personal Income Tax in Nigeria
This is the most common type of tax in Nigeria applicable to workers and business owners. Personal Income Tax in Nigeria is a tax levied on all incomes of an individual employed by a business or organization. Self employed individuals are expected to file annual returns annually and pay the taxes due.
A taxable citizen is expected to file returns for the preceding year inside 90 days of the end of the year.
This is any kind of reward or compensation that attracts taxable liability. There are two kinds of taxable income, namely earned income, which encompasses salaries, wages, bonuses, entitlements, etc and unearned income, which covers dividends, interest, rents, alimony, winnings, royalties, etc.).
Pay As You Earn (PAYE) Taxes
All employers whether government or private in Nigeria, are responsible for deducting Pay As You Earn (PAYE) taxes from their employees’ wages. Taxes deducted are required to be remitted to the appropriate quarters by the 10th day of the month following the deduction.
Monthly payments of Pay As You Earn (PAYE) tax liabilities are to be made on or before the 10th day of the month following the applicable month (e.g. March tax to be remitted by 10th of April).
PAYE Taxes are calculated thus:
After the relief allowance and exemptions (see below) have been granted, the balance of a taxpayer’s income is taxed on a graduated scale as shown below:
– First N300,000 of income is slated for 7%
– Next N300,000 of income for 11%
– Next N500,000 of income for 15%
– Next N500,000 of income for 19%
– Next N1,600,000 of income for 21%
– Above N3, 200,000 of income for 24%.
Direct Assessment Tax & Self Assessed Tax
Direct Assessment is used to calculate tax for people who own their own businesses. With this kind of tax, a new tax payer can calculate his due, pay the calculated tax at designated banks and get an e-TCC (Tax Clearance Certificate) without visiting any tax office.
Personal Income in Nigeria Tax Reliefs
The Personal Income Tax Amendment Act of 2011 erased the old relief systems and increased relief for all taxable persons. This summed all reliefs into the Consolidated Relief Allowance (CRA), which combines all previous reliefs (Housing, Meal, Utility, Transport, Leave allowances, etc) into a single relief of N200,000 subject to a minimum tax of 1% of gross income (whichever is higher) in addition to 20% of the gross income.
The summary of the amendment is as follows:
– Consolidated Relief is N200,000.00 or 1% of total income, anyone which is greater
– Plus 20% of Gross Income
– Minimum tax payable is 1% of Gross pay
Other Tax Exempt Items
In addition to the Consolidated Reliefs and Allowances (CRA) above, the following items are waived from tax and tax is calculated after amounts paid in respect of these items are deducted;
– National Housing Fund Contributions
– National Health Insurance Scheme
– Life Assurance Premiums
– Pension Deductions
Punishment For Non-compliance to Personal Income Tax In Nigeria
The penalty in the event of failing to file returns according to the dictates Personal Income Tax (Amendment) Act, 2011 is N500,000 for corporate bodies and N50,000 for individuals.
Importance of Taxation to a Country
Tax is not just a source of revenue and growth. It also plays a key role in building up institutions, markets and democracy through making the state answerable to its taxpayers. Just as excessive tax burdens might impede growth in wealthier countries, in developing economies a lack of tax structures is the strongest cause of weak and unresponsive governance. It also leads to an overreliance on aid. With tax, the public can hold governments to account for their decisions, and not feel tied to the will of aid donors. And because tax revenues are relatively predictable, governments can plan ahead with greater certainty.
Tax is a major source of government revenue and it contributes to the overall development and prosperity of a country in the following ways:.
- Raising government revenue in terms of income tax, custom duty, excise duty, entertainment tax, VAT, land revenue tax etc. from various sectors in order to initiate development and welfare programmes.
- It helps in maintaining economic stability by reducing economic inequalities by engendering equitable distribution of wealth by way of imposing tax to the income earners and improving the economic condition of the general people.
Taxing regulates the economic sectors in the right direction by encouraging the production and distribution of useful goods and discouraging the unprofitable goods by imposing high tax rate on them.
Taxation builds and strengthens the national economy by encouraging and protecting national industries and promoting export trade.
It Reduces regional economic equality by encouraging the entrepreneurs to establish industries in remote and backward regions and giving tax exemptions, rebates and concessions etc.
Personal income taxation is the minute means by which the gamut of the nations revenue is realized. It is important and pertinent for each citizen to be able to calculate it and be honest enough to remit it accordingly. That is another brand of patriotism.