Calculation of PAYE in Nigeria

Personal Income Tax (PIT) is a tax levied on individuals including sole proprietorships, partnership, unincorporated trustees, joint ventures, etc. It is imposed based on source and residency rules. The two key legislation are the Personal Income Tax Amendment Act 2011 (PITAM) and Finance Act 2020.

An individual or employees is liable to tax in Nigeria if:

  • The Employee works fully (or partially) in Nigeria or
  • The Employer is in Nigeria or
  • The Employer has a fixed base in Nigeria.

An expatriate employee will be liable to tax in Nigeria if:

  • The Employee stayed more than 183 days in any period of 12-months;
  • The Employer is resident in Nigeria;
  • If the non-resident employer does not bear the employee cost; and
  • If the Employee does not have paid tax in another country.

Personal Income Tax in Nigeria is on a Pay As You Earn (PAYE) basis. This means that the tax is deducted at the source by the employer as the employee earns the income. Every individual who receives a salary from a job or profits from operating a business is required to pay PERSONAL Income TAX to the state Internal Revenue Service. When a person is working, it is the employer’s responsibility to withhold taxes from their pay and remit them to the appropriate State’s Internal Revenue Service, or the FCT-IRS in the case of employees who live in the Federal Capital Territory. Owners of their own firms are also required to pay PAYE tax to the appropriate authorities.

In Nigeria, PAYE Income Tax is computed depending on your earnings. Depending on your income, different rates of income tax are levied according to a threshold-based formula. 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. 

Annual taxable income (NGN)RateTax payable per annum (NGN)
First NGN300,007%21,000
Next NGN300,00011%33,000
Next NGN500,00015%75,000
Next NGN500,00019%95,000
Next NGN1,600,00021%336,000
Above NGN3,200,00024%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.
 Schedule 6 of Personal Income Tax Act (PITA)

In cases where a person has no taxable income or if the PAYE tax is lower than the minimum tax, a minimum tax of 1% of gross income will be applied.
A low-income earner in Nigeria is exempt from the minimum tax, nonetheless.
A low-income earner is one who makes the National Minimum Wage or less, according to the Finance Act 2020.
In Nigeria, the threshold is currently NGN30,000 per month, or NGN360,000 annually.

Benefits in Kind (BIK) are incentives that a business provides to an employee, such as company cars and apartments, household items, etc. BIK are considered to be a portion of that employee’s gross pay.
The considered yearly benefit for non-accommodation items is 5% of the asset’s cost when owned by the employer or the actual rent paid when leased by the employer.
BIK on accommodation is taxable based on the annual value of the premises as determined for purposes of local rates or as determined by the relevant tax authority.

Tax returns and due date
A company will deduct PAYE tax from workers’ salaries each month and send the tax to the appropriate tax authority through pre-designated banks.
The deadline is ten (10) days into the following month.

An employer must submit two PAYE tax returns each year on behalf of an employee.
Both Form H1 and Form A apply.
An annual employer’s tax return is another term for the Form H1 return.
It lists the names, yearly gross income, and PAYE taxes paid by each employee during the previous tax year.
A taxpayer typically submits Form G along with Form H1.

The annual PAYE tax paid and the related receipts are detailed on Form G.
The deadline to submit Form

Penalty for non-payment of PAYE
The penalty for non-payment of PAYE tax is 10% per annum of the amount plus interest on an annual basis at the bank lending rate.
Late filing attracts a fine of ₦500,000 for corporate bodies, and ₦50,000 for individuals.

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