In order to be able to compute personal income tax in Nigeria or anywhere else, it is advised to understand and grasp what that particular tax is about, why it is remitted and who to remit it to. All of these and more will be learned in today’s post.
As a human resources company, one of the ways we ensure that companies thrive is by helping them to realise the importance of complying to laws and regulations, which includes paying personal income tax.
What is Personal Income Tax in Nigeria?
Personal Income Tax, also referred to as PIT, is a type of tax that is levied on the income of individuals, which primarily includes employees, self-employed individuals, and business owners. In Nigeria, PIT is administered by the Federal Inland Revenue Service and other state internal revenue services.
Based on this, the rate charged for PIT in Nigeria ranges from 7% to 24% of taxable income, with a tax-free allowance of N30,000 per month for employees. It is expected that taxpayers file their tax returns annually; failure to file tax returns annually can result in penalties and fines.
How to Compute Personal Income Tax in Nigeria
To calculate Personal income tax in Nigeria, here’s what you must do:
Determine what your taxable income is and subtract your allowable deductions from your gross income. For example, Deduct N30,000 from your gross income.
Apply the relevant tax rates to your taxable income, using these tax brackets:
7% (N0-N160,000)
11% (N160,001 – N320,000)
15% (N320,001 – N640,000)
19% (N640,001 – N1,280,000)
24% (above N1,280,000)
Calculate the tax payable by multiplying the taxable income by the applicable tax rate.
How to Remit Personal Income Tax in Nigeria to the Government
In order to remit personal income tax to the government of Nigeria, these processes must be followed:
Obtain a taxpayer identification number from the FIRS or the relevant state internal revenue service.
File your tax returns online through the FIRS e-filing portal or manually at the nearest tax office.
Pay the calculated tax liability through any of the following channels: online payment via the FIRS e-payment platform.
Obtain a receipt or acknowledgement from the tax authority or Nigerian bank, confirming the payment.
Submit a copy of the payment receipt to the tax authority, when required.
Depending on the tax obligations, tax payments can be made on a monthly or annual basis.
How Employers Deduct Income Tax From Payroll And What it is Used For
As an employee wondering how your employer deducts PIT from your salary, and how it is used, let this explanation guide you. Employers Deduct income tax from your salary through PAYE, known as Pay-As-You-Earn system.
The system allows employers to calculate the tax deductible based on an employee’s taxable income, using the relevant tax tables and rates. After which the deducted tax is remitted to the FIRS or the relevant state internal revenue service on behalf of the employee.
The government uses your income tax to fund public goods and services, such as healthcare, education, infrastructure development, and national defense, which enhances Nigeria’s economic growth and development.
