Personal Income Tax (PIT) is a tax levied on the income of individuals residing in Nigeria. It applies to earnings from employment, businesses, investments, and other sources. The Federal Inland Revenue Service (FIRS) is responsible for administering and collecting PIT.
PIT is one of the major taxes in Nigeria. Below is a summary of key points
Key Points About Personal Income Tax in Nigeria
- Taxable Income: Nigerians are taxed on their worldwide income. This includes income earned locally and abroad.
- Tax Brackets: Nigeria uses a progressive tax system. Tax rates increase as your taxable income increases. Rates range from 7% to 24% depending on income bands.
- Minimum Tax: Even if you have no taxable income due to reliefs and allowances, a minimum tax of 1% of your total income may apply.
- Consolidated Relief Allowance: Taxpayers receive a deduction called the Consolidated Relief Allowance. This reduces your taxable income. It’s the higher of N200,000 or 1% of your gross income, plus 20% of your gross income.
- PAYE: Employers typically withhold and remit PIT through the Pay As You Earn (PAYE) scheme.
Individuals are subject to a minimum tax of 1% of gross income where the income is less than N300,000 per annum.
Personal Income Tax Rates in Nigeria
Nigeria employs a progressive personal income tax system. This means that the tax rate you pay increases as your taxable income rises. Here’s a breakdown of the current tax brackets and how they impact your tax bill:
Graduated tax rates: All income earned throughout the year is subject to taxation based on different rates depending on how much you earn. Here’s a breakdown of the tax brackets:
- First ₦300,000: 7%
- Next ₦300,000: 11%
- Next ₦500,000: 15%
- Next ₦500,000: 19%
- Next ₦1,600,000: 21%
- Over ₦3,200,000: 24%
For example, let’s say your annual income is ₦1,000,000. Your entire income would be taxed according to the graduated brackets:
The first ₦300,000 would be taxed at 7% (₦300,000 * 7%) = ₦21,000.
The next ₦300,000 would be taxed at 11% (₦300,000 * 11%) = ₦33,000.
The remaining ₦400,000 would be taxed at 15% (₦400,000 * 15%) = ₦60,000.
Your total tax payable would be ₦21,000 (for the first bracket) + ₦33,000 (for the second bracket) + ₦60,000 (for the third bracket) = ₦114,000.
Additional points to consider
Consolidated Relief Allowance: You may still be entitled to a tax deduction called the Consolidated Relief Allowance. This allowance is either ₦200,000 or 1% of your gross income, whichever is higher. This amount is deducted from your taxable income before calculating the tax you owe.
Minimum tax: If your tax liability after deductions is less than 1% of your gross income, you may still be required to pay a minimum tax of 1%.
Penalties
Here’s a reminder for all employers in Nigeria: You are required to file a return of all employee remunerations and taxes deducted throughout the previous year. This needs to be submitted to the authorities by January 31st of every year.
Missing the deadline comes with consequences. If you don’t file your return on time, you could face a fine of ₦5,000 and an additional ₦100 for each day you’re late. This penalty can keep adding up until you file. Even worse, you could be imprisoned for six months or both fined and jailed.
Penalties for Late Filing:
Companies: If you’re a company (body corporate), the penalty for late filing is a hefty ₦500,000.
Individuals: If you’re an individual employer, the penalty is lower at ₦50,000.