What is Personal Income Tax?
Personal Income Tax is a direct tax charged on the income of a person. In the context of personal income tax, a ‘person’ means an individual, a sole proprietorship (non-juristic person), communities and families and on executors and trustees (of an undivided estate).
How much is Personal Income Tax in Nigeria?
The rate of income tax payable is dependent on the amount of ‘taxable income’ which the person is liable for. Taxable income refers to the base upon which the income tax system imposes and decides on how much tax a person is to pay in a given year. Generally, it includes some or all items of income less expenses and other deductions.
Therefore in determining the tax rate, a simplified calculation would be
- Income – Allowable Expenses and Deductions = Taxable Income
- Taxable Income/Tax rate = Tax Due
Under Nigerian income tax laws all taxable persons are entitled to a consolidated relief allowance of 20% of gross income plus higher of 1% of gross income or N200,000.
The tax rate payable is:
| Annual Taxable Income | Rate |
| First N300,000 | 7% |
| Next N300,000 | 11% |
| Next N500,000 | 15% |
| Next N500,000 | 19% |
| Next N1,600,000 | 21% |
| Over N3,200,000 | 24% |
How is Personal Income Tax paid?
There are 2 ways of paying personal income tax –
- Pay-As-You-Earn (PAYE) – this is how people in paid employment pay their taxes. The employer deducts the tax at source.
- Self assessment by self employed persons – if self-employed you assess on your taxes, and pay the amount directly to the relevant tax authorities.
What are the Penalties for non-payment of Tax?
Not payment/remitting taxes is an offence under the relevant income tax laws, and failure to pay tax can result in an imposition of an additional 10% of the amount of tax not paid/remitted, in addition to the amount of tax due, and any costs incurred in the recovery of the sums due.
You can read the full provisions of the law here – Personal Income Tax Act 1993 This Act was amended in 2011 by the Personal Income Tax Amendment Act 2011. This has been further amended by the Finance Act 2019 and 2020.
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