Calculate PAYE: Everything You Need To Know About PAYE Calculation In Nigeria

Employees, self-employed individuals, and business owners are required to pay taxes on personal income. Tax is among the expenses deducted from an employee’s gross income, leaving them with a net income (what an employee takes home after all deductions).

The Pay As You Earn (PAYE) is one of the vital types of taxes in Nigeria that individuals pay to the Federal Inland Revenue Service within their respective state of residence. Personal Income Tax (PIT) is based on two primary legislations, i.e., the Personal Income Tax Amendment Act 2011 and Finance Act 2020 (It took effect on 1^st January 2021). This article is a guide to PAYE in Nigeria and answers some of the critical questions related to calculate PAYE.

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Important Points to Note about PAYE Tax in Nigeria

1. The gross emolument of an employee entails any salary, bonus, fee, and Benefits in Kind of an employee.
2. Some allowances and reliefs are not taxable and can be used to reduce taxable income. For instance, consolidate relief allowance, gratuities, contributions on the approved pension fund, and premiums on life insurance policy.
3. The penalty for non-payment of PAYE is 10% per annum of the amount plus interest on an annual basis at the bank lending rate.
4. The currency of the taxable income band is calculated in Nigerian Naira
5. An individual resident in Nigeria is taxable on their worldwide income. Worldwide income means income received within and outside Nigeria

Who Should Pay PAYE in Nigeria?

According to the PITAM Act, tax in Nigeria is based on source and residency rules.

An employee is taxed if the;

1. Employee works fully or part-time in Nigeria
2. Employer is in Nigeria
3. Employer has a fixed base in Nigeria

Often, non-residents aren’t liable to pay taxes in Nigeria. However, a non-resident person (an expatriate) is liable to pay taxes if they have employment in Nigeria unless the;

1. Employer is not a resident in Nigeria
2. Employee stayed less than 183 days in any period of 12 months
3. Non-residents employer bears the employee cost
4. Employee has paid tax in another country

Note: Foreign persons earning business profits from Nigeria are taxed under Section 6 of the PIT Act (PITA) once a fixed base or taxable presence is created. Also, Section 6(A) of PITA introduces the Significant Economic Presence (SEP) rules for personal income tax (PIT), whereby it outlines that a non-resident person may seek tax relief under a double tax treaty. Nonetheless, by order, the Minister of Finance may define what activities constitute SEP for this purpose.

What is Chargeable Income?

 Income chargeable to Personal Income Tax refers to income from all sources minus all non-taxable income, income on which no further tax is payable, allowable business expenses, and capital allowance. Chargeable income is also known as taxable income.

How can you Calculate PAYE in Nigeria?

In Nigeria, you can calculate PAYE based on the amount an individual earns. The PAYE rates progresses from 7% (if your annual income is less than NGN 300,000) to 24% (if your annual income is more than NGN 3,200,000) of an employment taxable income. However, those earning minimum wage or less from employment are exempted from personal income taxes.

It’s also worth noting that every taxable person (except persons who earn the minimum wage or below) is liable to a minimum income tax of 1% of their gross income. According to the Finance Act 2020, a low-income earner is a person who earns the national minim wage or less. Currently, the threshold is at NGN 30,000 per month or NGN 360 000 annually.

If your income is more than NGN 300,000, to calculate PAYE, the rate are different as outlined in the table below in the next section;

What are the PAYE Tax Rates and Due Dates for Payments in Nigeria?

As outlined above, PAYE rates progress from 7% to 24% of the taxable income. The below table shows personal income tax rates in Nigeria.

Multiply only the excess amount over NGN 3.2 million by 24%.

For instance, the annual taxable income of NGN 4 million is NGN 192,000, equivalent to 24% of the NGN 800,00 (excess amount over NGN 3.2 million).

Employers are required to deduct monthly PAYE tax from employees’ salary and remit it to the relevant Nigerian authorities on or after the 10^th day of the month following the payment of salary.

Individuals must file the return no later than 31^st March each year in respect of the previous year.  

Additionally, an employer is supposed to file PAYE returns twice a year on behalf of employees. They should also submit the following documents while filing:

1. Form H1 (Employer Declaration Form) - this form shows employees’ income, taxes deducted and taxes remitted in the preceding year. The due date for form H1 is 31^st January.
2. Form G (Employer Remittance Card) - this form shows monthly remittances and reference numbers on the receipt. Copies of receipts should also accompany form G. The due date for form G is 31^st January of the following year.
3. Form A (Annual Declaration of Individual Income and Claims for Allowances and Reliefs Form) - its due date is 31^st March of the current year.

FAQs

1. How much is PAYE on NGN 50,000

Here is a free calculator for calculating PAYE in line with the Finance Act. It helps you calculate PAYE as well as other statutory deductions in Nigeria, such as pension, National Housing Fund, National Health Insurance Scheme, etc.

2. What is the PAYE rates for foreign persons working in Nigeria?

The PAYE tax rate for expatriates or foreign persons is the same for residents

3. What can prove that an employer paid the tax of an employee?

One may use the Tax Clearance Certificate (TCC) of the employee issued by the Federal Inland Revenue Service (FIRS) for companies or State Inland Revenue Services for individuals. Alternatively, a person may use an extract of Form H1 return.

4. Should a company in Nigeria remit PAYE tax for one staff only?

Yes, the law in Nigeria requires an employer to remit PAYE tax for their employees except where exempted under law.

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