Statutory Compliance: A Detailed Guide to Statutory Deductions in Nigeria

Statutory deductions are mandatory payments required by law from both employers and employees. Missing these payments by their deadlines can result in fines and penalties, therefore, compliance is very important. For employees, making these statutory deductions will most definitely reduce their gross income, and as for the employers, they must deduct and remit various amounts to the appropriate agencies.

Statutory deductions in Nigeria include;

• National Housing Fund (NHF)
• National Health Insurance Scheme (NHIS)
• Personal Income Tax (PIT)
• Withholding tax
• Pension Fund
• Industrial Training Fund (ITF)
• Nigeria Social Insurance Trust Fund (NSITF

Statutory Deductions in Nigeria

1. National Housing Fund (NHF)

The NHF, established by Act 3 of 1992, aims to provide loans to Nigerians for housing development, purchase, or renovation. Contributors can obtain long-term loans from Mortgage Institutions. Employers must register employees with the NHF, deduct 2.5% of their monthly basic salary, and remit it to the Federal Mortgage Bank of Nigeria (FMBN) within a month after salary payment. Late remittance incurs a ₦50,000 penalty, however, employees earning below ₦3,000 annually and expatriates are exempt from NHF contributions.

2. National Health Insurance Scheme (NHIS)

The NHIS, a Public-Private Partnership, ensures affordable and quality healthcare for Nigerians. Employers contribute 10% of an employee’s salary, while employees contribute 5%, deducted from their salary. This covers the contributor, their spouse, and four other family members - children under 18. Additional dependents can be registered. Employers with at least ten employees must participate in the NHIS so that employees can get medical attention

3. Personal Income Tax (PIT)

Personal Income Tax is levied on the income of individuals, trustees, and executors under the Personal Income Tax Amendment Act 2011 and the Finance Act 2020. Employees are taxed based on their residency/residency status and must pay taxes to the state of their residence. Personal income tax is calculated by subtracting statutory reliefs from the gross income. Click here to see a detailed breakdown of personal income tax in Nigeria

The PAYE tax rates range from 7% to 24% of taxable income, with a minimum tax of 1% of gross income. Low-income earners, defined as those earning the National Minimum Wage or less (₦30,000 per month or ₦360,000 per annum), are exempt from this minimum tax. Employers must remit monthly PAYE taxes within ten days of the following month or face penalties.

4. Withholding Tax 

Withholding tax in Nigeria is an income tax deducted at the source by the employer from payments made to consultants, contractors, and on interest, dividends, and royalties. The rate is 5%. The deducted tax must be remitted to the State Board of Internal Revenue for individuals within 10 days after the end of the transaction month. Compliance is mandatory for withholding tax, with penalties for non-compliance including fines and imprisonment.

5. Pension Fund

The Pension Reform Act 2004 mandates that employers and employees contribute 10% and 8%, respectively, of the employee’s monthly compensation to the Pension Fund. Employers can opt to contribute the entire amount themselves. Employees must open a retirement savings account with an approved Pension Fund Administrator (PFA). Pension contributions are due seven working days after salary payments, with non-compliance attracting a penalty of at least 2% of the unpaid amount. Refer to the Pension Act of 2014, which repeals the Pension Act of 2004 for more updated information.

6. Industrial Training Fund (ITF)

The ITF, established in 1971, aims to develop industrial and commercial skills in Nigeria. According to the ITF Act, organizations with at least five employees or an annual turnover of ₦50 million must contribute 1% of their annual payroll to the ITF. Employers can claim a refund of up to 50% if their employees receive proper training. Registration and filing ITF returns must be completed within three months from the end of the year, with a 5% penalty for late payments.

7. Nigeria Social Insurance Trust Fund (NSITF)

The Employees’ Compensation Act (ECA) 2010 provides compensation for work-related death, injury, disease, or disability. The NSITF Act requires employers to contribute 1% of employees’ monthly payroll, with exemptions for members of the Armed Forces. This contribution is made by the employer and is due by the 16th of the following month. Late payments incur a 10% penalty.

Final Thoughts

Staying compliant with statutory deductions is very necessary to remain on the good side of the law as an employer/ employee in Nigeria. At Workpay, our compliant HR and Payroll system helps you properly calculate and remit these contributions to the various authorities, this way, you don't have to bother about compliance, and focus on what truly matters - growing your business. Ensure to keep reading our blog for more information regarding compliance, gross and net income, taxes and statutory deductions in Nigeria.