Pay As You Earn

Pay As You Earn (P.A.Y.E)

Pay-As-You-Earn Tax (P.A.Y.E) is a withholding tax on income payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may include withholding the employee portion of insurance contributions or similar social benefit taxes. In most countries, they are determined by employers but subject to government review. PAYE is deducted from each paycheck by the employer and must be remitted promptly to the government. Most countries refer to income tax withholding by other terms, including pay-as-you-go tax.

All employers in Nigeria are responsible for deducting Pay As You Earn (PAYE) taxes from their employees’ pay. Taxes deducted are required to be remitted to the appropriate tax office by the 10th day of the month following the deduction.

Monthly payments of Pay As You Earn (PAYE) tax liabilities are to be made on or before the 10th day of the month following the applicable month (e.g. January tax to be remitted by 10th of February).

PAYE Taxes are calculated as follows:

After the relief allowance and exemptions (see blow) have been granted, the balance of a taxpayer’s income is taxed on a graduated scale as shown below:

– First N300,000 of income @7%

– Next N300,000 of income @ 11%

– Next N500,000 of income @ 15%

– Next N500,000 of income @19%

– Next N1,600,000 of income @ 21%

– Above N3, 200,000 of income @ 24%.

Personal Income Tax Reliefs

The Personal Income Tax Amendment Act of 2011 scrapped the old relief systems and increased relief for all taxable person(s). The amendment combined all reliefs into the Consolidated Relief Allowance (CRA), which combines all previous reliefs (Housing, Meal, Utility, Transport, Leave allowances, etc) into a single relief of N200,000 subject to a minimum tax of 1% of gross income (whichever is higher) plus 20% of the gross income.

Highlights of the amendment are :

– Consolidated Relief – N200,000.00 or 1% of gross Income whichever is higher

– Plus 20% of Gross Income

– Minimum tax payable is 1% of Gross pay.

Other Tax Exempt Items

In addition to the Consolidated Reliefs and Allowances (CRA) above, the following items are tax exempt and tax is calculated after amounts paid in respect of these items are deducted;

– National Housing Fund Contributions

– National Health Insurance Scheme

– Life Assurance Premiums

– Pension Deductions

Penalties For Non-compliance

The penalty for failing to file returns according to the Personal Income Tax (Amendment) Act, 2011 is N500,000 for corporate organisations and N50,000 for individuals.