In every country, it is normal to pay different types of taxes
to the local authorities. After collecting the money, the
government will use these funds to handle various projects that
will serve the people.
One of the common taxes – in Nigeria – is the Personal Income
Tax (PIT). However, many people do not have an idea of what
personal income tax is all about. So if you fall into this category
of Nigerian citizens, this post will give you an overview of
personal income tax in Nigeria. Now let’s get started and learn
more about this type of tax.
Table of Contents
What is Personal Income Tax?
This type of tax is paid by people who work for federal, state,
local, and private controlled organizations. It is also paid by
people who run local businesses in Nigeria.
In each state, the Internal Revenue Service collects these
payments from employed or self-employed individuals. For instance,
if you live in Lagos, you will have to send your PIT to the Lagos
State Internal Revenue Service.
Although state revenue offices do not receive the taxes of
police or military officers, they take payments from the civilian
staff of the Nigerian Police Force and Nigerian Army. However,
people who work in the Federal Capital Territory or Ministry of
Foreign Affairs will pay their taxes to the Federal Inland Revenue
Service (FIRS).
The Federal Inland Revenue Service also collects taxes from
people who stay abroad and work in Nigeria. Besides, FIRS also
receives personal income tax from police and army officers.
Types of Personal Income Tax?
In Nigeria, there are two types of personal income tax. They
are
- Pay As You Earn (PAYE)
- Direct Assessment
As expected, each type of personal income tax has slight
differences and applies to various situations.
Pay As You Earn (PAYE)
Under this arrangement, an employer removes the personal income
tax from an employee’s salary/wage and pays it to the concerned
revenue service. The deadline for this payment falls on the 10th
day of the following month. As for the required documentation (tax
returns), the employer would have to submit them on or before the
coming year’s 31st of January.
Direct Assessment
This arrangement concerns people that run local businesses
(self-employed). Here, the entrepreneurs pay their income tax – by
themselves – to the relevant revenue service.
Individuals must also submit the required documents that report
their profits or losses made in the previous year. The deadline for
the payment of the tax and filing of returns falls on the 31st of
March.
How to Calculate Personal Income Tax in Nigeria
There are two ways to calculate the Personal Income Tax.
However, the easiest method is to log on to the online tax calculator[1]
of the Federal Inland Revenue Service (FIRS) or any State Internal
Revenue Service. Then use the following steps to determine your PTI
– either as an employee or entrepreneur.
- Choose your employment status – employed, self-employed, or
partnership. - Scroll to the section labeled ” Part A – Income” and fill in
the required details and calculate the tax.
If you don’t want to use the calculator, use the following
steps:
- Find the gross annual income ( sum of salaries, bonuses,
allowances, pensions, rent, fees, compensation, business income,
premium, percentage ownership, and interests) - Calculate the relief allowances (sum of contribution to the
government-owned schemes and funds, life assurance payments,
gratuities, rent/business expenses, debt recovered, and CRA. - Find the taxable income by subtracting the result from step 2
from the gross annual income. - Use the applicable rate (from the table below) to calculate the
annual tax deduction. For instance, the first ₦300,000 attracts a
7% rate, and so on.
N.B. You can use this method to calculate your PAYE or make a
direct assessment.
Personal Income Tax Rates
Here is a table showing the various personal income tax rates in
Nigeria.
| Annual Taxable Income | Tax Rate | Tax Payable Per Annum |
| First ₦300,000 | 7% | ₦21,000 |
| Next ₦300,000 | 11% | ₦33,000 |
| Next ₦500,000 | 17% | ₦95,000 |
| Next ₦1,600,000 | 21% | ₦336,000 |
| Above ₦3,200,000 | 24% | Multiply only the excess amount over ₦3.2 million by 24%. For example, an annual taxable income of ₦5 million is ₦(5-3.2) million * 24% = ₦432,000 |
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Penalties for Non-Payment of Personal Income Tax in
Nigeria
Yes, there are penalties for missing out on your Personal Income
Tax payments. Under the Personal Income Tax Act of 1993, failure to
pay the tax attracts an extra 10% of the annual tax. Besides, it
also comes with a 6-month jail term with the option of a fine.
Wrapping Up
As an employee or entrepreneur, it is compulsory to pay your
taxes. With this overview of personal income tax in Nigeria, you
should know the type of taxation that applies to you. Besides, you
can also choose the best method to calculate your taxes.
However, the easiest way to find your taxable income is to use
an online calculator of the Federal Inland Revenue Service. Some
top firms, like KPMG and Deloitte, also offer online platforms for
calculating tax.
But if you need extra help with the personal income tax, you can
seek the services of a trusted tax consultant.