How to determine your Personal Income Tax liability

Taxes are certain and must be paid by nearly everyone. However, there are certain rules and laws dictating what must be paid, where it must be paid to and when to pay

Tunde Niyi-Akinmade

Payment of taxes on personal incomes in Nigeria is determined by the Personal Income Tax Act (PITA). The Act provides the conditions for determining incomes that are taxable in Nigeria. Under the Act, any gain or profit from employment shall be deemed to be derived from Nigeria if the duties of the employment are wholly or partly performed in Nigeria or the employer is in Nigeria, unless the duties of the employment are wholly performed, the remuneration paid, in a country/jurisdiction other than Nigeria except during a temporary visit or leave in Nigeria and the employee is not in Nigeria for an aggregate of 183 days (inclusive annual leave or temporary period of absence) or more in any 12 calendar month period.

Also, foreign persons earning business profits from Nigeria are taxed once a fixed base/taxable presence is created, subject to existing treaties. The Act stipulates the liability of non-resident individuals, executors, or trustees carrying on a trade or business comprising technical, professional management, or consultancy (TPMC) services to persons resident in Nigeria, where a Significant Economic Presence (SEP) has been established.

Under the Act, the period of assessment of tax liability is January to December of each year. The taxpayer is expected to file his/her returns of the tax latest by 31st March of every year. Under the Pay-As-You-Earn (PAYE), the due date for remittance is the 10th day of every succeeding month. An employer shall file a return of emoluments and tax deducted from the employees in the preceding year not later than 31st January of every year.

Any person who fails to file a return shall be liable on conviction to a fine of N5,000 and a further sum of N100 for every day during which the failure continues or imprisonment of six (6) months or both likewise, any employer who fails to file a return, shall be liable on conviction to a penalty of N500,000 for a body corporate and N50,000 in the case of an individual.​

Under the Act, Personal Income Tax is paid to the relevant tax authority in the state of residence of the taxpayer and not his/her state of work. These State Internal Revenue Services (SIRS) and the Federal Capital Territory (FCT) Abuja are in charge. Under the Act, the person’s place of residence is defined as a place available for their domestic use in Nigeria on a relevant day and does not include a hotel, rest house or other places at which they are temporarily lodging unless no more permanent place is available for their use on that day.

On the other hand, the tax is also administered by FIRS on non-residents, members of the Armed Forces, Police, and Officers of the Nigerian Foreign Service.

Types of taxable income

Under the Act, any salary, wages, fees, allowances or other gains or profits from employment including bonuses, premiums, benefits or other perquisites allowed, given or granted to an employee are liable to be taxed.

However, the following income streams are tax-exempt:

• reimbursement of expenses incurred by the employee in the performance of their duties, and from which the employee is not expected to make any profit
• retirement gratuities and compensation for loss of office.
• interest on loans for developing an owner-occupied residential house.

But income that qualifies as termination benefits (compensation for loss of office) in line with the Capital Gain Tax Act will be subject to CGT on the portion of the income above NGN 10 million.

Personal Income Tax Rates

Personal Income Taxes are calculated on a graduating basis in Nigeria based on level of income. The rates and incomes are as follows;

Annual income (N)                 Personal income tax (PIT) rate (%)

• First N300,000                            7
• Next N300,000                           11
• Next N500,000                           15
• Next N500,000                           19
• Next N1,600,000             21
• Above N3,200,000            24

However, employees who do not earn more than the national minimum wage (N 30,000) are no longer liable to tax or deduction of monthly pay-as-you-earn (PAYE).

In the case where a taxpayer has no taxable income because of personal reliefs and allowances or total income produces a tax lower than the minimum tax, a minimum tax rate of 1% of the total income is payable.

To apply for filing a Personal Income Tax return in person, the applicant must visit any tax office of the relevant State Inland Revenue Service to get an application form to apply for a Tax return. The application forms can also be found on the relevant page of most SIRS websites.