Pay As You Earn – PAYE Tax Nigeria

P.A.Y.E represents Pay As You Earn. Nigeria adopts a Pay-As-You-Earn (PAYE) system to calculate the personal income tax of employees. It is called PAYE tax.

HOW DOES IT OPERATE?

Salary earners in Nigeria are authorized by the law to pay tax under the Pay As You Earn (PAYE) scheme. Every month a portion of one’s salary is deducted as tax leaving one with a net salary to take home. Taxes under the PAYE scheme falls under the State Inland Revenue Service, meaning that all the taxes you pay are remitted to the state of your residence.

For instance, if you live in Ogun State but work in Lagos, you are liable to pay tax to Ogun State and not Lagos State.

HOW IS IT CALCULATED?

The first taxable income is calculated at 7% then the next at 11%. To calculate subsequent years you add 4 to the previous %rate to get the next rate. 

SAMPLE 1.

 This tax rate progresses from 7 percent to 24 percent of taxable income. The taxable income band ranges from NGN300,000 to above NGN3.2 million in a year. 

ANNUAL TAXABLE INCOME (NGN) RATE TAX PAYABLE PER ANNUM (NGN)
First NGN300,00 7% 21,000
Next NGN300,000 11% 33,000
Next NGN 500,000 15% 75,000
Next NGN500,000 19% 95,000
Next NGN1,600,000 21% 336,000
Above NGN3,200,000 24% Multiply only the excess amount over NGN3.2 million by 24%. For example, an annual taxable income of NGN5 million is (5-3.2) million * 24% = NGN432,000.

 

SAMPLE 2

Below is the basis of pay as you earn (PAYE) calculation for an individual whose gross income is NGN 4 million. For the purpose of this calculation, it is assumed that pension is calculated at 7.5% of gross income.

    NGN NGN
Gross income (GI)     4,000,000
       
Less reliefs:      
Consolidated relief allowance Higher of NGN 200,000 or 1% of GI 200,000  
20% of GI 800,000  
Children NGN 2,500 per child (maximum of 4) 10,000  
Dependent relatives (DR) NGN 2,000 per DR (maximum of 2) 4,000  
Pension 7.5% of GI 300,000 (1,314,000)
       
Taxable income     2,686,000

 

Annual income (NGN) PIT rate (%) Tax payable (NGN) NGN
First 300,000 7 21,000  
Next 300,000 11 33,000  
Next 500,000 15 75,000  
Next 500,000 19 95,000  
Next 1,600,000 21 228,060  
Over 3,200,000 24    
       
Gross income     4,000,000
       
PAYE   452,060 (452,060)
       
Net income after PAYE     3,547,940

 

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