Understanding Personal Income Tax in Nigeria

In this article, we will discuss the personal income tax in Nigeria, the types, how to pay it and will also answer some frequently asked questions about the topic.

Personal Income Tax (PIT) is a legal requirement in Nigeria, levied on individuals, communities, families, and trustees. Governed by the Personal Income Tax Act Cap P8 LFN 2004 (as amended), PIT must be paid to the State Inland Revenue Service where the taxpayer resides, regardless of their employer.

Federal Inland Revenue Service (FIRS) collects PIT only from specific groups: staff of the Ministry of Foreign Affairs, non-residents earning income in Nigeria, police officers, and military personnel.

income tax in nigeria

Types of PIT

There are two (2) types of Personal Income Tax:

  1. Pay-As-You-Earn (PAYE): Employers deduct taxes from employees’ salaries and remit them monthly by the 10th. Annual returns must be filed by January 31st.
  2. Direct Assessment: Self-employed individuals file their income returns from the previous year and pay taxes by March 31st.

According to section 3 of PITA 2004, taxable incomes include:

  • Profits from trade, business, or profession
  • Salaries, wages, fees, allowances, bonuses, and benefits from employment
  • Profits from property use or occupation
  • Dividends, interest, and discounts
  • Pensions, charges, or annuities
  • Other unspecified profits

PIT rates range from 7% to 24%, depending on income. However, the maximum tax payable is capped at 19.2% of gross income. Individuals receive a Consolidated Relief Allowance of N200,000 or 1% of gross income (whichever is higher) plus 20% of gross income. The minimum tax is 1% for incomes below N300,000 annually.

Personal Income Tax Rates

Annual Income (NGN)PIT Rate (%)
First 300,0007
Next 300,00011
Next 500,00015
Next 500,00019
Next 1,600,00021
Above 3,200,00024

Employees earning up to the national minimum wage (NGN 30,000) are exempt from tax.

personal income tax in nigeria

FAQs about Personal Income Tax in Nigeria

  1. What is Personal Income Tax in Nigeria? Tax on gains from trade, business, or employment income.
  2. What Law Governs Personal Income Tax? Personal Income Tax (Amendment) Act 2011.
  3. Who Pays Personal Income Tax? Individuals in employment or self-employment, including communities and trustees.
  4. Do State Boards of Internal Revenue Collect PIT? Yes, from residents, families, business names, and executors.
  5. Does FIRS Collect PIT? Yes, from military and police personnel, foreign service officers, and non-residents with Nigerian income.
  6. How is PIT Paid? Self-employed and family income taxes are paid directly. Employers deduct and remit employee taxes monthly.
  7. What are Consolidated Allowances? A relief allowance of the higher of 1% of gross income or N200,000, plus 20% of gross income.
  8. What Income is Tax-Exempt? Contributions to the National Housing Fund, National Health Insurance, Life Assurance Premiums, National Pension Scheme, and gratuities.
  9. What are the PIT Rates? After allowances, income is taxed as follows:
    • First N300,000 at 7%
    • Next N300,000 at 11%
    • Next N500,000 at 15%
    • Next N500,000 at 19%
    • Next N1,600,000 at 21%
    • Above N3,200,000 at 24%
  10. What is the Deadline for Annual Returns? Employers must file returns by January 31st for the previous year’s employee emoluments.
  11. Are there Penalties for Late Returns? Yes, N500,000 for corporate bodies and N50,000 for individuals.

Personal Income Tax in Nigeria can seem complex, but understanding the basics helps ensure compliance and avoid penalties.