Personal income refers to the total earnings or revenue received by an individual from various sources during a given period, typically a financial year. It encompasses all the money an individual earns from different activities and sources, both employment-related and non-employment-related.
Eligibility to file
All Nigerian residents aged 18 and above earning income from Nigerian sources are required to file personal income tax returns. This includes salaried employees, self-employed individuals, and those with other sources of income such as investments, rental income, or business income.
All members of the armed forces who received employment income (salaries, allowances etc.) during the tax year are also required file annual Personal Income Tax returns.
Non-residents receiving Nigerian-sourced income are also required to file tax returns.
The Federal Inland Revenue Service (FIRS) says the tax is imposed on the income of individuals, corporate sole or body of individuals, communities, trustees or executor of any settlements.
How do I calculate PIT?
The tax rate varies with income size. Nigerian Personal Income Tax Laws states that all taxable persons are entitled to a consolidated relief allowance of 20% of gross income plus higher of 1% of gross income or N200,000. In other words, you are taxed only on a certain portion of your income.
Annual Taxable Income Rate
STEP 1: Calculate your annual income multiplying your monthly income by 12
I earn N150,000 per month, my annual income is N1,800,000
STEP 2: Account for the consolidated relief allowance of 20% gross income and N200,000
I remove 20% from N1,800,000 by multiplying by 0.8. I get N1,440,000.
Nigeria’s guidelines on advance pricing agreements: Enhancing tax certainty for multinationals
The next sub-step is that I remove the N200,000 from the N1,440,000 which leaves me with N1,240,000 taxable income.
STEP 3: Refer to the Annual Taxable Income Rate to know your rate
Since your income is greater than N1.1 million but less than N1.6 million you pay 15 percent rate which translates to N186,000.
NB: You do need to calculate your tax by yourself if you find it cumbersome. The hiring tax consultant is a good way to go.
Apart from the reliefs, certain deductibles are allowed before the income or profit can be taxed. A tax consultant can help you learn more.
How do I pay my PIT?
Personal Income Tax can be paid on a Pay As You Earn (PAYE) basis or directly paid by the tax payer depending on the nature of economic engagement.
For instance, most companies pay the tax on behalf of the employees on their payroll directly to relevant tax authorities. Hence for PAYE, the tax would already have been deducted before employees are paid monthly remuneration.
On the other hand, in the case of a self-employed person tax is paid directly by the business owner to relevant tax authorities.
