OVERVIEW OF

NIGERIAN
TAX LAWS
December 2024.
Nigerian Tax
Laws
.
Nigerian Expectations of participants?

Tax Laws
.
 Our Training Objective:

Nigerian To equip participants with

Tax Laws in-depth knowledge of key tax

laws and
.
the ability to interpret and apply

them effectively.
1.0 Overview of Tax Laws

1.1 Introduction to Taxation in Nigeria

1.2 Roles of Federal, State & Local

Tax Authorities

1.3 Key Tax Laws

TABLE OF
CONTENT
2.0 Practical Applications of Tax Laws

2.1 Testing Place of Residence

2.2 Case study on PIT computations

2.3 Identifying common compliance challenges

2.3 Interactive Sessions

TABLE OF
CONTENT
1.1
Introduction to Taxation in Nigeria

This session provides foundational

knowledge of taxation in Nigeria,
exploring its historical development, the
legal framework governing taxes, and the
roles of various tax authorities.

Participants will gain an understanding of

the importance of taxation for national
development and the challenges in
Nigeria's tax system..
 What is Taxation?
Definition Key Features
Taxation is the process by which a
government imposes mandatory • Compulsory Contribution
A magazine is a periodical publication, which
financial charges or levies on can either be printed or published electronically.
• Imposed by Government
individuals, businesses, and
organizations to fund public
expenditures and support
monitor
• Public finances
Purpose

A magazine is a periodical publication, which

economic and social development..
No Direct
• either
can Benefit
be printed or published
.. electronically.
 What is Taxation?
Purpose Principles
• Revenue Generation for government • Equitable - should be proportional to
operations income or ability to pay

• Economic Regulation discouraging • ACertain

magazine-istaxpayers
a periodical
knowpublication,
how much, which
when,
harmful activities or encouraging beneficial can either
and howbe
to printed
pay theirortaxes
published electronically.
practices (tax incentives)

• Redistribution of Wealth through • Convenient - mode of payment should be

progressive tax systems (tax higher earners more) simple and accessible

• National Development for sustainable

monitor finances
• Efficient - taxes should not cause excessive
development, poverty reduction, and nation- Aburden
magazine is a periodical publication, which
building can either be printed or published electronically.
Types of Taxes
Direct Taxes:
• Paid directly by individuals or organizations to the government.
• Examples: Personal Income Tax, Company’s Income Tax

Indirect Taxes:
• Levied on goods and services, and the cost is usually passed on to

View More the consumers.

• Examples: Value Added Tax (VAT), customs duties, consumption
tax.

Presented By : Larana Corporate

Importance of Taxation in
National Development
Direct Taxes:
• Paid directly by individuals or organizations to the government.
• Examples: Personal Income Tax, Company’s Income Tax

Indirect Taxes:
• Levied on goods and services, and the cost is usually passed on to
the consumers.
• Examples: Value Added Tax (VAT), customs duties..

Presented By : Larana Corporate

 Importance of Taxation in
National Development

1 2 3 4
Wealth Encouragement of
Revenue Generation Economic Stability Redistribution Investment

to finance public to regulate the To reduce income Tax incentives attract

infrastructure, economy by inequality by taxing both local and foreign
healthcare, education, controlling inflation higher-income investments, fostering
and other critical and influencing individuals and economic growth and
services.. demand through fiscal redistributing job creation.
policies. resources to lower-
income groups.
 Importance of Taxation in
National Development

5 6 7 8
Infrastructure International
National Security Development Social Welfare: Credibility

to finance defense and to build and maintain to support poverty A robust tax system
security agencies, infrastructure such as alleviation programs, enhances Nigeria’s
ensuring safety and roads, schools, power to provide affordable creditworthiness and
stability... plants, and public housing, and improve attracts global
transportation. healthcare investments by
accessibility.. demonstrating fiscal
discipline.
1.2
Role of the
Federal, State &
Local Tax
Authorities
• Collection
• Enforcement
• Compliance
Allocation of Taxing Rights Under the Nigerian
Constitution
The Taxes and Levies (Approved List for Collection) .Taxes payable to the State Governments are

Act of 1998 also provides the taxes the Federal, administered by the State Boards of Internal

State and Local Governments are responsible for Revenue (SBIRs) of the thirty- six states of the

collecting taxes in Nigeria. Federation and the Federal Capital Territory.

Each of the tier collects the taxes through its agency • Local Governments also administer rates and

responsible for the tax administration. levies collectible by them through their various
councils

• Taxes collected by the Federal Government are

administered by the Federal Inland Revenue
Service (FIRS)
 Allocation of Taxing Rights Under the
Nigerian Constitution

Federal Inland Revenue State Boards of Internal Local Government

Service (FIRS) Revenue (SBIRS) Authorities (LGAs)

• Companies Income Tax • Personal Income Tax • Shops and Kiosks Rates,
• Withholding Tax • Withholding Tax • Tenement Rates,
• Value Added Tax • Capital Gains Tax • On and Off Liquor
• Petroleum Profits Tax • Development Levy License Fees
• Capital Gains Tax • Stamp Duties • Slaughter Slab Fees
• Stamp Duties • Pools betting, Lotteries, • Marriage, Birth & Death
Gaming and Casino • Registration Fees,
Taxes • Vehicle Radio License,
Presented By : Larana Corporate
• Road Taxes • Wrong Parking Charges
• Business Premises
Taxes
FEDERAL
Company Income Tax
STATE
Personal Income Tax / Pay-As-You-Earn
LOCAL GOVERNMENT
Shops and Kiosk rates
(PAYE)
Withholding Tax (Companies) Direct Assessment Tenement Rates
Petroleum Profit Tax Withholding Tax (Individuals only) On and off Liquor License
Value-Added Tax (VAT) Capital Gain Tax Slaughter Slab fees
Tertiary Education Tax Stamp Duties (Instruments Executed by Marriage, Birth and Death registration fees
Individuals)
Capital Gain Tax (for Abuja Residents Pools betting, Lotteries, Gaming and Naming of Street registration fee (excluding state Capitals)
and Corporate bodies) Casino Taxes
Stamp Duties Involving a Corporate Road Taxes Right of Occupancy fees (Excluding state capitals)
Entity
Personal Income Tax in respect Business Premises Registration and Market/Motor park fee (excluding market where state
of:Armed Forces Personnel Renewal Levy finance are Involved)
Police Personnel Development Levy (Individuals Only) not Domestic animal License
more than N100 per annum on all taxable
individuals.
Residents of Abuja FCT Naming of Street Registration fee in state Bicycle, truck, Canoe, Wheel barrow and cart fees
capitals
External Affairs Officers and Right of Occupancy fees in State Capitals Cattle tax (for cattle rearers)
Non – Residents Rates in Markets where State Finances Merriment and road closure fees
are involved.
Radio/Television (Other than Radio/TV Transmitter) licenses
and vehicle radio license (to be imposed by the local
government in which the car is registered)
Wrong Parking charges
Public convenience, Sewage and Refuse Disposal fees.
Customary burial ground and religious places permits and
signboard/advertisement permit.
1.3
 Key Tax Laws – Personal Income Tax Act

• PIT Act is the legal basis for the taxation of the income of • The tax rate is a graduated tax rate based on the level of
individuals including communities, families, executors income. However, effective tax rate is about 18.96%.
and trustees, accruing in, derived from, brought into and • PAYE tax must be remitted on or before the 10th day of
received in Nigeria. the subsequent month.
• Residency determines which state tax authority is • Each employer is required to submit a summary of the
required to collect the tax from the taxpayer. salary and tax deducted from each employee. This is to be
• PIT on employment income is operated through the shown on the employer’s annual Declaration Form (Form
PAYE system. The employer acts as the agent of the tax H1). The form should be submitted on or before January
authorities and is required to deduct and remit the taxes 30 of the following year or face a penalty of N500,000 (per
to the relevant tax authority. state of default).
• The FIRS administers the PIT of the Nigerian Armed • Individuals are also required to file and declare their
Forces, Officers of the Nigerian Foreign Service (Ministry income to the relevant tax authority, no later than 90 days
of Foreign Affairs); and non-residents who derive income from the beginning of each year (March 31).
or profit from Nigeria.
 Key Tax Laws – Personal Income Tax Act

• PIT Act is the legal basis for the taxation of the income of • The principal basis of liability for PIT is residence. A person
individuals, partnerships and unincorporated trusts. is considered resident in Nigeria if he / she:
(including communities, families, executors and trustees)
on income accruing in, derived from, brought into and • is domiciled in Nigeria;
received in Nigeria.
• is physically present in Nigeria for at least 183 days in any
• Residency determines which state tax authority is 365-day period – a rolling calculation starting with every
required to collect the tax from the taxpayer. new day; or

• PIT on employment income is operated through the • serves as a diplomat or diplomatic agent of Nigeria in a
PAYE system. The employer acts as the agent of the tax country other than Nigeria.
authorities and is required to deduct and remit the taxes
to the relevant tax authority.
 Key Tax Laws – Personal Income Tax Act

• Each employer is required to submit a summary of the • Each employer is required to submit a summary of the
salary and tax deducted from each employee. This is to be salary and tax deducted from each employee. This is to be
shown on the employer’s annual Declaration Form (Form shown on the employer’s annual Declaration Form (Form
H1). The form should be submitted on or before January H1). The form should be submitted on or before January
31st of the following year or face a penalty of N500,000 31st of the following year or face a penalty of N500,000
(per state of default). (per state of default).

• Individuals are also required to file and declare their • Individuals are also required to file and declare their
income to the relevant tax authority, no later than 90 days income to the relevant tax authority, no later than 90 days
from the beginning of each year (March 31). from the beginning of each year (March 31).
 Key Tax Laws – Withholding Tax

• WHT is an advance payment of income tax. It is applied as

Nature of Transaction Individual (%)
a tax credit against the taxpayer’s income tax liability for
the relevant tax year. • Royalty 5

• Rent, Lease or Hire 10

• The WHT Regulations pursuant to the PIT Act is the legal
basis for WHT collected by State Internal Revenue • Dividend / Interest 10

Services • Commission, Technical,

Management, Professional and 5
Consultancy Fees
• The Kwara State Internal Revenue Service (KWIRS)
• Directors’ Fees 10
administers for individuals, partnerships and other non-
incorporated bodies within Kwara State. • Other Contracts 5

• Where WHT is deducted from qualifying transactions,

remittance must be made to the SBIRS within 30 days
 Key Tax Laws – Capital Gains Tax Act

• The tax is levied on capital gains accruing and derived from the sale, lease or transfer or part transfer of proprietary
rights in a chargeable asset.

• Chargeable assets include options, debts, goodwill, and foreign currency.

• It is taxed at a flat rate of 10% on chargeable gains upon the disposal of a chargeable asset.

• CGT is now applicable on gains accruing from the disposal of Nigerian shares, unless - the proceeds are less than
₦100million in 12 consecutive months, the proceed is reinvested to acquire a Nigerian company in the same year, or
the share transfer is between parties in a regulated securities lending transaction as defined by CITA

• The KWIRS administers CGT for individuals in Kwara State.

 Key Tax Laws – National Housing Fund Act

• The National Housing Fund (NHF) is a government initiative established by the National Housing
Fund Act of 1992 to provide accessible and affordable housing for Nigerians. The fund is managed
by the Federal Mortgage Bank of Nigeria (FMBN) and aims to mobilize long-term funds for the
development of the housing sector.

• Contribution is at 2.5% deduction from the basic monthly salary of

Nigerian employees.

• It is mandatory in the public sectors earning a minimum wage or above.

It is optional for Nigerian employees in the private sector. Self-employed
persons may choose to contribute to the Fund. Expatriates, regardless of
income level, are also exempt from contributing to the Fund.

• Do you know any person who benefited from the initiative?

 Key Tax Laws – Pension Reform Act

• The Pension Reform Act (PRA) is a legal framework that governs pension administration in Nigeria. It was first
enacted in 2004 and subsequently repealed and replaced in 2014 to strengthen the pension system, enhance its
coverage, and improve benefits for contributors. The Act established the Contributory Pension Scheme (CPS),
which is regulated by the National Pension Commission (PenCom)..

• Both employers and employees contribute to a Retirement Savings

Account (RSA).
• Contribution rates: 10% of monthly salary by employers and 8% by
employees.
• Applies to organizations with 15 or more employees in the public and
private sectors.
• Employees of smaller organizations or self-employed individuals can
voluntarily participate in the CPS.
 Key Tax Laws – Employee Compensation Act

• The Employee Compensation Act (ECA), enacted in 2010, provides a comprehensive legal framework for
compensating employees or their dependents for workplace-related injuries, diseases, disabilities, or deaths. The
Act replaced the Workmen’s Compensation Act of 1987 and is administered by the Nigeria Social Insurance Trust
Fund (NSITF).

• The ECS is a social insurance scheme that provides guaranteed compensation to employees for any death, injury,
disease or disability arising out of or in the course of employment. All employers of labor are obligated to
contribute at least 1% of their monthly payroll to the Fund managed by the Nigeria Social Insurance Trust Fund
(NSITF)..
• Employers are prohibited from deducting ECS contributions from employees’ remuneration. Also, employees
must not be allowed to contribute towards indemnifying the employer against a liability which may be incurred
under the ECA.
2.1
 Testing Place of Residence

Place of residence

Nigerian employment:
• An individual who holds a Nigerian employment on the first day of January in a year of assessment, or who first
becomes liable to income tax in Nigeria for that year by reason of his entering that employment during that year,
shall be deemed to be resident for that year in the territory in which he has a place or principal place of residence
on that day or, as the case may be, on the day on which he enters upon the full duties of that employment in
Nigeria:

• Provided that if the individual is on leave from a Nigerian employment on the first day of January in a year of
assessment he shall be deemed to be resident for that year by reference to his place or principal place of
residence immediately before his leaves began.
 Testing Place of Residence - Residency Rule

The residency rule is based on the provisions of Section 2(2) of the PIT Act and the First Schedule to the Act.

• The rule is adopted in determining the relevant tax authority (RTA) that is empowered to assess and collect
PIT from an individual.

• The PIT Act defines the place of residence (POR) of an individual as: “a place available for his domestic use in
Nigeria on a relevant day and does not include any hotel, rest-house or other place at which he is temporarily
lodging unless no more permanent place is available for his use on that day”.

• Where an employee has two or more PORs in different states of the Federation, his residency in Nigeria will
be determined based on his principal place of residence (PPOR).
 Testing Place of Residence - Residency Rule

Place of residence (POR) PPOR is defined under paragraph 1 of the First Schedule to the PIT Act as follows:

• In the case of an individual with no source of income other than a pension in Nigeria, that place of those places
in which he usually resides;

• In the case of an individual who has a source of earned income other than a pension in Nigeria, that place or those
places which on a relevant day is nearest to his usual place of work;

• In the case of an individual who has a source or sources of unearned income in Nigeria, that place or those
places in which he usually resides;

• In the case of an individual who works in the branch office or operational site of a company or other body corporate,
the place at which the branch office or operational site is situate: Provided that operational site shall include Oil
Terminals, Oil Platforms, Flow Stations, Factories, Quarries, Construction Site with a minimum of 50 workers, etc.
 The implications of the residency rules are as follows:

Where an employee has a single POR, the RTA will be the tax authority in
the State in which the POR is situated.
Residency Rule

However, where an employee has two or more PORs, his PPOR will need to be
determined, and the RTA will be the tax authority in the State in which the PPOR
is situated.

Consequently, the employer will be required to remit the PIT due from the
employee’s emoluments, to the RTA in the State in which the PPOR is
located.
 Adejare Japasola Durojaiye is an employee of Offcoast
Global Films in Lagos State. He resides in the company’s
guest house at Isolo during the week. During the weekend,
he returns home to be with his wife and children in his
house in Ogun State.
Residency Rule

Which RTA should the Adejare’s PAYE tax be remitted to?

Bolatito Philips works with a multinational company in Abuja and

tends to travel quite a lot to the head office in UK. She sometimes
has to spend up to 5 or more months outside Nigeria, due to work
demands share carries out at the head office.

In 2023, she only spent 182 days in Nigeria. Is she liable to PAYE in
Nigeria?

Which RTA should the Adejare’s PAYE tax be remitted to?

Residency Rule

Charles Abenibo is a sole proprietor who owns Oshinachi Bujoko Enterprises

where he has traded in spare parts in Ilorin, Kwara state. In December 2024,
he decided to relocate to Japan with his family. He sold his store to his cousin,
David Abenibo. And left the country on 10th Dec.

What happens to his income tax? And David?

Testing Place of Residence - Residency Rule

Within the residency rule, is there is the possibility of

persons working outside of Kwara state that may fall
into the tax net of KWIRS?

How do we identify them?

2.2
 PIT Computations - Income Chargeable & Gross
Emolument
Section 3 of the PIT Act defines “Income Chargeable” to include:
Income
• Gain or profit from any trade, business, profession or vocation, for whatever period of time such trade,
Chargeable
business, profession or vocation may have been carried on or exercised.

• Any salary, wage, fee, allowance or other gain or profit from employment including compensations,
bonuses, premiums, benefits or other perquisites allowed, given or granted by any person to any
temporary or permanent employee other than so much of any sums as or expenses incurred by him
in the performance of his duties, and from which it is not intended that the employee should make
any profit or gain.

Gross • This includes benefits-in-kind, gratuities, superannuation, and any other incomes derived solely by
Emolument reason of employment
 PIT Computations – Benefits in Kind

Benefits-in-kind represent benefits or perquisites provided or granted by the employer to the

BIKs employee in the course of performance of the employee’s duties of employment.

This includes benefits-in-kind, gratuities, superannuation, and any other incomes derived solely
by reason of employment.

• The annual value of the premises as determined for purposes of local rates (or, if unavailable, as
Accommodation determined by the RTA), less the amount of rent (if any) paid by the employee for the
accommodation is taxable in the hands of the employee.

Assets • 5% of the cost of the asset (or, if unavailable, the market value at the time of acquisition). Is
taxable in the hands of the employee.
belonging to
employer
 PIT Computations – Benefits in Kind

For other BIKs, the actual amount of the expense incurred by the employer is taxable in the
Other BIKs
hands of the employee.

• Provision of non-assignable luncheon vouchers or meals in any canteen

Items that are
not BIKs • Provision of any uniform, overall or other protective clothing

• Reasonable removal expenses (which may or may not include a temporary subsistence
allowance) incurred by an employer due to a change of the employee’s employment which
requires the employee to change his POR.
PIT Computations – Benefits in Kind

Which of the following constitutes a taxable BIK?

• Uniform, overall or other protective • Accommodation provided to

clothing employees

• Relocation allowance • Pool cars.

• Non-assignable luncheon vouchers or • Childcare

meals • Encouragement awards

• Shares assigned to management • Fees and professional subscriptions

executives • Paid travel expenses

• Employer pension
PIT Computations - Basis of assessment of
employment income
Employment income is assessed to tax on actual year basis

• This means that the income assessable to tax in a tax year is the income
actually earned in that year.

• The PIT due for the year will be determined after applying the graduated tax
rates to the taxable income
PIT Computations - Income Exempted

• Income earned from bonds issued by Federal Government

• Income from dividend, interest, rent, royalties, fee, or commission earned from abroad in convertible

currency and paid into a domiciliary account of a Government approved bank.

• Compensation for loss of employment

• Interest income accruing to a person on foreign currency domiciliary account.

• Dividends distributed from profits that have suffered petroleum profits tax

• Dividends received from a company enjoying pioneer status, subject to some conditions

• Gratuities

• Contributions to the National Health Insurance Scheme

PIT Computations - Allowable Deductions

Pension contributions Section 10 of the Pension Reform Pension contributions made by an

Act 2014 employee are allowable deductions for PIT
Sixth Schedule to the PIT Act purpose.

National Housing Fund The NHF Act NHF contributions of 2.5% of monthly basic
(NHF) Contribution allowance to the Fund

National Health Insurance Section 40 of the NHIS Act Contributions made directly by employees
Scheme (NHIS): Sixth Schedule to the PITA. to the NHIS are tax-deductible

Gratuities Sixth Schedule to the PITA. Gratuity payable to an employee in respect

of services rendered by him under a
contract of service with his employer

Life Assurance Premium Insurance premiums paid under life

assurance policies are deductible for PIT
purposes.
 PIT Computations - Allowable Deductions

Allowable
Interest on loans Section 20 of the PIT Act Interest on loans for developing an owner-
Deductions occupied residential house

Contribution to any pension, Section 20 of the PIT Act Contribution to any pension, provident or
provident or other retirement other retirement benefits fund, society or
benefits fund, society or scheme.
scheme.
PIT Computations - Statutory reliefs

Types
Consolidated Relief Allowance (CRA)
of
Reliefs • The CRA is to be computed as the higher of ₦200,000 or 1% of gross income, plus

20% of gross income.

Life Assurance Relief

• The premium paid by the employee to an insurance company in respect of

insurance on his life or the life of his spouse during the year preceding the year of

assessment is fully tax-deductible.

PIT Computations - Employment income derived
from Nigeria
Employment income: A person is liable to tax under 2 criteria:

1. If the duties of employment are wholly or partly performed in Nigeria, unless:

• the duties are performed on behalf of an employer who is in a country other than Nigeria.
• the remuneration of the employee is not borne by a fixed base of the employer in Nigeria.
• the employee is not in Nigeria for a period or periods amounting to an aggregate of 183 days or
• more, inclusive of annual leave or temporary period of absence in any period.
• the remuneration of the individual is liable to tax in that other country under the provisions of the
avoidance of double taxation treaty with that other country.

2. If the employer is in Nigeria unless the employment duties are wholly performed, and the remuneration paid
outside Nigeria.
PIT Computations - Employment income derived
from Nigeria
The gain or profit from an employment shall be deemed to be
derived from Nigeria if:

the duties of the employment are

the employer is in Nigeria, or has a
wholly or partly performed in Nigeria,
fixed base in Nigeria.
unless:

the duties are performed on behalf of an employer who is in a country other than Nigeria and the
remuneration of the employee is not borne by a fixed base of the employer in Nigeria; and

the employee is not in Nigeria for a period or periods up to an aggregate of 183 days (inclusive
annual leave or temporary period of absence) or more in any 12-month period commencing in a
calendar year and ending either within that same year or the following year; and

the remuneration of the employee is liable to tax in that other country under the provisions of the
avoidance of double taxation treaty with that other country
PIT Computations - Employment income derived
from Nigeria
Jonathan Ebie is an employee of HOT77 International GmbH (KIG), a
company based in Germany.

He has resided in Germany since he joined HOT77 in January 2018. On 1

December 2019, he was seconded to a Nigerian company for a period of
5 months. While in Nigeria, Jonathan was being remunerated by his
German employer. After he concluded his secondment, he spent his
one month annual leave in Nigeria before returning to Germany.

• Is Jonathan Ebie liable to Personal Income Tax in Nigeria?

• Will your opinion to (a) above change if Jonathan was based in

England?
PIT Computations - PIT Tax Rates

PIT rate is applied on a graduated scale and taxable income bands as shown below:

Current PIT Table

Income Band Tax 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%

PIT Computations - Sample PIT Calculation

Total Amount Taxable

Mr Oluwatobi's annual PAYE calculation (₦) Amount (₦)
Gross Income earned:
Basic Salary 8,000,000 8,000,000
Housing Allowance 1,600,000 1,600,000
Transport Allowance 1,000,000 1,000,000
Gratuity 3,500,000 3,500,000
Medical 900,000 900,000
Utility 600,000 600,000
Entertainment 700,000 700,000
Value of Employer provided Lunch 280,000 -
Cost of Office Laptop 250,000 -
Interest on Federal Government Bonds 500,000 -
Total Income - A 16,300,000
Less:Non-Taxable Income & Tax-exempt item
NHF deduction (2.5% of Basic Salary) (200,000)
Pension (8% of the sum of BHT) (848,000)
Gratuity (3,500,000)
Gross Income for CRA purpose 11,752,000
PIT Computations - Sample PIT Calculation

Less: Reliefs
Fixed Consolidated Relief Allowance
(Higher of 200,000 and 1% of Gross Income) 200,000
Variable Consolidated Relief Allowance (20% of
Gross Income) 2,350,400
Employee Pension 848,000
NHF Deduction 200,000
Gratuity 3,500,000
Total Reliefs - B 7,098,400

Chargeable Income (A-B) 9,201,600

PAYE Tax payable 2,000,384
PIT Computations - Sample PIT Calculation

Breakdown of PAYE payable

Tax Payable
(₦)
First 300,000 @7% 21,000.0
Next 300,000 @ 11% 33,000.0
Next 500,000 @ 15% 75,000.0
Next 500,000 @19% 95,000.0
Next 1,600,000 @21% 336,000.0
Over 3,200,000 @24% 1,440,384.0
2,000,384.0
PIT Computations - Employment income derived
from Nigeria
Mr Hassan is an employee of SHEEN Nigeria Limited (SNL). His
remuneration package for 2023 year of assessment is as follows:

Basic Salary ₦14,850,000

Transport Allowance ₦2,260,000
Utility Allowance 15% of Basic Salary
Dressing Allowance ₦830,400
Housing Allowance 25% of Basic Salary
Christmas Bonus 8.5% of Basic Salary
13th Month 1/12th of Annual Basic

Calculate:
- His total relief, Annual PAYE
- If SNL does not deduct NHF, what will his PAYE be?
 Testing Place of Residence

Employment income: A person is liable to tax under 2 criteria:

1. If the duties of employment are wholly or partly performed in Nigeria, unless:

• the duties are performed on behalf of an employer who is in a country other than Nigeria.
• the remuneration of the employee is not borne by a fixed base of the employer in Nigeria.
• the employee is not in Nigeria for a period or periods amounting to an aggregate of 183 days or
• more, inclusive of annual leave or temporary period of absence in any period.
• the remuneration of the individual is liable to tax in that other country under the provisions of the avoidance
of double taxation treaty with that other country.

2. If the employer is in Nigeria unless the employment duties are wholly performed, and the remuneration paid
outside Nigeria.
2.3
Identifying common compliance challenges

Lack of Taxpayer • Many taxpayers, especially in the informal sector, are unaware of their tax obligations
Awareness under PITA.
• Insufficient understanding of allowable deductions, tax reliefs, and filing requirements
leads to non-compliance or incorrect filings.

Widespread Informal • A significant portion of Nigeria’s economy operates in the informal sector, making it
Sector Activity difficult to bring individuals within the tax net.
• Limited data on informal workers' income complicates tax assessment and
enforcement.

Under reporting of • Deliberate underreporting of income by individuals to reduce tax liability is a common
Income practice.
• Lack of proper monitoring and auditing mechanisms exacerbates this issue.

Inconsistent or Late • Many taxpayers fail to file their annual returns on time or do so inconsistently, leading to
Filing penalties.
• Employers sometimes delay remittance of PAYE (Pay As You Earn) deductions,
breaching statutory timelines.
Identifying common compliance challenges

Weak Enforcement • Insufficient enforcement by tax authorities allows non-compliance to persist.

Mechanisms • Limited capacity to conduct audits or impose sanctions on defaulters

Administrative • Manual tax processes, lack of automation, and bureaucratic bottlenecks increase errors
Inefficiencies and delays in compliance.
• Struggle with inadequate data integration, leading to inefficiencies

High Cost of • Complex filing requirements and costs associated with hiring tax consultants deter
Compliance individuals and small businesses from fulfilling their obligations.

Mistrust of Government • Public perception of government mismanagement of tax revenues leads to resistance
Spending or apathy toward compliance.

Penalty Aversion • Many taxpayers ignore filing or remitting taxes due to fear of penalties for previous non-
compliance, creating a cycle of evasion.
Strategies to Address These Challenges

• Taxpayer Education: Increase awareness of PIT obligations through campaigns and workshops.

• Incentivizing Compliance: Provide tax reliefs, waivers, or incentives for timely filing and payment.

• Technology Integration: Promote digital platforms for seamless filing, tracking, and payment of

taxes.

• Enhanced Enforcement: Strengthen auditing capabilities and impose penalties on defaulters.

• Informal Sector Inclusion: Develop strategies to formalize and capture incomes from the informal

sector
Identifying common compliance challenges

Section 3 of the PIT Act defines “Income Chargeable” to include:

• Gain or profit from any trade, business, profession or vocation, for whatever period of time such trade,
business, profession or vocation may have been carried on or exercised.

• Any salary, wage, fee, allowance or other gain or profit from employment including compensations,
bonuses, premiums, benefits or other perquisites allowed, given or granted by any person to any
temporary or permanent employee other than so much of any sums as or expenses incurred by him
in the performance of his duties, and from which it is not intended that the employee should make
any profit or gain.

• This includes benefits-in-kind, gratuities, superannuation, and any other incomes derived solely by
reason of employment
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