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Asked by Egbebor Philip on Wednesday November 23, 2011 13:41:7:



Answers:
Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Felix Okoli on Thursday March 15, 2012 at 9:28:22:

PAYE means pay as you earn. It is a tax system derived from the Personal Income Tax Act in Nigeria which is a method of tax calculation on the income of persons. If you earn income in a particular year, you are expected to file your returns not later than 90 days in the following year in accordance with the current Personal Income Tax Act(PITA) of Nigeria.

Before applying tax rates on your income, you are allowed to make some deductions which includes some legal reliefs and allowances before arriving at your taxable income.
The PAYE system works in the similar way as the PIT because in this case, you have to calculate and pay tax of your employees on a monthly basis after calculating the estimated annual personal income. The employer is meant to deduct the tax liability at source for his employeers and remit same to the State IRS on a monthly basis and before the 10th of the next month after income is earned by the employee.
The PAYE will then be applied to your taxable income as follows:

- First N30,000 at 5%
- Next N30,000 at 10%
- Next N50,000 at 15%
- Next N50,000 at 20%
- Above N160,000 at 25%

Personal Income Tax Deductions
The Personal income reliefs allowable on your personal income in Nigeria includes:

- Personal Allowance: N5,000 plus 20% of earned income

- Child Allowance: A relief of N2,500 is granted for each child up to a maximum of four children, provided that none is above 16 yrs or married. However, a relief can be granted for a child over 16 yrs if he is in a recognised school, under articleship or learning a trade.

- Dependent relative: A relief of N2,000 is granted for each dependent relative up to a maximum of two
relatives who are widowed or infirm.

- Housing: Maximum of N150,000 per annum
- Transport: Maximum of N20,000 per annum
- Meal: Maximum of N5,000 per annum
- Utility: Maximum of N10,000 per annum
- Entertainment: Maximum of N6,000 per annum
- Leave allowance: 10% of annual basic salary

Benefits In Kind: These are other benefits which the employee enjoys that are not directly in form of cash but can be attributable to benefits for being employed as a staff of the company. BIK are deemd to be part of the person's annual income and would be converted to monetary terms and added to actual salary earned in other to get the gross or total yearly income before tax. It is treated as follows:

- If the benefit or asset is being used by the employee and purchased by the employer, the employee is deemed to have earned 5% of the original cost of the asset
- If the benefit or asset is rented or hired, the employee is deemd to have received or earned the total amount paid to the hirer on an annual basis.


How to calculate the PAYE
First of all, the employer would have to calculate the yearly tax liability of the employee after deducting the alowable deductions and applying the tax rates and then divide it by 12 months to get the PAYE liability on a monthly basis which he then has to remit at the relevant tax authority within 10 days. The idea is to pay for taxes on individua incomes just immediately after they earn the income.



Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Geraldine on Wednesday August 1, 2012 at 19:53:35:

What is the current tax rate in Nigeria



Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Shelze Consulting on Wednesday October 30, 2013 at 16:22:46:

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Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Ifeoma on Tuesday January 21, 2014 at 17:7:33:

Nice contribution. However you should know that PAYE calculation has changed in Nigeria due to some amendments in the PITA law. The PITA has been amended as at 2011



Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by AKINPELU AKINTAYO on Wednesday January 29, 2014 at 12:24:25:

what is withholding tax purchases






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