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

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

Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Femi Omotayo on Tuesday June 3, 2014 at 17:50:37:

Hello, please be informed that the PAYE calculations given in the 1st reply above are now outdated. The Personal Income Tax (Amendment) Act 2011 has changed the formulas. Follow the steps below to make your calculations easier and neater (even my great-grandma in the village can do it now after I explained it to her!). Here goes:

Step 1 - calculate your total annual gross income (salary + commissions + bonuses + benefits in kind + gratuities + any other income). Let's call this amount A.

Step 2 - calculate all statutory deductions (gratuities + NHIS contributions + pension contributions + NHF contributions + subscriptions to professional bodies + losses incurred). Let's call this amount B.

Step 3 - calculate your consolidated relief. Consolidated relief is 20% of gross annual income plus two hundred thousand naira (mathematically speaking, it is given by: 0.2 x total annual gross income + N200,000). We can call this amount C.

Step 4 - now add your consolidated relief to you statutory deductions. This gives your total relief. If we call this amount D, then mathematically speaking:
D = B + C. If you have no statutory deductions, please move on to step 5.

Step 5 - finally, subtract your total relief from you gross annual income. In simple terms, just calculate: A - D (A minus D). This will give you your taxable income E. The government will only tax you on amount E (taxable income), not on amount A (gross income). Are you still following? If you are, then move on to step 6 where it gets a little tricky.

Step 6 - There is a table you can view at this Naija Community where all the rates are clearly listed out. Anyway, the summary is that the first N300,000 is charged 7%, the next N300,000 is charged 11%, the next N500,000 is charged 15% etc.

To cut the long story short, at the end of the day your total PAYE tax payable is the sum of all the charges on the income bands listed in that table.

So this is how you calculate personal income tax in 6 easy steps. For a better explanation or if you need a template for easy calculations, or if you want to have the table for your personal use, then head on right now to TruPals the number 1 Naija community in the world to learn more. Chao!

Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Ade on Monday August 11, 2014 at 14:34:18:

Pls, help me to calculate my paye. I am earning total of 1.8kpa and 150k monthly. What will my paye be.

Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Felix Okoli on Monday August 11, 2014 at 14:34:18:

From my calculation, it would be about NGN 266666 per month

Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Alex osobo on Thursday September 18, 2014 at 11:39:51:

What is someone earns a total of 240000 per annum ie 20000 per month, does such person pay tax?

Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Felix Okoli on Thursday September 18, 2014 at 11:39:51:

@Aliex, From my calculation, the person is only liable to a minimum tax of N200 per month or N2400 per annum.

Re: What is Pay As You Earn(PAYE) tax system in Nigeria Reply by Dayo on Monday December 1, 2014 at 9:37:41:

whats the PAYE for people that cllct 25k,40k,50k and 70k respectively.. thanx

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