A Guide To Pay As You Earn (PAYE) Operations

  • INTRODUCTION

Employers of labour are expected to use these PAYE guidelines as the standard for making tax deduction and tax payment to tax offices in respect of their employees on monthly basis.

 The guideline apply to all incomes (i.e. emoluments which includes salary and allowances) of an employee derived or deemed to be derived from Nigeria whether or not such income is received in Nigeria.

All Employers of Labour, Agents and consultants should ensure that all employees make full disclosure of all their incomes at the beginning of the year (whether or not such income is received in Nigeria or nor) when tax forms ‘A’ are completed by them before returning same to the tax office.

Such disclosure should encompass as required by law all incomes earned, accruable, derived or accumulated in Nigeria. This includes disclosure of income paid both in Nigeria and outside Nigeria as well as full disclosure of ALL salaries and allowances paid either in cash or in Kind.

Employers of Labour, Tax Agents and Consultants, and Employees who engage in incomplete disclosure of income are liable to being charged for concealment of information with intent to defraud the Government of Kaduna State and Nigeria, an act chargeable under the criminal code of Nigeria.

  • LEGAL BASIS AND ADMINITRATION

The legal basis for the imposition of Personal income Tax PIT in Nigeria is the Personal income Tax act, 2004 of 1993 as amended (PITA) or “the Act”

The act vests the administration of the PIT on the join Tax Board (JTB), State Board of Internal Revenue in the respective states and federal Inland Revenue services (FIRS), for residents of the FCT Abuja.

  •  TAX AUTHORITIES

Taxes in Nigeria are the aggregation of taxes collectibles by the three-tiers of government which comprises of federal, state and local government councils, technically, only the federal and state governments are assigned with the right to assess and collect taxes and what is collected at the three tiers structure as follows:

  • Federal Government (Federal Inland  Revenue Service)
  • State  Government (Board if Internal revenue)
  • Local Government  (Revenue Committee )
  • FEDERAL GOVERNMENT TAXES/ENABLING ACTS are:-
  • Company income Tax (on limited Liability Company) CITA CAP 60 LFN 1990
  • Petroleum profit Tax (on upstream-Petroleum Operation) PPTA CAP 354 LFN 1990
  • Capital gain tax (on Company Resident of FCT and non resident individuals LGTA CAP 42 LFN 1990
  • Stamp Duties (on Company and resident of FCT SDA CAP 411 LFN 1990
  • Value added Tax (on Companies and individuals) VAT NO 102 1993.
  • Person income Tax (on Armed Forces, the Police, Staff of Foreign Service, residents of FCT and non resident Individual) PITA NO. 104 1993.
  • Education Tax (on companies) EDTA No. 7 1993.
  • Withholding Tax on Companies and residents of FCT and non-resident individual) SS60-62 CITA & 69 – 72 OF PITA
  • STATE GOVERNMENT TAXES AND LEVIES
  • Personal Income Tax (on Individuals and Enterprises).
  • Capital Gains Tax (on Individual and enterprises).
  • Stamp Duties (on Individuals and enterprises)
  • Withholding Tax (on Individuals and enterprise).
  • Pools betting and lotteries, gaming and Casino taxes
  • Road Taxes
  • Business Premises Registration Fees in Urban Area.
  • Developing Levies (on individual)
  • Naming of Street Registration fees in the State Capital.
  • Right of Occupancy Fees in the Urban Areas.
  • Market Taxes and Levies where State Finance is involved.
  •   LOCAL GOVERNMENT TAXES AND LEVIES
  • Shops and Kiosk Rates
  • Tenement rates
  • On and off liquor fees
  • Slaughter Slap fees
  • Marriage, Birth and death registration Fees
  • Naming of street Registration fees
  • Right of occupancy fees in Rural Areas
  • Market Taxes and Levies
  • Motor park Levies
  • Monument and road closure Levies
  • Radio and Television Licence/fees
  • Wrong parking charges
  • Public Convenience Sewage and Refuge Disposal Fees
  • Customary  Burial ground Permit Fees
  • Sign Board and Advertisement permit Fees

 

  •  DEFINITION

Pay-AS-You-Earn are method by which an employee pays income Tax on his earning from employment and other sources in twelve monthly instalments over the year. It is not tax separate or different from personal income Tax.

The PAYE Deduction are made in twelve monthly instalment over the year at a prescribe rate from an employee’s income at the source of payment. The employer is the agent of government who is empower to deduct Tax from employees’ salaries and the tax deducted is calculated by reference to the gross pay before any deductions

The enabling law is the personal income Tax. (PIT) Law No 104 of 1993 (as amended to date).

  • METHOD OF OPERATION OF PAYE

The method of deducting income tax applies to all employees resident in all states of the Federation to all income from employment exercised in Nigeria by such residents. Even if the employee is temporarily outside Nigeria (on leave or otherwise), or receive his pay outside Nigeria.

 To facilitate the operation of the Pay-As-You Earn scheme by the employers and to enable correct deduction of amount of Tax from payment made by him to his employees; the Board provides tax tables. The tax tables guides the employer on the computations and deduction of each employee’s income tax. Slight variations may be noticed in the monthly deduction but these are normal deduction with the operation of tax table. Ultimately at the end of the year, the correct tax would have been deducted.

All earning during each year of assessment, which is a year commencing on “1st January and ending 31st” December, will be subject to Tax deduction and under the system, earnings include salaries wages, fees, bonuses, commission and allowances payable in money, except;

  • Amount which represent reimbursement of expenses incurred by the employee or officer in the performance of his duties in respect  of which it is not intended that he should make any profit or gain and  a refund of travelling expenses.
  • Payment by an employer in respect of an employee’s medical and dental  expenses
  • Payment to an employee in respect of passage expenses to or from Nigeria.
  • In certain cases particularly with respect to Directors of companies and senior employees, benefit in kind such as free housing and transport are also taxable.
  •  TAX FREE ALLOWANCE  AND STATUTORY RELIEFS

The tax payer is required to make claim for relief before the relevant tax authority will grant it. The claim is made by completing the income tax returns form (Rev. 49) and submitting it to the relevant  tax authority.

 An employee is entitled to the following relief with effect from the year 2003 to date.

  • Tax free allowance

Housing Allowance

Maximum

N(per annum)

150.000

Actual or N 150.000 whichever one is lower

Transport allowance

20.000

Actual or N 20.000 whichever one is lower

Meal Allowance

5,000

Actual or N 5,000 whichever one is lower

Utility Allowance

10,000

Actual or N 10.000 whichever one is lower

Entertainment Allowance

6,000

Actual or N 6.000 whichever one is lower

Leave Allowance

10% of annual basic salary

 

               

  1. Statutory Relief

Maximum N ( per annum)

Personal Relief

20% of earned income plus 5,000

Dependent Relative Allowance

2,000 per dependent (max.2 Relatives)

Children Allowance

2,500 per child (max. 4 children)

Life assurance Relief

Annual Premium

Disability Allowance

Higher of 20% of Earned income or 3,000

Interest on mortgage loan

Annual Interest payable

Pension fund

7.5 % of Basic transport & Housing

National Housing Fund (NHF) where applicable

2.5% of Annual Basic Salary

Subscription to Professional Bodies

Actual Subscription paid

               

         

  1. TAX RATES AND BANDS

Having deducted tax reliefs from the total income, the remaining income is charge to tax at the rates stated below, for year 2002 to date.



CHARGEABLE INCOME

TAX RATES

First N30,000

5%

Next N30, 000

10%

Next N50,000

15%

Next N50,000

20%

Above N160, 000

25%

  1. MINIMUM TAX:

A person whose income from employment in a year is N30,000 and below shall not file returns but shall be chargeable to a minimum tax of 0.5% i.e. 150 only.

  1. CHARGEABLE PERSONS S.I PITA NO 104 1993 AS AMENDED
  2. Any individual or body of individuals e.g. community, family
  3. Any corporate sole or enterprises
  4. Executors of estate of a deceased person
  5. Trustee of any settlement or trusts
  6. CHARGEABLE INCOME (S.3)
  7. Gains or profits from any trade, business, professional or vocations.
  8. Investment incomes: dividends interest rents.
  9. Employment Income: salaries, wages, Pension bonuses, allowances.
  10. Pension charge or annuity
  11. Discounts.
  12.  PENSION INCOME

                      Pension payable to employee who retired from private sector is tax free, but subject to a         limit 0f N1,800,000 per annum, and any payment above this limit is subject to tax while pension of public officers is wholly exempted from tax by the constitution of the Federal Republic of Nigeria

  1. EXPATRIATE INCOME:

Expatriate employees are taxes on either of the following:

  1. Actual Expatriate income. This will only be acceptable on the provision of the following documents:

-     Letter of employment endorse by the Nigerian embassy in the expatriates home country.

-        Local and foreign pay slips.

                  ii.           Deemed income declarable for the expatriates based on the following:

  1. Industry where the company operates
  2. Designation of the expatriates.
  3. Nationality of the expatriates
  4. BENEFIT IN KIND

Partially taxable income these represent benefits provided or granted by the employer to the employee in the course of performance of the employee’s duties of employment. These include the following:

  1. Assets owned and provided by the employer

-5% of cost asset e.g Company car

  1. Assets hired by employer

-the annual amount of the rents/hire

  1. Domestic servant, driver etc

-the amount paid by the employer in maintaining the services of the personal.

  1. Official accommodation

-Employee not liable to tax.

  1.  TIME LIMIT FOR REMITTANCE

Pay as you earn (PAYE) taxes deducted is expected to be remitted within 10 days after the month of deduction.

  1. APPEAL PROCESS

Where an assessment is disputed, the following steps should be followed:

  1. Object to the assessment within 30 days of receiving the assessment
  2. Where the tax authority rejects the objection, the tax payer can appeal to the Body of appeal commissioner to seek redress. The appeal may continue up to the Supreme Court through the court system where neither party is satisfied.
  3. RIGHT OF EMPLOYEES
  4. Right to be given a tax receipt (Rev. 15) at the end of the year by his employer
  5. Right of objection to the Board for reliefs not properly granted
  6. Right of objection to the Board for any over deduction
  7. Right to be given tax clearance certificate by the Board if he so requests, after tax has been fully paid
  8. Right of refund  from the board for excess tax paid
  9. Right to be issued a tax deduction card, having completed and returned the annual tax return form (Rev. 49)
  10. DUTIES  OF EMPLOYEES
  11. For an employee to get all reliefs due to him, he has a duty to ask for return of income tax form (Rev. 49A) at the beginning of the year.
  12. The employee is expected to declare all incomes including , icome from other sources and incomes from abroad.
  13. RIGHT OF TH E EMPLOYER
  14. Right to be issued a receipt on  making a payment by the Board
  15. Right to issued any relevant circulars on tax policy and the operation of PAYE and other information by the board
  16. Right to be issued Annual tax return forms (Rev. 49) for distribution to its employees.
  17. Right to be issued tax tables
  18. DUTIES OF EMPLOYER
  19. Collect Annual tax return forms from the Board fro distribution to its employees. (Rev 49)
  20. Collect tax tables to serve as a guideline in the  computation and deduction and deduction of taxes
  21. Deduct taxes correctly and remit to the Board as of when due.
  22. Ensure that the annual tax return  forms are properly and correctly completed by employees.
  23. Issue tax receipt (Rev. 15) to employees at the end of the end of the year.
  24. Allow officials of the board to conduct tax audit and other investigations when the need arises
  25. Issue transfer certificate to employee leaving the organisation.
  26. Complete the employers annual return form (Rev. 9) and submit to the Board every January.
  27. Duty to deduct WHT on contracts, rents, dividends, commission, interests, director’s fees etc and remit to the Board.
  28. DUTIES OF THE TAX OFFICE
  29. Issue receipt on the Payment of tax
  30. Issue tax guideline and relevant forms to employers and employees
  31. Issued tax clearance certificate  to employees on request
  32. Educate and enlighten the tax payers and the general public on tax matters.
  33. OFFENCES AND PENALTIES FOR NON COMPLIANCE

Below is a summary of some of the major offences and penalties of the personal income tax law.

S/No

OFFENCE

PENALTIES

1

Failure to furnish returns, statement or information, or keep requested records, S.86 (1)

N200. Plus N5,000 for every day during which the failure continues

2

Failure to register for PAYE with the relevant tax authority S.80 (5)

N1000 for the first month and N1,000 fro each subsequent month and the premises shall be liable to be sealed up

3

Failure to deduct, failure to remit within 30 days from the date of deduction or the time the duty to deduct arose (S.73)

N5,000+ the tax deductable + interest at prevailing commercial rate.

4

A tax officer who defrauds, embezzles, with hold tax collected  renders false  returns of amounts of tax collected or collects tax when not authorized (S. (89)(a)&(b)

N1000 or imprisonment for 3 years or both.

 

    

 

  • OTHER  USEFUL INFORMATION
  • Supposed an employer does not operate the PAYE scheme what will happen to his leaving /transfer certificate?

in that case the employee should write to the local tax office who will make a direct  assessment upon him for his tax, giving credit  for tax deduction by the old employer.

  • Suppose an employee after leaving one employment is earning nothing for a time? In that case he may not pay any tax.
  • Is tax payable on overtime  Payment? Yes: the payment are earning of the employment just as the salary and wages.
  • Can i have my deductions reduced or held over, if i am short of money? No the system is design to make your tax burden as light as possible by spreading it over the whole year.
  • Where am i liable to pay tax in a year of assessment? Your are liable to tax in a state where you are resident or deemed to be resident on the 1st “day of January in the year, of assessment “ where you are taking up employment  for the first time in a year  of assessment  you are deemed resident in a state where the employment is first exercised.
  • Do tax Laws discriminate amongst individuals? No. The tax Laws makes no discrimination amongst individuals. Tax is payable by every individual resident in a state in Nigeria whether male or female  and whether marriage or single
  • Should income from other sources be including in PAYE returns? Yes. Income from other sources earned in _____ years are aggregated with ______ from employment and coded and assessed in the current year.
  • If my total reliefs exceed my total income, should I go tax-free? No. You are still liable to a minimum tax of 0.5% of your total income only. At the moment any person earning N30, 000.00 and below shall pay only 0.5% of the income.
  • Is the With-Holding tax a separate tax or an offset against the total income Tax? No. It is not a separate tax. It will be offset against the total tax computed on the total earning of the employee.
  • What constitute a director’s income for income tax purposes? All income including  salary/fees, commission bonus and allowances and all expenses paid and incurred by the company on behalf of the  director which are not “wholly exclusively, necessarily and reasonably “incurred fro the purpose of income of the Director. All other incomes from other sources other than incomes from the company are also liable to tax.
  • TAX IDENTIFICATION NUMBER  (TIN)
  • Definition

The taxpayer identification Number; TIN is a unique identification assigned to every taxpayer for easy tax administration by the tax authority.

  • Objective

To have a clear knowledge of the taxpayers and their profile this will assist in articulating plan or strategy for effective tax administration.

  • Benefits

The taxpayer identification Number (TIN)

  • Help by identifying a taxpayer through a unique number, thereby preventing duplication.
  • Allows tax administration to monitor the history of taxpayers more accurately.
  • Ensure proper crediting of taxes paid to the taxpayer account.
  • Help too easily process and issue TCC among the FIRS, other relevant tax authorities (state) and other government agencies, when TIN becomes a general government identifier.

                       

  •        What the Taxpayer should know about TIN
  • the taxpayer can download their TIN application  form from the website, complete and submit to KDBIR.
  • The TIN is expected to have at least eleven number given to natural person and legal persons.
  •      The information provided on the form will establish the Taxpayer’s tax account.
  • The taxpayer should file only one taxpayer identification number application form However, if the taxpayer operates more than one type of business, for example a corporation and a partnership then each type of business will need its own unique number.
  • TIN is not transferable from one Taxpayer to another.

V.    Requirements for TIN allocation for Enterprise and individual Taxpayers

  • Name of individual or enterprise
  • Address of business
  • Employment status (individual or enterprise)
  • Employment type (Civil servant)
  • Identity type- identity card, international passport or Driving license
  • Identity number
  • Line of business
  • Date of commencement of business.

VI Uses of TIN

The TIN is mandatory for payments using the online payment system and is used for correspondence with regards to tax matter.

TIN is very necessary when payments of the following taxes and levies are made to collecting banks:

  • Personal income tax in respect of – (a) Pay as you earn (PAYE); and

     (b) Direct taxation (Self Assessment)

        2. Withholding tax (individuals only)

        3. Capital gains tax (individuals only)

        4. Stamp duties on instrument executed by individual

        5. Road taxes.

27. i.  TAX CLEARANCE CERTIFICATE

It is a document issued by the Board of internal Revenue on satisfying that tax assessed on the income of a person for the three years immediately preceding the current year of assessment has been fully paid or that no tax is due on the income or that the person is not liable to tax for any of those three years.

    ii. IMPORTANCE OF TAX CLEARANCE CERTIFICATE

It is a requirement for the following:

  • Application for Government Loan for Industry/Business
  • Registration of motor vehicles
  • Registration of Motor vehicles
  • Application for firearms license
  • Application for certificate of occupancy
  • Applications for award of contract by Government its agencies and registered companies
  • Application for approval of building plans
  • Application for trade license
  • Application for pools, gaming license
  • Application for registrations as a contractor
  • Application for distributorship
  • Confirmation of appointment by Government as Chairman or members of Public Board.
  • Stamping of Guarantor’s form for Nigeria passport
  • Application for registration of a limited liability company or business name.
  • Appointment or election into public office.

28. PROCEDURAL GUIDELINE FOR THE OPERATION OF PAY DIRECT LODGEMENT SYSTEM.

  • The System commenced on the 15TH January 2009
  • The area offices remain the major centre of revenue collection and monitoring of taxes due the board within their respective area of jurisdiction.
  • Issuance of receipt is now centralized at the Collection and Accounting Department Headquarters.
  • Issuance of Electronic Ticket is accompanied with all payment lodged in the bank.
  • Revenue receipt would on be issued when lodgement is/are cleared. For cheque payment, receipt will be issued after three (3) working days, and for cash payment after one (1) working day.
  • Official Revenue Receipt would be delivered to the Tax Payer (TP) through the Area offices or Collecting Banks.

29. DEFINATION OF TERMS

TAXABLE PERSON:

 Means an individual or body of individual (including a family) and any corporate, sole, trustee or executor having any income which is chargeable to tax by any tax authority.

CHARGEABLE/TAXABLE INCOME:

This is the amount available in the hand of a tax payer to be subjected to tax. It is the net difference between the total income and the relief available to such an individual.

TAX AUTHORITY

Tax authority means the person or body of persons responsible under a law of a territory, saddled with the responsibility of administering taxes.

ASSESSIBLE INCOME

This is the amount of income from each source in the year immediately proceeding the year of assessment.

TOATAL INCOME

Is the aggregate assessable income from all source for the year after deducting losses, reliefs and capital allowance.

EARNED INCOME

This is defined in relation to an individual, as income derived from trade, business profession, vocation or employment exercised by him or a pension derived by him from previous employment.

UNEARNED INCOME

These are mostly incomes described as investment incomes. This include, dividend, interest, rent, commission, Royalties etc.

These sources of income are usually received net of withholding tax.

ACCOUNTING PERIOD

This is the period for which a Taxpayer declares his profit/loss                     

PLACE OF RESIDENCE

The place of residence of an individual is defined as “a place available for his domestic use in Nigeria on the first day of the beginning of that year and does not include any hotel., rest house or other placer at which he is temporarily lodging unless no more permanent place is available for his use on that day.”

PRECEDING YEAR BASIS (PYB)

This is a system of assessment where the income derived within an accounting year will be assessed in the following accounting year.

ACTUAL YEAR BASIS (AYB)

This is where the income of the actual year is assessed in that same year.

 

             LIST OF COLLECTING BANKS           



S/NO

BANK CODE

BANK NAME

BANK BRANCH

BANK SORT CODE

ONLINE ACCOUNT NUMBER

1.

AFB

Afribank Nig. PLC

Bye pass, Kaduna

01411

0521371624619

2.

ABP

Access Bank Plc

Bida Rd, Kaduna

044110121

0120160000333

3.

FBN

First Bank of Nigeria PLC

Y/Gowan way Kaduna

01111950

9502040000189

4.

FIN

Finbank Plc

Ali Akilu Rd Kaduna

085112191

1219430000126101

5.

OBI

Oceanic Bank Intl PLC

KRPC Kaduna

056110038

1141301005094

6.

PHB

Platinum Habib Bank PLc

A/Bello Way, Kaduna

082110507

6010002034

7.

STANBIC

Stanbic/IBTC Plc

A/Bello Way, Kaduna

221110096

7200093470

8.

SKYE

Skye Bank Intl PLC

A/Bello Way, Kaduna

076111143

1141790000468

9.

SBP

Sterling Bank PLC

Ali Akilu Rd Kaduna

232110043

303605566110

10.

SPB

Spring Bank Plc

A/Bello Way, Kaduna

084110482

048203930003501

11.

WEMA

Wema Bank PLc

A/Bello Way, Kaduna

035111045

1041053034917

12.

ZIB

Zenith Bank Intl PLC

Y/Gowon Way Kaduna

057110037

8170800005

13.

UBA

United Bank for Africa

T/Wada, Kaduna

033111539

03040050000017

14.

FBP

Fidelity Bank Plc

Y/Gowon Way Kaduna

070110328

032502010000270

15.

ECO

EcoBank PLC

Junction RD Kaduna

05011513

0690200190672801

16.

UNITY

Unity Bank Plc

Abubakar Gumi Mkt Kaduna

225

225/14010/1/42250

17.

ETB

Equit. Trust Bank PLC

A/Bello Way, Kaduna

040110358

0430032437618

18.

ICB

Intercontinental Bank Plc

Ali Akilu Rd Kaduna

069110203

0020101000000396

19.

FCMB

First city monument  Bank

1 Kachia Rd Kaduna

214110029

0891080512640001

20.

GTB

Guaranty Trust Bank PLC

Murtala Square Kaduna

058113114

311/10/1/4619/83

21.

UBN

Union Bank of Nigeria Plc

Magadishu Kaduna

032

0871110013470