Popular Links

 How to calculate Payroll tax based on Nigerian Personal Income Tax (Amendment Act) 2011

eVisualPayroll - White Paper on Nigerian PITA tax  law PAYE calculation

 Since the promulgation of the Nigerian PITA tax law in December 2011, we have received hundreds of enquiries on how to calculate Nigerian payroll tax, using the provisions of the new tax law. These enquirers ask us very basic questions and in some instances, the rules for calculating Nigerian PAYE Tax. Some persons want to know what item on their payslip is taxable, whilst others ask such questions as “is my bonus or leave pay taxable?” .  These questions will be answered and in addition, we would provide very deep insight into methods for calculating Nigerian payroll tax.

Thus,  we intend to do just  two things in this write-up,

(a) show you in narrative format how to calculate personal income  tax on Nigerian payroll  or at least show you how to check your payslips to ensure the tax on it is correct.

(b) Make available the authentic Nigerian PITA tax law document for those who are technically minded and would like to have a look at it.

 

At the end of this article you should be able to correctly :

  1. Determine Gross taxable Income.
  2. Derive Tax exempts.
  3. Calculate Tax allowance (Relief).
  4. Derive Net taxable Income.
  5. Calculate the Nigerian payroll PAYE  tax based on PITA 2011.

 

 

How to calculate Nigerian Payroll  PITA tax.

It is important that you pay personal income tax to government through your employer.

Complete tax evasion is criminal and a punishable offense.

 

Gross Taxable Entitlement

 Gross taxable Entitlement is the total amount your employer pay to you as salary including all benefits arising from employment. This can be inform of Basic, Housing, Transport Allowance, Utility Allowance. Etc.

 

All manner of allowance you earn, provided it’s not a re-imbursement of expense to you, is taxable.  For example,  if you spend an amount for transport on an official trip and the money is refunded or reimburse through salaries  - it’s not taxable . This cannot be part of your Gross taxable entitlements for tax purposes. For emphasis sake, it is important to state here that, all entitlements arising from the benefit of employment is taxable. If it is passed through your payslip, it must be subjected to tax. It is advisable that, all pay not intended to be taxed must not be passed through payroll

 

 

Tax Exempts

The Nigerian Payroll PITA tax law provides certain payroll deductions as tax exempt.  What this means is that tax Exempt amount has to be removed from Gross taxable Income (earnings) before applying the tax rules to determine tax.

 

The legal Tax Exempts available are as follows;

1.       Pension deductions,

2.       NHF deductions ( National Housing Funds)

3.       Gratuity payment

4.       NHIS (National Health Insurance Scheme)

5.       Life Assurance

 

Note that some of the Nigerian Payroll Tax exempt items listed above may not originate from payroll or rather they are derived or obtained from the employee e.g.  Life Assurance Premium .  For life Assurance, the life policy document and monthly premium payment receipt is sufficient evidence to earn the tax exempt.

 

 Other payslip deductions ,  such as union due, salary Advance, loan repayment, salary refunds , etc  are not tax exempt. These salary deductions do not affect tax  calculations except for one type – salary refund!  If you refund a substantial amount of salary on which you had either to paid tax, your payroll system should be able to adjust for this, either at year end or on the presiding month pay.

 

Tax Relief ( Tax Allowance)

 

The new Nigerian Payroll tax law came with a set of new tax relief. Every taxable person is entitled to this relief. They         are:

a.       Consolidated Relief: This relief is equal to N200,000 or 1% of Gross income (Entitlement) whichever is higher. Please note that the amount is annualized. So applying this to monthly pay, you must divide the amount by 12. For example, your consolidated relief per month is N16,666.66. However, if your Gross taxable salary is greater than N20,000,000 then you may apply 1% - N25,000,000 *1% = N250,000. Your Consolidated Relief on N25,000,000 per annum Gross pay is N250,000.

 

b.      Percentage of Gross Income Relief (PGI): This relief is graduated and it is based on your Gross income. The higher your income, the more relief you receive. PGI relief is currently 20%. For example, if your Gross income per annum is N1,550,000 ,then your PGI would be N310,000.

 

Tax Table

Nigerian Payroll  tax table comes in annual gross bands – there are Six of them  in all. Each band has a percentage tax value attached to it. The tax table rates must be applied to the Net  “taxable income” to get tax payable.  Net taxable income is derived after deducting the following from Gross Taxable Income;

(a) Tax Exempts

 (b) Tax Relief (Tax Allowance)

 

 

 

 

 

Here is the current tax table:

 

Annual

Monthly

Rate

First N300,000

First 25,000

7%

Next N300,000

Next 25,000

11%

Next N500,000

Next 41,666

15%

Next N500,000

Next 41,666

19%

Next N1,600,000

Next 133,333

21%

Over N3,200,000

Next 266,666

24%

                                                                                                                                                Fig.1

 

I have intentionally included the second column to show the monthly values of the annualized tax taxable. You can use the annual amount or the monthly figures to do your calculation.

 

 

 

 

Sample Nigerian Payroll.

 

Typical payslip  - for Mr Buhari Chukwuma  Ojo

 

Basic salary

75,000.00

Housing Allowance

50,000.00

Transport

50,000.00

Utility allowance

5,000.00

Leave Allowance

5,000.00

GROSS PAY (Entitlement)            

185,000.00

 

 

Deductions

 

 

PAYE Tax

11,399.29

Pension

13,125.00

Staff loan

20,000.00

National Housing Fund Contribution

4,375.00

Life Assurance (Premium Paid) 

10,000.00

National Health Insurance Scheme

8,750.00

Total Deduction               

67,649.29

 

 

                Net Salary Payable

      117,350.71

 

 

 

 

We are now going to use Mr Buhari’s Payslip above, as an example to calculate Nigerian Payroll PAYE.

But, before we do that, we would extract the important information from the payslip and group them by their type as far as tax calculation is concern. Namely, Gross Entitlement,  Tax Exempts, and Tax Relief

 

Thus,

                      

  1. Gross Entitlement:

Basic

75,000.00

Housing

50,000.00

Transport

50,000.00

Utilities

  5,000.00

Leave Allow.

  5,000.00_

Total Gross

185,000.00

 

 

 

 

 

 

 

  1. Tax Exempt:

-  Pension Contribution

 

  7.5% of (Basic, Housing and Transport)                            

13,125.00

 

 

-National Housing Fund Contribution                                 

 

  2.5% of (Basic, Housing and Transport)                             

4,375.00

 

 

-Life Assurance (Premium Paid)                                                           

10,000.00

-National Health Insurance Scheme                        

 

  5% of (Basic, Housing and Transport)                                 

8,750.00 

                               

 

                                                                                                            

36,250.00

 

  1. Tax Allowance (Relief):
  1. Consolidated Relief

 

(N200,000 = Annual)

 

(N16,666.67 = Monthly)                                                                                        

16,666.67

 

 

  1. Gross Income Relief

 

(20% * N185,000)                                            

37,000.00

                                                                               

53,666.67

 

How to calculate  Net Taxable Income

 We now need to calculate Nigerian Payroll  net taxable Income to which we can apply tax rates.

Here is how to do it. We are going to use the extracts  enumerated in paragraphs (A), (B), and (C) above.

 

Gross Entitlement

 

 

185,000.00

       Less Tax exempt

 

36,250.00

 

       Less Tax allowance  (Relief)

 

53,666.67

89,916.67

 

 

 

 

 

   Net Taxable Income

 

  95,083.33

 

 

 

How to Calculate Nigeria Payroll personal  Income tax payable Based on PITA 2011

 

Here is good example and a simple work-through for tax calculation.

 

To  calculate Nigerian Payroll personal income Tax, you need to :

  1. Determined the total taxable income
  2. Deduct applicable tax exempts
  3. Deduct applicable tax allowance (relief)
  4. Apply tax table to the net amount on item (1), (2) and (3) above.

 

This is the end game. We will now attempt to calculate the Nigerian Payroll Personal Income Tax payable on net taxable income of N95,083.33 – Note that this amount is a monthly pay. You may choose to annualize it by multiplying by 12 for tax calculations. For our purpose, we will calculate it on monthly bases, so we will use the value on the column labeled “monthly” on the tax table  Fig.1 above:

 

Lets us now do the tax calculation. – (Refer to tax table in Fig.1 for details)

                                                                                  

 

Tax Amount

First  N25000 at 7%

1750.00

Next N25000 at 11%

2750.00

Next N41666.00 at 15%

6250.00

Next N3417.33 at 19%

649.29

The PAYE tax on Taxable Income     N95,083.33   

11,399.29

 

By our calculation, the tax payable on a gross pay of N185,000 less tax exempt (N36,250.00),  less tax relief (N53,666.67) is N11,399.29.

 

The Test

You may test our calculation against the Tax Template provided at our website by providing the following information online  http://www.visualhr.com/TaxCalculationTemplate.aspx:

               

Gross Pay

             85,000.00

Pension

13,125.00

NHF

   4,375.00

Life Assurance

10,000.00

NHIS

  8,750.00

 

then, clicks submit to get tax payable for the month and the relief calculations. This is just to confirm that our calculation is correct. The tax template mirror the tax engine in our eVisualpayroll for the calculation of Nigerian Payroll tax

 

This write-up has done the following:

1.       Shown you how to determine Gross taxable Income.

2.       Shown you how to derive Tax exempts.

3.       Shown you how to calculate Tax allowance (Relief).

4.       Shown you how to derive Net taxable Income.

5.       Shown you how to calculate the Nigerian PAYE  tax based on PITA 2011.

 

I promised to provide the official gazette PITA Act 2011. Should you need this, please email us and request for GAZETTED PITA ACT 2011. Please kindly use our email address at the contact page of our website to contact us    http://www.visualhr.com/Contactus.aspx:

 

By the way, if you or your company need a Nigerian payroll system that efficiently prepare payroll, that give you options for wide customization of approach to use, look no further, check out eVisualPayroll at our website, www.visulhr.com   - give us a call or email us –  click here to get our  email address and phone number here: http://www.visualhr.com/Contactus.aspx:

 

Nigerian Payroll, Nigerian Payroll tax Nigerian Payroll, Nigerian Payroll tax Nigerian Payroll, Nigerian Payroll tax Nigerian Payroll, Nigerian Payroll tax Nigerian Payroll, Nigerian Payroll tax Nigerian Payroll, Nigerian Payroll tax Nigerian Payroll, Nigerian Payroll tax Nigerian Payroll, Nigerian Payroll tax

 

Your comments are welcome.

 

eVisualPayroll and VisualHR  Team

Multisoft Consulting

 

              Home | About us | Demo | Forum | Contact us | VisualHR | eVisualPayroll | Leave Management | Pension Management | Performance & Appraisal
             VisualESS- Employee/Manager Self service | Training & Development | HR Alert News | Downloads | Features of eVisualPayroll | VisualHR Features
                                                                                                           Professional Services Group