How to Calculate Personal Income Tax in Nigeria

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Every responsible Nigerian citizen will have to pay taxes to the Nigerian government. Hence, you need to know about taxation laws and system in Nigeria. One of the major taxes in Nigeria is the Personal Income Tax. You also need to know how to calculate the Personal Income Tax.

In this article, you will find out all you need to know about the calculation process.

Tax computation and its payment need not be such a huge task for taxpayers. It is also important that tax payment does not make the taxpayer feel like he is losing a battle. Many Nigerians believe that where taxes are concerned, they are victims, bound to an oppressive process or system. This is unhealthy as it makes many cut corners so they do not pay their taxes. It is essential the process of paying taxes are simple, certain and clear and that taxpayers also understand and trust the tax system.

All you need to know about the Personal Income Tax in Nigeria

How to Calculate Personal Income Tax in Nigeria

What is Personal Income Tax or PIT?

Personal Income tax is a tax that applies to people who earn their living in Nigeria. The tax administrator for the Personal Income tax is the Federal Internal Revenue Service. Personal Income Tax is collected via PAYE (Pay As You Earn) method on the 10th day of each month. A taxpayer must also file tax returns by the 31st of March of each year. Refusal to file before this date will attract a fine of ₦5,000. The fine increases ₦100 for each day that you are late. One can even get a prison sentence of 6 months if one jokes around with taxes.

Exemption to the Personal Income Tax

Not everyone pays a Personal Income Tax. You are not required to pay PIT if you fall into the following categories:

A member of the Nigerian Police force, Air Force, Navy or Army.

A Nigerian Foreign Service officer

A resident of Abuja FCT (Federal Capital Territory)

A resident from another country who earns their salary from a Nigerian company.

However, if you are not among the aforementioned categories, it means that your income is subject to Personal Income taxation.

How to calculate your Personal Income Tax

Here is how to calculate Personal Income Tax in Nigeria:

The first step in Personal Income Tax calculation is calculating your gross annual income.

Your gross annual income is everything that makes up your income. These are:

Wages and salaries

Bonuses

Allowances

Compensations

Benefits

Pensions

Premiums

Business income

Percentage ownership

Rent

Fees

Commission

Interests

Dividends

After adding up all of these up, you will get your gross annual income.

In all these income mentioned above, there is something called a taxable income, this means that some part of your income is free from taxes.

To calculate your personal Income tax, you need to first figure out relief allowances and the parts of your income that are exempted from taxes. Tax reliefs in Nigeria include:

Contribution to the National Pension Fund (NPF, at least 8% of income)

Contribution to the National Health Insurance Scheme (NHIS, 5% of income)

Contribution to the National Housing fund (NHF, 2.5% of income)

Gratuities and Life Assurance payments

Dividends and interests from quoted companies

Rent and business expenses

Bad debt recovered

Consolidated relief allowance (1% of Gross income or ₦200,000, in addition to 20% of earned income).

In order to calculate your taxable income, subtract the sum of all the above from your gross annual income.

Note: Personal Income Tax rate in Nigeria is not fixed but varies according to the annual income of a person. However, the minimum PIT rate is 1% (if the annual income of the individual is less than ₦300,000)

If your income is larger than ₦300,000, the rates are calculated differently. Read on below:

The first ₦300,000 of your income are taxed at 7%

The next ₦300,000 are taxed at 11%

The next ₦500,000 are taxed at 15%

The next ₦500,000 are taxed at 19%

The next ₦1,600,000 are taxed at 21%

The tax rate of income above ₦3,200,000 is 24%

You can apply the formula above to your taxable income.

Below is the Personal Income tax for an individual whose gross income is 4 million naira. Here, it is assumed that pension is calculated at 7.5% of gross income.

Gross Income (GI) – 4, 000, 000

Consolidated relief allowance- Any amount higher of N200, 000 or 1% of Gross income

20% of Gross income- N800, 000

Children-: N2, 500 per child (maximum of 4) N10, 000

Dependent relatives: N2000 per Dependent relative (maximum of 2) –N4, 000

Pension: 7.5% of Gross income- N300, 000 N1, 314, 000

Taxable income: N2, 686, 000

Annual income                 PIT rate                                              Ta payable

First N300, 000                 7%                                                       N 21, 000

Next N300, 000                11%                                                    N33, 000

Next N500, 000                5%                                                       N75, 000

Next N500, 000                15%                                                    N75, 000

Next N500, 000                19%                                                    N95, 000

Next N1, 600, 000            21%                                                    N228, 060

Gross income: 4, 000, 000

PAYE: N452, 060

Net income after PAYE: 3, 547, 940

Easier method of calculating Personal Income Tax

Another easier method of calculating Personal Income Tax is to go to the FIRS app at apps.firs.gov.ng/taxcalculator to calculate your Personal Income Tax.

The website provides all available options to make it easier to calculate your Personal Income tax. You can choose between three types of personal income (for employed, self-employed and those who belong to a partnership), this will help you calculate your personal income tax no matter what form of employment it is.

All you have to do is fill in the form provided on the page. Information required includes:

Annual earned income

Unearned income

Tax reliefs

Gross annual income

Statutory reliefs

After this, the website will provide you with the data on your taxable income and the amount of taxes you need to pay (every month or yearly), including the withholding tax.

This is how to calculate your Personal Income Tax in Nigeria. It is not as complicated if you calculate it on your own and if you choose to use the FIRS calculator on the website.

 




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