Pay-as-You-Earn and Payslip
Pay-As-You-Earn (PAYE)
Pay-as-you-earn is a tax deducted from employee salary account. The remittance of this tax is on or before the 10th day of the month following the month in which salaries were paid. See relevant sections of the Personal Income Tax Act (PITA). (S.81 of Personal Income Tax Act Cap P8 LFN 2011). S. for details
Taxable Entitlement (Gross)
This is the total amount your employer pays their employee as salary, including all benefits arising from employment. Another name to call taxable entitlement is Gross Emoluments. These include wages, salaries, allowances including benefits in kind, gratuities, superannuation and any other incomes derived solely because of employment. Regardless, it is essential to note that all allowances are taxable except those reimbursements of employee expenses. However, if such reimbursements are carried out through the employee payslip, they must be subjected to tax in Nigeria. Such reimbursements include training costs, transport to attend training, etc.
Moreover, Section 33(2) of finance-act-2020 defined “gross income” as income from all sources, less non-taxable income, and tax-exempt items.
Table 1 showing the comparison of old PITA and Proposed PITA of an employee who earn N5,775,000 as gross salary.
TAX RELIEF (TAX ALLOWANCE)
This is amounts that can be deducted from a person’s annual income to reduce the amount on which tax is paid. Or the amount of youThese amounts can be deducted from a person’s annual income to reduce the tax paid. In other words, it is the amount of your income exempt from tax aside from other statutory deductions.
- Maximum of Personal relief ₦ 800,000.00
- Rent Relief of lower of N200,0000 or 20% of actual rent paid.
Table 2 shows that Tax relief of old and proposed method
Tax Exempt
The tax law provides certain payroll deductions as tax exempt or non-taxable deductions. Tax exempt amount has to be removed from Gross taxable Income (earnings) before applying the tax rules to determine tax. The following deductions are not Taxable (.i.e. Tax Exempts):
- Union due is 2% of the basic salary.
- Pension Deductions (employer 10% and employee 8% of Basic salary, transport and housing allowance).
- National Housing Fund Deductions (Employee 2.5% of basic salary).
- Life Assurance Payments (this is obtained from the employee life policy document and monthly premium payment receipt is sufficient evidence to earn the tax exempt. Section 33(3) of Finance Act 2020 added that any premium payment. stated that there shall be allowed a deduction of annual amount of any premium paid by the individual during the year preceding the year of assessment to an insurance company in respect of insurance on his life or the life of his spouse or of a contract for a deferred annuity on his own life or the life of his spouse (finance-act-2020). This is addition to the Act.
- The National Health Insurance Scheme (Government 10% and employee 5% of basic salary) but employer 5% has not be implemented yet in the federal government MDAs due to Labour objections.
- Gratuity.
Table 3 showing the tax exempts for both the old and proposed.
Table 3 shows same amount since the figures are based on same sources
Tax Table
After the relief allowance and tax exemptions have been granted, the income balance shall be taxed as specified in the tax table below. Moreover, the Nigerian Payroll tax table comes in annual gross bands in six rows. 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.
Tax table and Rates from November 2024 tax year (As amended)
First N800, 000 @ 0 per cent
Next N2,200, 000 @ 15 per cent
Next N9,000, 000 @ 18per cent
Next N13,000,000 @ 21 per cent
Next N25,000,000 @ 23 per cent
Above N50, 000,000 @ 25 per cent
Taxable Income (Net)
This is derived after deducting the following from Gross Taxable Income. Some are extracted from payslip.
- Gross Entitlement,
- Tax Exempts, and
- Tax Relief (Tax Allowance).
- Apply tax table to the net amount as stated above
Table 4 showing the tax band of the old and the proposed method
Residency Rule
Assuming the Senior Manager who stay in Rivers State but work in Abia State. By residency rule, an employee’s PAYE is payable to the tax authority of the state of his/her residence (Rivers State). It is therefore the duty of the employer to deduct and remit it to the tax authority where the employee is resident. However, if the employee is resident in Rivers State, the tax authority that is entitled to his PAYE is the Rivers State Board of Internal Revenue.
Usually, non-residents are not liable to pay taxes in Nigeria. However, an expatriate employee may be liable to tax in Nigeria if;
Penalty for Failure to Deduct PAYE
Section 74(1) of Personal Income Tax Act, 2011 states “ any person or body corporate who fails to deduct, or having deducted, fails to remit such deductions to the relevant tax authority within 30days from the date the amount was deducted or the time the duty to deduct arose, shall be liable to a penalty of an amount of 10% of the tax not deducted or remitted in addition to the amount of tax not deducted or remitted plus interest at the prevailing monetary policy rate of Central Bank of Nigeria.
Exemption of Minimum Wages Earners
Section 37 of Finance Act 2020 “provided that minimum tax under this section or as provided for under the Sixth Schedule to this Act shall not apply to a person in any year of assessment where such person earns the National Minimum Wage or less from an employment (finance-act-2020).
Books of Accounts
Section 12 of PITA 2011 stated that the keeping of bools of accounts is very important but if any taxable person fails or refuses to keep account, such a person shall be liable on conviction to a penalty of N50,000 for individuals and N500,000 for corporate entities.
Employer File Tax Returns on Behalf of Their Staff.
Every employer is to file annual forms on behalf of their employer called Form H1 and Form A. Also, form H1 is an annual employer’s tax return that shows the names, annual gross income and PAYE taxes of employees in the past tax year together with Form G. Meanwhile, Form G gives information of the annual PAYE paid and the corresponding receipts. The tie to fill Form H1 is on the 31 January of the following year. Therefore, Form A is an annual statement of individual income and claims for allowances and reliefs form. Moreover, the right time to submit is on the 31st of March of the current year.
Conclusion
As an employer, you are responsible for ensuring full compliance with the guidelines set forth by the relevant tax authority concerning calculating your employee’s PAYE (Pay As You Earn). This applies accurately choosing the amount of PAYE to be deducted from each employee’s salary based on their earnings and applicable tax rates.
Furthermore, your civic duty is to remit the PAYE amounts deducted from your employee’s wages to the relevant tax authority promptly and within the specified deadlines. This not only sustains government services but also helps in fulfilling your legal obligations as an employer. Additionally, you must pay any other taxes owed to the relevant tax authority on time to avoid penalties and ensure that your business remains in good standing. Maintaining correct records and staying informed concerning tax regulations will enable you uphold these responsibilities effectively.
Dr. Friday Ojeaburu FCA
