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Tuesday, 21 July 2015

0 UNDERSTANDING NIGERIAN PERSONAL INCOME TAX


Many Nigerian especially those in the real sectors have been paying their taxes regularly but most cannot state how their employers arrive at those strange figures. The essence of this post is to help you understand the recent amendment in the personal income tax law of Nigeria as at 14 June 2011.
Key changes

·       Introduction of a consolidated tax free allowance of N200,000 or 1% of gross income, whichever is higher, plus 20% of the gross income.

NB: Gross emolument (or income) is defined to include benefits in kind, gratuities, superannuation and any other incomes derived solely by reason of employment.
·       Principal place of residence redefined to include places where branch offices and operational site of companies are situated.
.    Benefit-In-Kind (B.I.K) may be defined as those benefits or perquisites that accrue to a person by reason of the office and/or position he/she occupies. Benefits in kind include such benefits as official car, official accommodation, cooks, gardeners, security etc

.   Operational sites are defined to include oil terminals, oil platforms, flow stations, construction sites, etc with a minimum of 50 workers.
.   The due date for remitting PAYE is the 10th day of every month following the month of deduction.


After all deductions incomes are taxed as follow
·       Revised graduated tax bands as shown below.

Old Bands
Old Rates
New Bands
New Rates
First      N30,000
5%
First        N300,000
7%
Next     N30,000
10%
Next        N300,000
11%
Next     N50,000
15%
Next        N500,000
15%
Next     N50,000
20%
Next        N500,000
19%
Above  N160,000
25%
Next       N1,600,000
21%


Above     N3,200,000
24%

·       Increase in minimum tax rate from 0.5% to 1% of gross income

·       Benefit in kind now specifically included in gross emolument and by implication taxable income
·       Temporary staff now specifically liable to tax. This will include casual workers, interns and other contract staff.
·       Reimbursements and expense claims still applicable as the relevant provision of the law was not deleted by the amendments. Also it cannot be argued that reimbursements (by their nature) are included in consolidated allowances. This means that employees will continue to enjoy tax free cost of passage, medical and dental expenses etc
·       Conditions for exemption from personal income tax for any employment wholly or partly performed in Nigeria now modified to require evidence that such individuals are liable to tax in another country under the provisions of a double tax treaty. Also where the remuneration is borne by a fixed base of the non-resident employer in Nigeria, the individual will be deemed to be liable to tax in Nigeria. In addition, the 183-day residency rule has been modified to include periods of temporary absence or leave.
·       Appeal against unresolved assessments to be handled by the Tax Appeal Tribunal.
·       1% bonus for early filing of assessment by individuals has been removed.
·       Provision for the refund of excess withholding tax (WHT).
·       Interest on WHT default to be at the Central Bank of Nigeria Monetary Policy Rate (MPR).
·       Interest on default in payment of tax due to be at bank base lending rate to be imposed on an annual basis from the date when the tax becomes due until it is paid. This means simple interest will now be charged as against the current practice of a flat rate (one-off) interest.
·       Filing of annual returns now 31 January (previously 31 March).
·       Minimum of 5% retention of revenue collected by tax authorities for administrative purposes. It is not clear whether this would also cater for tax refunds.
·       Tax officers now required to apply to the High Court for a warrant of distrain before exercising their powers to distrain for failure by taxpayers to pay final and conclusive tax liability under the law.
·       Itinerant worker redefined to include any individual irrespective of status who works in more than one state for at least 20 days in at least 3 months of every assessment year.
·       Tax exemption for individuals on interest income on debt instruments including corporate bonds.
·       Individual tax clearance certificates (TCC) to be demanded for change of ownership of vehicles and application for land title transfer or perfection.



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