Understanding PAYE in Nigeria
PAYE is a progressive tax, meaning the percentage deducted increases as income rises. The tax applies to both private and public sector employees.
Who Pays PAYE?
- All employees earning above the minimum taxable threshold
- Self-employed individuals who fall under the personal income tax system
Who Collects PAYE?
- The Federal Inland Revenue Service (FIRS) for residents of the Federal Capital Territory and non-residents.
- State Internal Revenue Services (SIRS) for residents in each state.
Personal Income Tax Rates in Nigeria
PAYE is calculated based on the following tax bands:
| Annual Income (₦) | Tax Rate (%) |
| First ₦300,000 | 7% |
| Next ₦300,000 | 11% |
| Next ₦500,000 | 15% |
| Next ₦500,000 | 19% |
| Next ₦1,600,000 | 21% |
| Above ₦3,200,000 | 24% |
Reliefs and Allowances Applicable to PAYE
Before applying the tax rates, employees are entitled to deductions that reduce their taxable income. These include:
Consolidated Relief Allowance (CRA)
The CRA is calculated as ₦200,000 or 1% of gross income (whichever is higher) plus 20% of gross income.
Tax-Exempt Allowances
Certain allowances are exempt from tax, such as:
- National Housing Fund (NHF) contributions – 2.5% of basic salary
- Pension Contributions – 8% of basic salary, housing, and transport allowances
- National Health Insurance Scheme (NHIS) contributions
- Life insurance premiums
Step-by-Step Calculation of PAYE
Example 1: Employee Earning ₦3,000,000 Annually
Step 1: Calculate Consolidated Relief Allowance (CRA)
Gross Income = ₦3,000,000
CRA = ₦200,000 + (20% of ₦3,000,000)
CRA = ₦200,000 + ₦600,000 = ₦800,000
Step 2: Calculate Taxable Income
Taxable Income = Gross Income – CRA – Pension (8% of ₦3,000,000)
Pension = 8% × 3,000,000 = ₦240,000
Taxable Income = ₦3,000,000 – ₦800,000 – ₦240,000 = ₦1,960,000
Step 3: Apply PAYE Tax Rates
| Tax Band (₦) | Tax Rate (%) | Tax Payable (₦) |
| First ₦300,000 | 7% | ₦21,000 |
| Next ₦300,000 | 11% | ₦33,000 |
| Next ₦500,000 | 15% | ₦75,000 |
| Next ₦500,000 | 19% | ₦95,000 |
| Remaining ₦360,000 | 21% | ₦75,600 |
Total PAYE Tax = ₦21,000 + ₦33,000 + ₦75,000 + ₦95,000 + ₦75,600 = ₦299,600 annually
PAYE Monthly Deduction = ₦299,600 ÷ 12 = ₦24,967 per month
Penalties for Non-Compliance
Employers are required to remit PAYE tax monthly to the appropriate tax authority. Failure to comply results in:
- A penalty of 10% of unpaid tax
- Interest of 19% per annum
- Possible legal action
Key Takeaways
- PAYE tax is calculated after deducting CRA and tax-exempt allowances.
- The tax is progressive, with rates ranging from 7% to 24%.
- Employers must remit PAYE monthly to avoid penalties.
If you need professional assistance with your PAYE, tax clearance certificate or tax compliance, contact us today for expert guidance!
Call/WhatsApp: 08155554892