The Personal Income Tax Amendment Act of 2011 (PITAM) and the Finance Act of 2020 are the two main pieces of legislation. Nigeria has a Pay-As-You-Earn (PAYE) system for personal income tax, which implies that the employer withholds the tax at the source as the individual receives income.
Filing the Pay-As-You-Earn tax can be daunting if a person is unfamiliar with the process and where to file the tax in his or her state of residence. Hence, the essence of this post.
What is Pay-As-You-Earn?
Pay As You Earn (PAYE) is a term that can refer to either an income-based system for student loan repayments or a system where employers withhold income tax.
The personal Income Tax rate in Nigeria Is not fixed but varies according to the annual income of a person. However, the minimum Personal Income Tax 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 know your taxable income.
Some information required to file for Pay-As-You-Earn tax includes the Name of the applicant, Occupation, business name, The number on the Registration Certificate, The number associated with taxes, Address, Phone number, Inbox address, income information, Date of incorporation and other information, and Information about the employees.
Below are some essential documents for filing Pay-As-You-Earn tax
- Application letter indicating the nature of the business
- Evidence of the business’s Registration or Incorporation
- List of employees and their yearly salary (as required)
- Director tax clearance certificates (if required)
- any further materials (if required)
How does Pay-As-You-Earn work?
When it comes to taxes, Pay-As-You-Earn mandates that employers withhold income tax—and, in some cases, the employee portion of social insurance benefit taxes—from each paycheck given to employees as a method of prepaying taxes that are ultimately owed.
The Employer’s Quarterly Duties
The employer is responsible for four primary administrative duties:
- To figure out and subtract the proper quantities
- To provide the proper funds to FIRS on a proper day.
- Should maintain thorough records for each employee and submit accurate FIRS reports
- To give each employee with the necessary details so they may verify the deductions made and, if necessary, prepare self-assessment tax returns
Filing guidelines for the Pay As You Earn tax
Every employee is required to complete a tax form at the start of the tax year. In addition to completing Form “A,” the employer is required to submit Form H3 or any other prescribed form on behalf of its employees for the assessment year (the twelve (12) month period beginning on January 1 of the assessment year).
Form H3 must be completed, signed, and stamped by an establishment officer who has been properly designated to do so, and it must be submitted to the appropriate tax body within the time frame mentioned in the notification.
The tax year extends from April 6 through April 5 of the subsequent year. Due to the fact that the majority of employees are paid either weekly or monthly, the tax year is divided into tax weeks and tax months, beginning on April 6.
Therefore, tax months conclude on the fifth day of the calendar month. Employees can be paid during tax week 53, for which there are particular requirements, just as a calendar year has 52 weeks and an additional day or two in a leap year.
Pay-As-You-Earn Filing centre in Shomolu, Lagos
The Pay-As-You-Earn filing centre for residents of Shomolu, Lagos is located at 2, Montgomery Road, Yaba, Lagos, Nigeria. They can also be contacted through this numbers: Tel: 01 4545296. Tel: +234 803 535 3068. Tel: +234 906 287 1226