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How to Calculate PAYE Tax in

Nigeria - Guide to taxation of
employees
December 20, 2022 • 7 Mins Read

Table of Contents

Introduction
What is Personal Income Tax in
Nigeria?
A Deep Dive Into
Things to Know about PAYE Tax PIT and PAYE Tax
Key Terminologies
in Nigeria
How to Calculate Your PAYE Tax
Are you a Nigerian citizen working in
Payable
Nigeria? If yes, you will be subjected to
An Example as An Illustration the PAYE tax as part of your
employment. In this article, we explore
How Can I Reduce My Taxable Income? what is the PAYE tax, how to calculate
PAYE tax in Nigeria and how to pay
Conclusion
PAYE tax in Nigeria.
Frequently Asked Questions

(Image source)

Introduction
Personal Income Tax payments on PAYE
basis can get complicated and
confusing. What's more, without the
right information on hand, you may end
up paying more tax than you need to.

There are ways to save your hard-

earned money and ensure you are
regulatory compliant - whether you're
an individual filer or a corporate.

In this article, we share key information

about how to calculate PAYE tax in
Nigeria and how to pay PAYE tax in
Nigeria. We also help you reduce your
tax liability with helpful tips. Keep
reading!

What is Personal
Income Tax in
Nigeria?
Nigerians working in Nigeria are
mandated to pay Personal Income Tax
(PIT) every year. This PIT is applicable to
anyone employed. This could include
anyone who is:

Employed with a public or private

employer

A partner in a partnership firm

Works in or leads a joint venture
Works at or heads an
unincorporated trust
Runs a family or a community

The method used by the Nigerian

government to calculate and deduct
the tax is called PAYE.

What is the PAYE Tax

Rate in Nigeria?

PAYE refers to “Pay As You Earn”. It is a

method used to deduct personal
income tax at the source the moment
an employee earns their salary. The
personal income tax you pay is then
called PAYE tax.
The PAYE tax, once deducted by the
employer, is typically remitted to the
State Internal Revenue Service. The only
exception is when the employee in
question is a resident of the Federal
Capital Territory, in which case, their
PAYE tax is remitted to the Federal
Capital Territory - Internal Revenue
Service (FCT-IRS).

Employers in Nigeria will tax their

employees based on the status of their
residency. Nigerians who meet the
following pre-conditions will be
subjected to the PAYE tax:

They are employers who work in

Nigeria.

They are employers who have a

fixed/permanent base in Nigeria.
They are employees who work either
full or part-time in Nigeria.

(Image source)

Things to Know
about PAYE Tax
Apart from the above-mentioned
details, there are a few more things to
know about the PAYE tax:

First off, the PAYE tax is a method of

taxation that is used to process
personal income tax.
Second, it is taxed on chargeable
income, which is calculated after
excluding deductions, according to
the relevant income-specific tax
bracket.
Third, it is tax paid by anyone in
Nigeria who is in paid employment
during the year of taxation.

The only exceptions to these rules are:

Anyone who is considered an

applicable taxpayer as per Section 2
(1) (a) of the Personal Income Tax
(PIT) Act – but who earns less than
the National Minimum Wage of
30,000 NGN per year.

Anyone covered under section 2(1)

(b) of the PIT Act, which includes:
Employees of the Nigerian Police
Force, Nigeria Navy, Nigerian Army
and Nigeria Air Force who are not in
civilian roles
Nigerian Foreign Service Officers
Residents living in the Federal
Capital Territory
People who reside outside Nigeria
and who gain income or profit from
Nigeria
Expatriates in Nigeria

The next thing to know about PAYE is if

expatriates working in Nigeria are
subjected to PAYE tax.

Well, expatriates may come within the

purview of personal income tax and
PAYE if their work is deemed to be
performed either partially or completely
in Nigeria. They may be exempted from
PAYE tax if they:

Are not a resident of Nigeria

Have stayed in Nigeria for less than
an aggregate of 183 days within a
period of 12 months (This includes
any temporary leave of absence or
annual leaves they take)
Are required to pay tax in another
country which has a double tax
treaty with Nigeria
Have an employer who is not
Nigerian
Their salary is not borne by the
employer in a fixed location within
Nigeria.

Significant Economic
Presence for Individuals

Now, let us consider the taxation rules

for foreigners based outside Nigeria but
who conduct business in Nigeria.

In 2020, the Finance Act (FA) brought in

a few changes, which affected the
taxation status of these companies. As
per the Companies Income Tax
(Significant Economic Presence) Order
2020, a Significant Economic Presence
(SEP) Order was made by the Minister of
Finance.

The SEP Order outlines the conditions

under which Non-Resident Companies
(NRCs) and foreign employees offering
services in Nigeria can have a taxable
presence.

According to this SEP Order, any

individual, trustee or executor outside
Nigeria providing management,
professional, technical, consultancy or
digital services to a resident of Nigeria
will be subjected to a withholding tax
(WHT).

This WHT is typically 5% of the income

earned as a result of these activities.
Depending on the nature of this
international business, the NRC can
avail of tax relief under a double tax
treaty with Nigeria.

(Image Source)

Key
Terminologies
In order to know how to calculate PAYE
tax in Nigeria, we need first to
understand what certain terminologies
mean and what they entail as well. So,
let’s take a look at key terms you need
to know in PAYE tax:

Chargeable Income

Chargeable income is an individual’s

income that is actually charged with the
personal income tax in Nigeria. To
calculate chargeable income, you will
need to include any of the following
earnings, as applicable to you:

Salary
Wages
Professional fees
Employment allowances
Any other profits or gains made from
employment, which include:
Workplace compensation
Bonuses
Premiums earned
Other eligible benefits

Any prerequisites given, granted or

allowed by any person (applicable to
both temporary and permanent
employees)
Any amount or expenses incurred by
the employee during the
performance of their duty.

For this income to be considered

chargeable, it must exclude any
deductions, as allowed by the
Government of Nigeria.

Allowable Deductions

Allowable deductions are defined as any

expenses that are incurred necessarily,
wholly, reasonably and exclusively for
the purposes of producing a taxable
income. They are exempted from PAYE
taxation in Nigeria.

Generally, the following expenses are

deemed allowable deductions in
Nigeria:

Contributions to the National Health

Insurance Scheme

Contributions to the National

Pension Scheme
Life assurance premiums for the
taxpayer and their spouse (excludes
deferred annuities)
Gratuities
National Housing Fund
Owner-occupied accommodation-
related loans and mortgages
Personal deductions like charitable
contributions, healthcare expenses
and medical insurance premiums
Personal tax allowances like
consolidated relief allowance
Business deductions:
Interest on borrowings for business
purposes
Rent and premiums on any land and
building used for income-generation
activities
 Repairs and maintenance expenses
for income-generation purposes
Business/professional subscription
costs
An additional 20% of gross income is
also allowed as a deductible

Rates

In Nigeria, anyone paying personal

income tax on a PAYE basis will be
subjected to graduated income levels
for different income brackets. What this
means is that, as your income increases,
so does your tax payable.

Depending on your income level and

what tax bracket you fall within, you
may be subjected to the following tax
rates – 7%, 11%, 15%, 19%, 21% and 24%.
A little further in the article, we have
provided a detailed PAYE tax table with
rates and deduction amounts for your
reference.

Minimum Tax

According to the PIT act, every

employed Nigerian is subjected to a
minimum tax amount that comes to 1%
of their gross earnings. This minimum
tax is applicable to anyone who either
has no taxable income or has a PAYE tax
that is less than the minimum tax
amount.

Again, the only exception to this rule is

employed individuals who earn less than
30,000 NGN per year.
Returns and Due Dates

The PAYE tax returns must be filed by

the following due dates:

Individuals, which include self-

employed persons, individuals on
direct assessments and high net
worth individuals, must file the PAYE
returns of the preceding year before
March 31st every year.
Employers filing on behalf of their
employees must ensure to file their
yearly PAYE tax returns before
January 31st each year. Remittances
are typically made by employers on
the 10th day of the month, after the
month of the deduction of PAYE.
NRCs operating in Nigeria are
expected to make remittances for
PAYE before the 21st of every month.

Penalties for Non-

Payment/Default

Individuals, employers and NRCs failing

to meet the deadlines for PAYE tax filing
and remittances will be subjected to the
following penalties:

A fixed penalty of 10% on the

amount due. Plus, an interest penalty
that is typically between 15% and
21%.

On conviction, the guilty parties are

subjected to the following penalties:
Individuals – 50,000 NGN
 Employers – 500,000 NGN

(Image source)

How to Calculate
Your PAYE Tax
Payable
Now let’s take a look at the PAYE tax
rate Nigerians need to pay. To help with
the tax calculation, we have given
below the step-by-step process for
how to calculate PAYE tax in Nigeria.

Step 1 - Get a Salary

Break-Up

The first thing you need to do to

calculate your PAYE tax rate is to get a
detailed break-up of your salary. That
will help you understand what is your:

Gross income earned that year =

Total income before the deduction
of any tax.
Allowable deductions you receive
for the year = Expenses that are
exempted from the payment of
personal income tax in Nigeria. With
proper financial planning, you can
 make sure you have the highest
deductions possible.
Chargeable income for the year =
Gross income - Allowable
deductions.

Step 2 – Calculate Your

Total Taxable Income

Add all of your allowable deductions

and calculate the total deductions you
are eligible for.

Next, subtract the total deductibles

from your gross income.

The amount you have left behind is the

chargeable income on which you will
pay the PAYE tax rate in Nigeria.

Step 3 – Check the Tax

Rates that are Applicable
to Your Taxable Income

The Nigerian Government uses a

graduated tax rate to ensure individuals
who are at different levels of income are
taxed accordingly.

We have given below the graduated

PAYE tax table in Nigeria to help you
know tax rates. All currency values are
calculated in Nigerian Naira (NGN).
Step 4 – Calculate the
Actual Tax Payable for
the Year

Once you calculate the personal

income that is taxable for you, you
should use the relevant tax rate to
calculate the exact amount of PAYE tax
you will need to pay.

Notice the use of the terms “First

300,000” and “Next 300,000”. This is
because of the nature of graduated
personal income taxes in Nigeria. What
this means is that you will need to pay
the cumulative taxable amount listed in
the different income brackets,
depending on the increase in your
income.

So, if last year your earnings were under

300,000 NGN, then you only needed to
pay PAYE tax of 21,000 NGN. But, if your
income moves into the 300,000-
600,000 NGN bracket, you will need to
pay 21,000 + 33,000 NGN = 54,000
NGN as PAYE tax.

This is how your earnings will be taxed

until you reach the “over 3.2 million
NGN” bracket. In that case, you will
need to pay 24% of the difference
between 3.2 million and your annual
gross earnings.
(Image Source)

An Example as An
Illustration
Let’s use a fictitious example to
understand how to calculate PAYE tax
in Nigeria and what tax rate Nigerians
need to pay for their personal income
tax under the PAYE method.

Dara is employed as an investment

banker in Nigeria. She has earned a
gross income of 7 million NGN. She is
also entitled to a few allowable
deductions this year. This includes the
consolidated relief allowance (CRA),
20% of earned income and contribution
to the pension fund.

Using this information, we can calculate

her personal income tax and determine
how much PAYE tax she needs to pay.
Note that:

CRA is calculated as the higher value

between 200,000 NGN and 1% of
the gross income.
Pension is calculated at 8% of the
gross income.

So, now let us calculate Dara's taxable

income.
Calculation of Dara's
PAYE Tax Payable

Dara’s Gross salary per year: 7,000,000

NGN

Allowable deductions:

CRA – 200,000 NGN (because this is

higher than 1% of 7 million NGN =
70,000 NGN)
20% of earned income – 20% of 7
million NGN = 1,400,000 NGN
Pension contribution made by Dara –
8% of gross income = 560,000 NGN

Total allowable deductions will come up

to = 200,000 + 1,400,000 + 560,000 =
2,160,000 NGN

Dara’s Total Taxable Income = Gross

salary – Allowable deductions =

7,000,000 - 2,160,000 = 4,840,000

NGN.

Now, we need to calculate how much

tax Dara actually has to pay on her 4.84
million NGN. So, let’s take a look at the
PAYE tax table in Nigeria to figure out
what graduated tax level she falls under.

According to the table, Dara’s taxable

income is above 3.2 million NGN.
Therefore, she needs to pay the
following tax on her annual earnings:
As you can see, Dara’s tax payable for
each tax bracket, up to the final
bracket, is the same as listed in the
standard table. But you may remember
that anyone who earns above 3.2 million
NGN must pay 24% tax on the
difference between their total
chargeable income and the 3.2 million
NGN limit.

Therefore, we can calculate Dara’s

taxable income for the final tax bracket
in this way

(Dara’s chargeable income – 3.2 million

NGN) * 24% =

4,840,000 - 3,200,000 = 1,640,000

NGN

1,640,000 * 24% = 393,600 NGN

Since this is a graduated tax, we need

to add the taxes payable at all tax
brackets to calculate the total tax
payable by Dara for this year. This would
be =

33,000 + 75,000 + 95,000 + 336,000 +

393,600 = 953,600 NGN.

So, now we know how much tax Dara

has to pay. But how much does she
actually get to take home as net
earnings? This can be calculated as:

Gross earnings – Total tax payable =

7,000,000 - 953,600 = 6,046,400
NGN.
Therefore, Dara’s net earnings for this
year will be a little over 6 million NGN, at
6,046,400 NGN.

(Image Source)

How Can I
Reduce My
Taxable Income?
Every individual and employer filing PAYE
tax can reduce the tax they pay by
increasing their investment in allowable
deductions.

Typically, these deductions include

pension contributions, national housing
fund, health insurance premiums,
gratuities etc. In the section titled “Key
Terminologies”, we have provided a
comprehensive list of allowable
deductions which can help you reduce
your taxable income.

You can also use apps like Pillow Fund,

which help you make smart
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reducing your tax liabilities.

Conclusion
Personal Income Tax and PAYE tax in
Nigeria can be complicated without the
relevant information at your disposal.
Now that you know what PAYE tax is,
what the PAYE tax rate in Nigeria is,
how to calculate PAYE tax in Nigeria
and what the filing dates are, you can
go ahead and confidently file your
returns!

Frequently Asked
Questions

What is the current PAYE

tax rate in Nigeria?

The current PAYE tax rate in Nigeria

depends on your income level.
Currently, the rates range between 7%
and 24%. Please check “Table 1” in the
article for more information.

Is PAYE tax calculated

from your gross salary?

Yes, PAYE is calculated after reducing

the allowable deductions from your
gross salary. You can find detailed steps
for calculating your PAYE tax in the
 section titled “How to calculate your
PAYE tax payable”.

What percentage of
PAYE do I pay?

The percentage of PAYE tax you pay

depends on the income you earn.
Please check “Table 1” in the article for a
breakdown of rates per income bracket.
For an example of what the actual
payments may look like, please refer to
the illustration in “Table 2”.

How much PAYE will I pay

on 30,000 NGN?

Anyone earning 30,000 NGN or lesser

per year is considered to be earning
lower than the National Minimum Wage
in Nigeria and is, therefore, exempted
from paying PAYE tax.

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