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Pay As You Earn (PAYE) and Personal Income Tax (PIT) Explained…

As is the case with several tax types, the PersonalIncome Tax (PIT) which is made up of direct assessment for self-employed enterprises and Pay-As-You-Earn (PAYE) for salary earners has attracted various questions from taxpayers across the nation.

TAXIn a Q&A session with the Director, Medium Tax Department of the FIRS, Peter Ademola Olayemi explains in clear terms issues regarding PIT and PAYE. P. A. Olayemi is a chartered accountant and a seasoned tax administrator with vast years of experience in tax practice. He is a Fellow of the Institute of Chartered Accountants of Nigeria, the Chartered Institute of Taxation of Nigeria and the Institute of Debt Recovery Practitioners of Nigeria.

Taxpayer     

What is PAYE?

  1. A. Olayemi:

PAYE is an acronym for “Pay as You Earn”. It is a method of collecting personal income tax from employees’ salaries and wages through deduction at source by an employer as provided by the relevant sections of the Personal Income Tax Act (PITA). (S.81 of Personal Income Tax Act Cap P8 LFN 2011)

Taxpayer

What is the due date for remitting PAYE?

  1. A. Olayemi

The due date for remitting PAYE is the 10th day of every month following the month of deduction.

Taxpayer

Does PAYE charges on income vary from ministry to ministry for the same level of income/salary?

  1. A. Olayemi

PAYE does not differ because the rates used for computation are the same. The current rates applicable to the chargeable income are as follows:

                                                                                              1st           N300,000 @ 7%

Next      N300,000 @ 11%

Next      N500,000 @ 15%

Next      N500,000 @ 19%

Next      N1,600,000 @ 21%

Above  N3,200,000 @ 24%

Taxpayer     

Is the submission of comprehensive list of staff with monthly PAYE deductions/remittance  different from submission of annual returns?

  1. A. Olayemi

Yes, the two submissions, though made at different times, should be accompanied with a comprehensive list of staff that suffered the PAYE deductions. Comprehensive list of employees from whom PAYE deductions were made is continuously submitted on monthly basis each time PAYE is deducted and remitted to FIRS for residents of FCT, police, members of the armed forces, officers of the Nigerian Foreign Service and non-residents that derive income/profit in Nigeria and to the States Boards of Internal Revenue, residents of the respective states.

The Annual returns (form H1) on the other hand is to be submitted by 31st day of January of every year by every employer to enable the tax authority ascertain whether the correct deductions and payments of tax have been made for the previous year (period of twelve months) for all its employees and for incomes from all sources earned during the year.

Taxpayer       

What is Benefit-In-Kind?

  1. A. Olayemi

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.   The amount treated as B-I-K in the hand of the officer that enjoys the benefit is added to his income in arriving at his/her gross/consolidated income that is assessed to tax.

Taxpayer

Where should PAYE deductions from the salaries of a staff working in Abuja but residing in Suleja or Mararaba be remitted to?

  1. A. Olayemi

By residency rule, an employee’s PAYE is payable to the tax authority of the state of his/her residence. It is therefore the duty of the employer to deduct and remit it to the tax authority where the employee is resident. If the employee is resident in Suleja, the tax authority that is entitled to his PAYE is the Niger State Board of Internal Revenue. If he is however resident in Mararaba, the tax authority will be the Nasarawa State Board of Internal Revenue.

Taxpayer

What is the minimum tax rate for Personal Income Tax?

  1. A. Olayemi

The minimum tax rate is 1% of gross income. It is applicable if the taxable income is below N300, 000.

Taxpayer

Is it possible to apply for a refund for excess Personal Income Tax deductions/payments?

P.A Olayemi

Yes; the law provides that excess tax paid by any employee shall be refunded on application by the employee to the relevant tax authority. He could however elect to have the excess tax payment be used to off-set future tax liability.

  Taxpayer

When there is under deduction of tax from the employee’s income, who bears the burden of the under deduction?

  1. A. Olayemi

Section 82 of Personal Income Tax Act, Cap P8, LFN 2004 states “that where an employer is required under a provision of this Act to make deductions from emoluments or amounts on account of emoluments paid by him to an employee shall account to the relevant tax authority in such manner as the relevant tax authority may prescribe for the deductions so made, and in the event of failure by the employer to make the deduction, or properly to account therefore, the amount thereof together with a penalty of 10% per annum of the amount plus interest at the prevailing commercial rate shall be recoverable as a debt due by the employer to the relevant tax authority”

Based on this provision of the law, when there is an under deduction of tax from a staff salary, the employer whose duty it is to deduct correctly and remit to the relevant tax authority bears the burden.

Taxpayer   

What is gross emolument/salary?

  1. A. Olayemi

Personal Income Tax Act (PITA, 2011) as amended defines gross emolument as the aggregate of wages, salaries, allowances (including benefits-in-kind), gratuities, pension, superannuation and any other income derived solely by reason of employment.

Taxpayer   

What are non-taxable deductions under the PIT Act?

  1. A. Olayemi

The sixth schedule of Personal Income Tax (Amendment) Act, 2011 listed the following as tax exempt:

  1.                                           a) National Housing Fund contributions
  2.                                           b) National Health Insurance Scheme contributions
  3.                                           c) Life Assurance Premium
  4.                                           d) National Pension Scheme
  5.                                           e) Gratuities

Taxpayer 

  Is it within the law for a State Board of Internal Revenue to charge interest, penalty and threaten distraint for a shortfall between the PAYE remitted by a company and the PAYE deducted as stated on the company’s tax deduction cards.

  1. A. Olayemi      

It is lawful for the relevant tax authority to carry out audit of your returns to ascertain compliance. It is also lawful for a penalty and interest to be imposed and to carry out enforcement action of distraint to recover any shortfall in the remittance of tax deducted. It should however be noted that a taxpayer should be given a fair hearing during a reconciliation meeting by both parties where all issues must be discussed.

Where a taxpayer is still not pleased with the decision after the reconciliation meeting, he/she can approach a higher authority of the relevant tax authority after which he could appeal to the Tax Appeal Tribunal for adjudication under the relevant provision of the PITA, 2011 (as amended).

Taxpayer 

What is the tax implication of giving new/used vehicles to staff for use in an organization?

  1. A. Olayemi                                                                                                

This is treated as B-I-K. 5% of the value of the vehicle is calculated and added to the income of staff that enjoyed the benefit and taxed accordingly.

Taxpayer 

What is the current relief claimable under Personal Income Tax Act?

  1. A. Olayemi                                                                                                

The Personal Income Tax Act (PITA) as amended provides for Consolidated Relief Allowance (CRA) of N200,000 or 1% of gross income whichever is higher plus 20% of gross income. The balance shall be taxable in accordance with the tax rates in Schedule Six (6) of the Act.

 


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