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Introduction
Personal Income Tax which is charged on the income of an individual, community, family, trusts etc. (other than a company) is regulated by the Personal Income Tax Act.
The Personal Income Tax (Amendment) Act was assented to by the President of the Federal republic of Nigeria on the 14th of June, 2011 and publicised on the 12th of December, 2011. This Article points out those areas of the Act which were introduced by the recent amendment.
Personal Income Tax (Amendment) Act 2011
Some of the salient highlights of the Act are:
Section 2(8) expanded the meaning of “personal emoluments” to include “benefits in kind”. These are benefits received by an employee in the course of employment that does not take the form of money.
Section 3(1) (b) was amended by inserting the phrase “temporary or permanent” after the phrase “person to any” in line 5. The section will now read;
“any salary, wage, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums, benefits or other prerequisites allowed, given or granted by any person to any temporary or permanent employee should make any profit or gain other than…
This amendment clearly captures all employees within the ambit of the law, regardless of whatever name such an employee is so called. Clearly, even a paid intern will be captured by this provision and consequently, his income will become taxable.
Section 3(1) (c) is also amended by introducing a new section 1(c) which reads “any charge or annuity”. In effect, mortgages, charges, annuities shall be disclosed for tax assessment.
Section 10 (1) has been significantly amended. The amended section reads as follows:
1) The gain or profit from an employment shall be deemed from Nigeria if:
- a)The duties of the employment are wholly or partly performed in Nigeria, unless
- i)The duties are performed on behalf of an employer who is in a country other than Nigeria and the remuneration of the employee is not borne by a fixed base of the employer in Nigeria; and
- ii)The employee is not in Nigeria for a period or periods amounting to an aggregate of 183 days (inclusive annual leave or temporary period of absence) or more in any 12 month period commencing in a calendar year and ending either within that same year or the following year; and
iii) The remuneration of the employee is liable to tax in that other country under the provisions of the avoidance of double taxation treaty with that other country.
- b)The employer is in Nigeria or has a fixed base in Nigeria.
(All amendments captured in bold italics.)
It follows that the argument that a person must be in Nigeria for a consecutive period of 183 days to be caught up by this section and be taxable in Nigeria can no longer hold water. The section has become more stringent such that it includes the annual leave or temporary leave of absence. In other words, a person who:
- works outside of the country where there is the “avoidance of double taxation treaty” with that country;
- for an employer in that other country and his remuneration is not borne by the fixed base of the employer in Nigeria;
- but comes into Nigeria on annual leave or (and) other casual visits for a period amounting to a sum-total of 183 days in a calendar year will be a taxable person under the Act.
A major shortcoming of the section is that it may result in double taxation. This is especially so considering that all the conditions are conjunctive and inseparable. Thus, regardless of the fact that the person may be in a country where there is “avoidance of double taxation treaty”, such a person will still be taxable if he falls short of any of the stipulated conditions.
Section 10(5) of the Act which reads “ subject to the foregoing provisions of this section, the gain or profit from any employment, the duties of which are mainly performed outside Nigeria, shall be deemed to be derived from Nigeria to the extent that those duties are performed in Nigeria” has been expunged.
Section 33 (1) was amended and reads there shall be allowed a consolidation relief allowance of N200,000.00 subject to a minimum of 1 percent of gross income whichever is higher plus 26 percent of the gross income and the balance shall be taxable in accordance with the income table in the sixth schedule to this Act.
Section 2 was inserted and defines gross emoluments to include: wages, salaries, allowances (including benefits in kind), gratuities, superannuation and any other incomes derived solely by reason of employment.
However, children allowance, alimony and allowance accrued to a widow were not reviewed regardless of the change in times. Deductible allowance to maintain children is still an alarming N500.00, alimony- not exceeding N300.00 and permissible allowance to a widow is N500.00 for every child (to a maximum of 4 children).
Minimum tax in section 37 which was formerly 0.5% has been reviewed to 1%. Minimum tax here means when a person’s taxable income (after all permissible deductions) is nil or lower than a certain percentage of his total income, such a person will be required to pay a “minimum tax”.
Section 38(1) of the Act was also amended to read
“(1) Where the Government of the Federal Republic of Nigeria has entered into agreement with the Government of any country outside Nigeria with a view to affording relief from double taxation in relation to tax imposed under the provisions of this Act, any tax of a similar character imposed by the laws of that country, and that it is expedient that the agreement have effect, the Agreement shall have effect upon ratification by the National Assembly (emphasis mine). This amendment brings the law to conform with the provisions of the Constitution of the Federal Republic of Nigeria particularly section 12 which states that no treaty shall have the force of law in Nigeria unless it is enacted into law by the National Assembly.
Penalties in the Act were also reviewed. Such reviews include the penalty for a person engaged in banking services who fails to give the necessary information, documents or books to the relevant tax authority (section 47 and 19 of the Act); penalty for failing to keep the proper books of account (section 52), and for making false statements in returns (section 96) have been reviewed from N5, 000.00 for a corporate body and N500.00 for an individual to N500,000.00 and N50,000.00 respectively.
The mode of service of notice of assessment as contained in section 57 has been expanded from solely registered post to include courier service and electronic mail.
Section 60 vests the Tax Appeal Tribunal established under the Federal Inland Revenue Service with jurisdiction to entertain all cases relating to the Act.
Section 74 was also amended to remove the requirement of first conviction on a person who fails to remit the withholding tax before liability to pay the penalty.
The Accountant General is also empowered to deduct from the budgetary allocation of any Government parastatals and transfer to the relevant state upon request.
Interest payable on late payment of taxes shall now be computed on an annual basis-section 77.
Section 81 has also been amended with the following implications:
i. Employers are obliged to file with the relevant tax authority not later that 31st of January of every year, all emoluments paid to employees for the preceding year.
ii. Failure to do this shall attract a penalty of N500, 000.00 for a corporate body and N50,000.00 for an individual.
iii. Excess tax paid under the PAYE scheme shall be refunded within 90 days after assessment by the relevant tax authority, or the taxpayer may request it to be set off against future taxes.
Section 85 has been expanded to include the following transactions to the list of activities that will require tax clearance certificate for the preceding three years:
i. Change of ownership of vehicle by vendor
ii. Application for a plot of land
A new section 85(9) has been introduced. By that section, a person who fails to demand for a tax clearance certificate for any of the listed activities as stated in the Section shall be guilty of an offence and liable to a fine of N5,000,000.00 or 3 years imprisonment or both.
The penalty for making incorrect returns has been reviewed from 10 percent of the correct tax to N20, 000.00.
Pursuant to the amendments made in the third schedule, this is the current position:
i. The official emoluments of the President, Vice President of Nigeria, Governor and Deputy Governor of each State in Nigeria are no longer tax exempt.
ii. All pensions made pursuant to any law in force in Nigeria are tax exempt.
iii. Bonds issued by the Government or any of their agencies, corporations or supranational organizations and the interest earned are tax exempt.A very salient amendment made is the computation of taxable income. The 1993 Act stated the below as the methodology for computation of taxes after removal of all allowances and permissible deductions.
Income to be taxed Rate of Tax Per centum
For Naira of the First N 20,000 5k per N 1 or 5%
For every Naira of the next N 20,000 10k per N 1 or 10%
For every Naira of the next N 40,000 15k per N 1 or 15%
For every Naira of the next N 40,000 20k per N 1or 20%
For every Naira of the next N 120,000 25k per N 1 or 25%
However, the amended Act changed the basis of computation after removal of allowances and permissible deductions as:
Income to be taxed Rate of Tax Per centum
First N300,000 at 7%
Next N300, 000 at 11%
Next N500, 000 at 15%
Next N500, 000 at 19%
Next N1, 600, 000 at 21%
Above N3, 200, 000 at 24%
The impact of the change in this section is that lower income earners will pay less tax, and the burden of tax will be carried more by the higher income earners. In the former Act, a person whose income (after permissible deductions) is N1,100,000 per annum, would have been paying about N262,000.00 as tax which is about 24% of the taxable income, whilst a person earning same amount under the amended law will pay less than 12% of taxable income which will amount to about N129,000.00. In contrast, a person earning N10,000,000.00 (after permissible deductions) under the old Act will pay about N2,487,000.00 as tax (about 25% of taxable income) and under the new law, such a person will pay about N2,192,000.00 ( about 22% of taxable income).
One will notice that under the old Act, high and low income earners paid closely related percentages in taxes regardless of the disparity in the income earned. On the other hand, the new Act takes into the cognisance this disparity which reflects in the difference in percentage of taxes paid by each class.
This follows in the footsteps of countries such as the United States and the United Kingdom. Please find below the rate in the United Kingdom:
* The 10 per cent starting rate applies to savings income only. If your non-savings income is above this limit then the 10 per cent starting rate for savings will not apply.
The rates available for dividends are the 10 per cent ordinary rate, the 32.5 per cent dividend upper rate and the dividend additional rate of 42.5 per cent.1
The following deductions are also tax exempt under this schedule:
a. National Housing Fund contribution
b. National Health Insurance Scheme
c. Life Assurance Premium
d. National Pension Scheme
e. Gratuities
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Introduction
Personal Income Tax which is charged on the income of an individual, community, family, trusts etc. (other than a company) is regulated by the Personal Income Tax Act.
The Personal Income Tax (Amendment) Act was assented to by the President of the Federal republic of Nigeria on the 14th of June, 2011 and publicised on the 12th of December, 2011. This Article points out those areas of the Act which were introduced by the recent amendment.
Personal Income Tax (Amendment) Act 2011
Some of the salient highlights of the Act are:
Section 2(8) expanded the meaning of “personal emoluments” to include “benefits in kind”. These are benefits received by an employee in the course of employment that does not take the form of money.
Section 3(1) (b) was amended by inserting the phrase “temporary or permanent” after the phrase “person to any” in line 5. The section will now read;
“any salary, wage, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums, benefits or other prerequisites allowed, given or granted by any person to any temporary or permanent employee should make any profit or gain other than…
This amendment clearly captures all employees within the ambit of the law, regardless of whatever name such an employee is so called. Clearly, even a paid intern will be captured by this provision and consequently, his income will become taxable.
Section 3(1) (c) is also amended by introducing a new section 1(c) which reads “any charge or annuity”. In effect, mortgages, charges, annuities shall be disclosed for tax assessment.
Section 10 (1) has been significantly amended. The amended section reads as follows:
1) The gain or profit from an employment shall be deemed from Nigeria if:
- a)The duties of the employment are wholly or partly performed in Nigeria, unless
- i)The duties are performed on behalf of an employer who is in a country other than Nigeria and the remuneration of the employee is not borne by a fixed base of the employer in Nigeria; and
- ii)The employee is not in Nigeria for a period or periods amounting to an aggregate of 183 days (inclusive annual leave or temporary period of absence) or more in any 12 month period commencing in a calendar year and ending either within that same year or the following year; and
iii) The remuneration of the employee is liable to tax in that other country under the provisions of the avoidance of double taxation treaty with that other country.
- b)The employer is in Nigeria or has a fixed base in Nigeria.
(All amendments captured in bold italics.)
It follows that the argument that a person must be in Nigeria for a consecutive period of 183 days to be caught up by this section and be taxable in Nigeria can no longer hold water. The section has become more stringent such that it includes the annual leave or temporary leave of absence. In other words, a person who:
- works outside of the country where there is the “avoidance of double taxation treaty” with that country;
- for an employer in that other country and his remuneration is not borne by the fixed base of the employer in Nigeria;
- but comes into Nigeria on annual leave or (and) other casual visits for a period amounting to a sum-total of 183 days in a calendar year will be a taxable person under the Act.
A major shortcoming of the section is that it may result in double taxation. This is especially so considering that all the conditions are conjunctive and inseparable. Thus, regardless of the fact that the person may be in a country where there is “avoidance of double taxation treaty”, such a person will still be taxable if he falls short of any of the stipulated conditions.
Section 10(5) of the Act which reads “ subject to the foregoing provisions of this section, the gain or profit from any employment, the duties of which are mainly performed outside Nigeria, shall be deemed to be derived from Nigeria to the extent that those duties are performed in Nigeria” has been expunged.
Section 33 (1) was amended and reads there shall be allowed a consolidation relief allowance of N200,000.00 subject to a minimum of 1 percent of gross income whichever is higher plus 26 percent of the gross income and the balance shall be taxable in accordance with the income table in the sixth schedule to this Act.
Section 2 was inserted and defines gross emoluments to include: wages, salaries, allowances (including benefits in kind), gratuities, superannuation and any other incomes derived solely by reason of employment.
However, children allowance, alimony and allowance accrued to a widow were not reviewed regardless of the change in times. Deductible allowance to maintain children is still an alarming N500.00, alimony- not exceeding N300.00 and permissible allowance to a widow is N500.00 for every child (to a maximum of 4 children).
Minimum tax in section 37 which was formerly 0.5% has been reviewed to 1%. Minimum tax here means when a person’s taxable income (after all permissible deductions) is nil or lower than a certain percentage of his total income, such a person will be required to pay a “minimum tax”.
Section 38(1) of the Act was also amended to read
“(1) Where the Government of the Federal Republic of Nigeria has entered into agreement with the Government of any country outside Nigeria with a view to affording relief from double taxation in relation to tax imposed under the provisions of this Act, any tax of a similar character imposed by the laws of that country, and that it is expedient that the agreement have effect, the Agreement shall have effect upon ratification by the National Assembly (emphasis mine). This amendment brings the law to conform with the provisions of the Constitution of the Federal Republic of Nigeria particularly section 12 which states that no treaty shall have the force of law in Nigeria unless it is enacted into law by the National Assembly.
Penalties in the Act were also reviewed. Such reviews include the penalty for a person engaged in banking services who fails to give the necessary information, documents or books to the relevant tax authority (section 47 and 19 of the Act); penalty for failing to keep the proper books of account (section 52), and for making false statements in returns (section 96) have been reviewed from N5, 000.00 for a corporate body and N500.00 for an individual to N500,000.00 and N50,000.00 respectively.
The mode of service of notice of assessment as contained in section 57 has been expanded from solely registered post to include courier service and electronic mail.
Section 60 vests the Tax Appeal Tribunal established under the Federal Inland Revenue Service with jurisdiction to entertain all cases relating to the Act.
Section 74 was also amended to remove the requirement of first conviction on a person who fails to remit the withholding tax before liability to pay the penalty.
The Accountant General is also empowered to deduct from the budgetary allocation of any Government parastatals and transfer to the relevant state upon request.
Interest payable on late payment of taxes shall now be computed on an annual basis-section 77.
Section 81 has also been amended with the following implications:
i. Employers are obliged to file with the relevant tax authority not later that 31st of January of every year, all emoluments paid to employees for the preceding year.
ii. Failure to do this shall attract a penalty of N500, 000.00 for a corporate body and N50,000.00 for an individual.
iii. Excess tax paid under the PAYE scheme shall be refunded within 90 days after assessment by the relevant tax authority, or the taxpayer may request it to be set off against future taxes.
Section 85 has been expanded to include the following transactions to the list of activities that will require tax clearance certificate for the preceding three years:
i. Change of ownership of vehicle by vendor
ii. Application for a plot of land
A new section 85(9) has been introduced. By that section, a person who fails to demand for a tax clearance certificate for any of the listed activities as stated in the Section shall be guilty of an offence and liable to a fine of N5,000,000.00 or 3 years imprisonment or both.
The penalty for making incorrect returns has been reviewed from 10 percent of the correct tax to N20, 000.00.
Pursuant to the amendments made in the third schedule, this is the current position:
i. The official emoluments of the President, Vice President of Nigeria, Governor and Deputy Governor of each State in Nigeria are no longer tax exempt.
ii. All pensions made pursuant to any law in force in Nigeria are tax exempt.
iii. Bonds issued by the Government or any of their agencies, corporations or supranational organizations and the interest earned are tax exempt.A very salient amendment made is the computation of taxable income. The 1993 Act stated the below as the methodology for computation of taxes after removal of all allowances and permissible deductions.
Income to be taxed Rate of Tax Per centum
For Naira of the First N 20,000 5k per N 1 or 5%
For every Naira of the next N 20,000 10k per N 1 or 10%
For every Naira of the next N 40,000 15k per N 1 or 15%
For every Naira of the next N 40,000 20k per N 1or 20%
For every Naira of the next N 120,000 25k per N 1 or 25%
However, the amended Act changed the basis of computation after removal of allowances and permissible deductions as:
Income to be taxed Rate of Tax Per centum
First N300,000 at 7%
Next N300, 000 at 11%
Next N500, 000 at 15%
Next N500, 000 at 19%
Next N1, 600, 000 at 21%
Above N3, 200, 000 at 24%
The impact of the change in this section is that lower income earners will pay less tax, and the burden of tax will be carried more by the higher income earners. In the former Act, a person whose income (after permissible deductions) is N1,100,000 per annum, would have been paying about N262,000.00 as tax which is about 24% of the taxable income, whilst a person earning same amount under the amended law will pay less than 12% of taxable income which will amount to about N129,000.00. In contrast, a person earning N10,000,000.00 (after permissible deductions) under the old Act will pay about N2,487,000.00 as tax (about 25% of taxable income) and under the new law, such a person will pay about N2,192,000.00 ( about 22% of taxable income).
One will notice that under the old Act, high and low income earners paid closely related percentages in taxes regardless of the disparity in the income earned. On the other hand, the new Act takes into the cognisance this disparity which reflects in the difference in percentage of taxes paid by each class.
This follows in the footsteps of countries such as the United States and the United Kingdom. Please find below the rate in the United Kingdom:
* The 10 per cent starting rate applies to savings income only. If your non-savings income is above this limit then the 10 per cent starting rate for savings will not apply.
The rates available for dividends are the 10 per cent ordinary rate, the 32.5 per cent dividend upper rate and the dividend additional rate of 42.5 per cent.1
The following deductions are also tax exempt under this schedule:
a. National Housing Fund contribution
b. National Health Insurance Scheme
c. Life Assurance Premium
d. National Pension Scheme
e. Gratuities
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Introduction
Personal Income Tax which is charged on the income of an individual, community, family, trusts etc. (other than a company) is regulated by the Personal Income Tax Act.
The Personal Income Tax (Amendment) Act was assented to by the President of the Federal republic of Nigeria on the 14th of June, 2011 and publicised on the 12th of December, 2011. This Article points out those areas of the Act which were introduced by the recent amendment.
Personal Income Tax (Amendment) Act 2011
Some of the salient highlights of the Act are:
Section 2(8) expanded the meaning of “personal emoluments” to include “benefits in kind”. These are benefits received by an employee in the course of employment that does not take the form of money.
Section 3(1) (b) was amended by inserting the phrase “temporary or permanent” after the phrase “person to any” in line 5. The section will now read;
“any salary, wage, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums, benefits or other prerequisites allowed, given or granted by any person to any temporary or permanent employee should make any profit or gain other than…
This amendment clearly captures all employees within the ambit of the law, regardless of whatever name such an employee is so called. Clearly, even a paid intern will be captured by this provision and consequently, his income will become taxable.
Section 3(1) (c) is also amended by introducing a new section 1(c) which reads “any charge or annuity”. In effect, mortgages, charges, annuities shall be disclosed for tax assessment.
Section 10 (1) has been significantly amended. The amended section reads as follows:
1) The gain or profit from an employment shall be deemed from Nigeria if:
- a)The duties of the employment are wholly or partly performed in Nigeria, unless
- i)The duties are performed on behalf of an employer who is in a country other than Nigeria and the remuneration of the employee is not borne by a fixed base of the employer in Nigeria; and
- ii)The employee is not in Nigeria for a period or periods amounting to an aggregate of 183 days (inclusive annual leave or temporary period of absence) or more in any 12 month period commencing in a calendar year and ending either within that same year or the following year; and
iii) The remuneration of the employee is liable to tax in that other country under the provisions of the avoidance of double taxation treaty with that other country.
- b)The employer is in Nigeria or has a fixed base in Nigeria.
(All amendments captured in bold italics.)
It follows that the argument that a person must be in Nigeria for a consecutive period of 183 days to be caught up by this section and be taxable in Nigeria can no longer hold water. The section has become more stringent such that it includes the annual leave or temporary leave of absence. In other words, a person who:
- works outside of the country where there is the “avoidance of double taxation treaty” with that country;
- for an employer in that other country and his remuneration is not borne by the fixed base of the employer in Nigeria;
- but comes into Nigeria on annual leave or (and) other casual visits for a period amounting to a sum-total of 183 days in a calendar year will be a taxable person under the Act.
A major shortcoming of the section is that it may result in double taxation. This is especially so considering that all the conditions are conjunctive and inseparable. Thus, regardless of the fact that the person may be in a country where there is “avoidance of double taxation treaty”, such a person will still be taxable if he falls short of any of the stipulated conditions.
Section 10(5) of the Act which reads “ subject to the foregoing provisions of this section, the gain or profit from any employment, the duties of which are mainly performed outside Nigeria, shall be deemed to be derived from Nigeria to the extent that those duties are performed in Nigeria” has been expunged.
Section 33 (1) was amended and reads there shall be allowed a consolidation relief allowance of N200,000.00 subject to a minimum of 1 percent of gross income whichever is higher plus 26 percent of the gross income and the balance shall be taxable in accordance with the income table in the sixth schedule to this Act.
Section 2 was inserted and defines gross emoluments to include: wages, salaries, allowances (including benefits in kind), gratuities, superannuation and any other incomes derived solely by reason of employment.
However, children allowance, alimony and allowance accrued to a widow were not reviewed regardless of the change in times. Deductible allowance to maintain children is still an alarming N500.00, alimony- not exceeding N300.00 and permissible allowance to a widow is N500.00 for every child (to a maximum of 4 children).
Minimum tax in section 37 which was formerly 0.5% has been reviewed to 1%. Minimum tax here means when a person’s taxable income (after all permissible deductions) is nil or lower than a certain percentage of his total income, such a person will be required to pay a “minimum tax”.
Section 38(1) of the Act was also amended to read
“(1) Where the Government of the Federal Republic of Nigeria has entered into agreement with the Government of any country outside Nigeria with a view to affording relief from double taxation in relation to tax imposed under the provisions of this Act, any tax of a similar character imposed by the laws of that country, and that it is expedient that the agreement have effect, the Agreement shall have effect upon ratification by the National Assembly (emphasis mine). This amendment brings the law to conform with the provisions of the Constitution of the Federal Republic of Nigeria particularly section 12 which states that no treaty shall have the force of law in Nigeria unless it is enacted into law by the National Assembly.
Penalties in the Act were also reviewed. Such reviews include the penalty for a person engaged in banking services who fails to give the necessary information, documents or books to the relevant tax authority (section 47 and 19 of the Act); penalty for failing to keep the proper books of account (section 52), and for making false statements in returns (section 96) have been reviewed from N5, 000.00 for a corporate body and N500.00 for an individual to N500,000.00 and N50,000.00 respectively.
The mode of service of notice of assessment as contained in section 57 has been expanded from solely registered post to include courier service and electronic mail.
Section 60 vests the Tax Appeal Tribunal established under the Federal Inland Revenue Service with jurisdiction to entertain all cases relating to the Act.
Section 74 was also amended to remove the requirement of first conviction on a person who fails to remit the withholding tax before liability to pay the penalty.
The Accountant General is also empowered to deduct from the budgetary allocation of any Government parastatals and transfer to the relevant state upon request.
Interest payable on late payment of taxes shall now be computed on an annual basis-section 77.
Section 81 has also been amended with the following implications:
i. Employers are obliged to file with the relevant tax authority not later that 31st of January of every year, all emoluments paid to employees for the preceding year.
ii. Failure to do this shall attract a penalty of N500, 000.00 for a corporate body and N50,000.00 for an individual.
iii. Excess tax paid under the PAYE scheme shall be refunded within 90 days after assessment by the relevant tax authority, or the taxpayer may request it to be set off against future taxes.
Section 85 has been expanded to include the following transactions to the list of activities that will require tax clearance certificate for the preceding three years:
i. Change of ownership of vehicle by vendor
ii. Application for a plot of land
A new section 85(9) has been introduced. By that section, a person who fails to demand for a tax clearance certificate for any of the listed activities as stated in the Section shall be guilty of an offence and liable to a fine of N5,000,000.00 or 3 years imprisonment or both.
The penalty for making incorrect returns has been reviewed from 10 percent of the correct tax to N20, 000.00.
Pursuant to the amendments made in the third schedule, this is the current position:
i. The official emoluments of the President, Vice President of Nigeria, Governor and Deputy Governor of each State in Nigeria are no longer tax exempt.
ii. All pensions made pursuant to any law in force in Nigeria are tax exempt.
iii. Bonds issued by the Government or any of their agencies, corporations or supranational organizations and the interest earned are tax exempt.A very salient amendment made is the computation of taxable income. The 1993 Act stated the below as the methodology for computation of taxes after removal of all allowances and permissible deductions.
Income to be taxed Rate of Tax Per centum
For Naira of the First N 20,000 5k per N 1 or 5%
For every Naira of the next N 20,000 10k per N 1 or 10%
For every Naira of the next N 40,000 15k per N 1 or 15%
For every Naira of the next N 40,000 20k per N 1or 20%
For every Naira of the next N 120,000 25k per N 1 or 25%
However, the amended Act changed the basis of computation after removal of allowances and permissible deductions as:
Income to be taxed Rate of Tax Per centum
First N300,000 at 7%
Next N300, 000 at 11%
Next N500, 000 at 15%
Next N500, 000 at 19%
Next N1, 600, 000 at 21%
Above N3, 200, 000 at 24%
The impact of the change in this section is that lower income earners will pay less tax, and the burden of tax will be carried more by the higher income earners. In the former Act, a person whose income (after permissible deductions) is N1,100,000 per annum, would have been paying about N262,000.00 as tax which is about 24% of the taxable income, whilst a person earning same amount under the amended law will pay less than 12% of taxable income which will amount to about N129,000.00. In contrast, a person earning N10,000,000.00 (after permissible deductions) under the old Act will pay about N2,487,000.00 as tax (about 25% of taxable income) and under the new law, such a person will pay about N2,192,000.00 ( about 22% of taxable income).
One will notice that under the old Act, high and low income earners paid closely related percentages in taxes regardless of the disparity in the income earned. On the other hand, the new Act takes into the cognisance this disparity which reflects in the difference in percentage of taxes paid by each class.
This follows in the footsteps of countries such as the United States and the United Kingdom. Please find below the rate in the United Kingdom:
* The 10 per cent starting rate applies to savings income only. If your non-savings income is above this limit then the 10 per cent starting rate for savings will not apply.
The rates available for dividends are the 10 per cent ordinary rate, the 32.5 per cent dividend upper rate and the dividend additional rate of 42.5 per cent.1
The following deductions are also tax exempt under this schedule:
a. National Housing Fund contribution
b. National Health Insurance Scheme
c. Life Assurance Premium
d. National Pension Scheme
e. Gratuities
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