The Federal Inland Revenue and the Joint Tax Board have resolved to begin to prosecute tax defaulters. Before they come after you, here are some tips of what you should know about the amended tax law and how it affects you as a citizen.
What is Tax?
Tax is a compulsory contribution paid to government by its citizens to support social amenities such as schools, electricity, potable water, roads and hospitals. These taxes are for the benefit of the citizens
What is Personal Income Tax (Amendment) Act?
Personal Income Tax (Amendment) Act is the amendment of the Personal Income Tax Cap P8, LFN 2004. This is a law that takes care of tax matters as it affects all income earners. These are employees, self-employed and all other persons that pay personal income tax (PIT) in Nigeria.
What is Personal Income Tax (PIT)?
Personal Income Tax is a type of tax imposed on the income of individuals who are either in employment or are running their own businesses under a business name, a trust or partnership.
What are your rights as a taxpayer?
Your rights as a taxpayer include: to know what the Government does with the money you pay as tax; to demand to be issued with evidence of payment each time you have paid your tax. The evidence may be receipt or Tax Clearance Certificate; to know how you will assess your income for tax purposes, when to pay and where to file your returns and make payment; to know when penalty and interest will be applied to you, if you do not pay your tax; to seek redress, appeal or object to assessment raised or decision taken against you by the tax authority.
What are your obligations as a taxpayer?
Your obligations as a taxpayer include: to assess correctly, file and make payments as and when due, comply with the relevant provisions of the tax laws; disclose all sources of income for tax purposes.
Is it only public servants that pay tax?
No, it is not true that tax authorities only tax public servants: rather, the tax authorities administer the law on all persons whom the law identifies as personal income tax payers, such as traders, private employees, self-employed individuals etc.
Who pays personal income tax and how?
All persons who earn incomes, be it on a temporal or permanent basis; whether employees or individuals that carry out business activities are required to pay personal income tax. Tax due and payable by employees by reason of their employment, otherwise known as PAYE, should be deducted by their employers and remitted to the relevant tax authorities. On the other hand, the self-employed are required to assess themselves, file their returns and make payment on annual basis to the relevant tax authorities.
What are the general requirements of tax filing and payment of tax under PITA?
An individual engaged in full-time employment is taxed under the pay-as-you earn system. The employer withholds personal income tax from the employee’s salary or wages and pays it to the tax authorities within 14 days. An individual whose only source of income is employment income from a single employer must file a tax return unless his/her employment income does not exceed NGN 300,000 per year.
Other individuals pay tax by self-assessment or direct assessment. Financial statements and schedules, when applicable, must accompany the self-assessment return. Payments may be made in full or, upon application, in installments. Withholding tax suffered at source can be used to offset income tax due.
What is PAYE?
PAYE means Pay-As-You-Earn. It is a form of personal income tax payable by those on employment
What are the obligations of the employee?
It is the obligation of an employee to correctly fill and file all relevant tax documents for each year of assessment as may be required by the relevant tax authority. It is obligatory for the employee to correctly disclose all the sources of income for tax purposes.
What are the obligations of employers?
It is the duty of the employer as contained in the law to deduct at source the correct amount of tax from the salary payable to an employee as computed under the Act each month the employer pays salary to the employee. Also, the tax deducted by the employer must be remitted to the relevant tax authority at least 14 days following the month the deduction was made.
On what sources of income do we tax Nigerian residents?
Nigerian residents are taxed on their worldwide income. Foreign-source income of residents is taxable if remitted to Nigeria.
What about non-resident Nigerians (foreigners)?
Non-residents (foreigners) are taxed on Nigerian-source income, generally via withholding at source.
Are musicians, actors and sportsmen taxed?
Yes, sportsmen, actors and musicians are taxed on gains from their overall income except the portion that is earned abroad/foreign source income and brought into Nigeria through the approved channel.
What is income earned abroad/foreign source income?
Income earned abroad or foreign-source income in convertible currency arising from salaries, dividends, interest, rents, royalties, fees or commissions is exempt if brought into Nigeria through approved channels. Income brought into Nigeria through domiciliary accounts by athletes, playwrights, authors, musicians, artists and temporary guests who are professionals also is exempt.
What is domiciliary account?
Domiciliary account is the officially approved channel for remitting income earned abroad as authorised bank by the Central Bank of Nigeria.
On what type of earnings/income do we pay personal income tax?
We pay personal income tax on all our total income/earnings except on those exempted by law. That is: gains on businesses of individuals, enterprises, trusts, partnership etc; Salaries, wages and allowances from employment; all other perquisites
Which income/earnings are exempted for personal income tax purposes?
Some of the incomes exempted under personal income tax include: Interest on any loan granted by a bank on or after January 1st 1997 to a person engaged in agricultural trade or business and fabrication of any local plant and machinery or as a working capital for any cottage industry established under the family Economic Advancement programme. (Provided that the moratorium is not less than 18 months and the rate of interest is not more than the base lending rate at the time the loan was granted.);
Income of a local government or government institution; Gratuity payable to a public officer by the government in respect of services rendered under a contract of service to that government. This has to be described as gratuity either in the contract or some other document issued by or on behalf the government in connection with such contract.