PAYE in Nigeria: Everything you should know

PAYE stands for Pay As You Earn. It is a withholding tax on employee income payments. As a salary earner in Nigeria, it is compulsory that you pay your monthly tax under this scheme. The money is automatically deducted from your account and then you get your net salary.

Officially, you are eligible to pay the PAYE tax as a Nigerian if;
Your employer is in Nigeria
You work fully or partially in Nigeria
Your employer has a fixed based in Nigeria

You are not expected to pay the PAYE tax as a Nigerian if;
Your employer is not in Nigeria
You pay tax in other countries
You stayed in Nigeria for less than 183 days in 12 months
Your employer covers your tax costs

The PAYE tax is remitted to your state of residence, irrespective of where you work. For instance, you could be working in Port Harcourt while you’re residential address is Lagos; your tax goes to Lagos state.

Tax Rates
The amount you pay as tax depends on how much you earn. This ranges from N300,000 to N3,200,000 per annum. Below are the rates;

First 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%

If you’re a salary earner earning below N300,000, you are still mandated to pay PAYE tax. A minimum of 1% is charged on your income. Your employer is the one to deduct your monthly PAYE tax and remit to the government within the first 10 days of the new month.

Calculating your PAYE tax
Calculating your PAYE tax amount is not difficult. All you have to do is to calculate the percentage amount depending on how much you’re being paid.

Take for instance you earn an N1,600,000 basic salary every year with no allowance. Your tax percentage is set at 21% so you will pay an annual tax of N336,000.

A N1,600,000 annual salary means your monthly salary is around 133,333. N28,000 will be deducted from your monthly salary every month while you take home a N105,000 net salary.

Reducing your tax
Although not very simple, there are ways for you to reduce your annual tax percentage. This is more advantageous if you are earning a very high salary; typically N3,200,00 and above.

The first thing you can do is to get a life insurance, for yourself or other family members. This requires you to pay any amount towards insuring yourself or other family members in the event of death. The higher the life insurance, the higher the tax deduction.

The next is pension. The Nigerian government is encouraging pension contributions and if you do, you get tax relief. However, this will also reduce the net salary you take home.

It’s mandatory that the government collect PAYE taxes in Nigeria from salary earners. The money is used for developing the country in several sectors. This includes paying government workers salaries, funding the police, etc.