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Home Financial Literacy

Personal Income Tax – What does this mean to me?

Op-Ed Contributor by Op-Ed Contributor
January 31, 2018
in Financial Literacy
Personal Income Tax – What does this mean to me?
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There are some misconceptions with respect to statutory tax obligations of business owners as well as those in paid employment. For instance, many business owners believe they do not have individual tax obligations once their businesses have complied with the tax laws. Some people think Personal Income Tax (PIT) rates in Nigeria are in the region of 40% – 50% and so avoid any discussion around payment of taxes. Many others do not even know the difference between PIT and corporate taxes and which one applies to them. It is therefore no surprise that the Voluntary Assets and Income Declaration Scheme (VAIDS), a tax amnesty program organized by the Federal Ministry of Finance in conjunction with tax authorities in Nigeria, has left several people pondering on its relevance to them. This article provides fundamentals of the tax system in Nigeria in relation to PIT and why individuals should prepare themselves for both VAIDS and post-VAIDS era.

Personal Income Tax – What You Need to Know

Income of an individual derived from sources such as employment, business, asset, investments etc. is subjected to tax under the PIT Act 2011 (as amended) in Nigeria. The applicable income tax rate depends on income level and corresponding tax rate for each income bracket. There was a time in the country when PIT rates were significantly on the high side. For instance, PIT rate applicable between 1977 -1986 was 70% on annual income of 30,000 Naira and above; between 1986 – 1997, the PIT rate was 55% on annual income of 40,000 Naira and above. The PIT rates have however dropped significantly in recent times. When you consider reliefs and allowances, such as consolidated relief allowance, pension contribution, interest on mortgage for owner-occupied house and life assurance premium, that are to be deducted from taxable income, the average effective PIT rate is around 18%!

It is necessary to understand the difference between the personal income and company income and the applicable tax authority. Where an individual owns a company, the profit of such company is subjected to tax under the Companies Income Tax (CIT) Act. However, the income the individual receives from the company is taxable under the PIT Act. The fact that the company has paid CIT does not excuse the individual who owns such company from accounting for PIT on his own income derived from that company, except where such income is specifically exempt from PIT.

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Please click HERE to read the full article.

 

Written by:

Emeka Onwuka

Partner & Head

Private Client & Family Wealth Practice

Andersen Tax Nigeria


Follow us for Breaking News and Market Intelligence.
Tags: Companies Income TaxExplainersPersonal Income Tax
Op-Ed Contributor

Op-Ed Contributor

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform. To get your articles on Nairametrics, kindly send an email to info@nairametrics.com and we will publish it within 24 hours of approval by our editorial team.

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