Personal Income Tax

Personal Income Tax is a form of direct tax that is deducted from the income of a person. In this case, a person could be an individual, an ordinary partnership, a sole proprietorship, an undivided estate, a non-juristic body, etc.

This is deductible from Income realized from trade, business, vocation, profession, employment, gratuity, pension, superannuation, over a period of time. The current law guiding the taxation of personal incomes is the Personal Income Tax Act (Cap P8 LFN 2004).

Under the law, Federal and States’ tax boards are empowered to identify persons living in or earning income from Nigeria who are required to pay tax, and to assess incomes and tax their incomes using specified guidelines and rules.

This law also guides the tax official in identifying the residence of potential taxpayers, as well as the sources and origins of their incomes for the purpose of taxing the income. Personal income tax comprises of both PAYE and Direct Assessment.


PAYE (Pay As Your Earn)

The term Pay As You Earn is used to describe the system whereby an employee pays an income tax on his or her current earnings when they become payable, in the form of deduction made by his or her employer.

Section 81 (1) of PITA provides that income tax chargeable on an employee by an assessment whether or not the assessment has been made, shall, if the relevant tax authority so directs, be recoverable from any emolument paid, or from any payment made on account of the emolument, by the employer to the employee.

Direct Assessment (Self Employed)

Direct assessment is an income tax which is imposed on self-employed persons. Official assessment of the self-employed is the Tax obligation established by the relevant tax authority and communicated to the taxpayer in a Notice of assessment.

The computation of the tax payable may be based on the taxpayers returns filed or on best of judgements.

Witholding Tax

Withholding tax refers to the deduction of tax at source from payments (income) due to a benefiting party. Withholding tax is not a separate form of tax but a collection mechanism adopted by Tax authorities to reduce the incidence of tax evasion and encourage voluntary compliance.


Withholding Tax Rates
Transactions Companies (%) Individuals (%)
Royalties 10 5
Contract of supplies 5 5
Contract of construction 5 5
Dividend 5 5
Technical Service 10 5
Professional Service 10 5
Consultancy 10 5
Management Service 10 5
Commission 10 5
Rent 10 10
Interest 10 10
Hire, Charter, Lease 10 10
Directors fees 10 10

Capital Gains Tax

Capital gains tax in Nigeria is regulated by the Capitals Gains Tax Act Cap C1, LFN 2004. It is the taxation of capital gains accruing on the disposal of assets. Capital gain is the difference between the sale proceeds from the sale of the assets and the historical value of the same asset. Expenses that are incidental to the disposal are allowed as a deduction from the sale proceeds. A positive difference is a gain while a negative is a loss.


Property Tax

This is an annual tax assessed on real estate. Usually based on the assessed of the property, which includes all tangible real estate properties. Property tax aids governments drive to generate additional revenue needed to develop the state in the light of increasing demand for provision of Urban and Rural infrastructure and the dwindling revenue from oil exploration.


LAND USE CHARGE

The Land Use Charge Tax is backed by The Land Use Charge Law (2012) which was introduced to consolidate all land-based charges under one single charge for ease of administration and collection. The land use charge law was signed in 2014, with an implementation rate of #25,000 proposed. For the purpose of implementation in 2018, the Governor of Ondo State, Governor Arakunrin Oluwarotimi Akeredolu has approved that all property owners in the state should pay amnesty rates for 2017 and 2018 only.

Stamp Duties Tax

This is a tax imposed on legal instruments or documents executed by individuals. Stamp duties tax is backed by the STAMP DUTIES ACT, CAP 441 LFN, 1990.