Everything you need to know about personal income tax (Part 1)

Everything you need to know about personal income tax (Part 1)

personal income tax

Tax is a moral obligation which individuals and legal entities have to fulfil in the areas where they carry out economic activities.

It is a certain percentage on income or profit made in a country or state therefore paid to the government, typically, to enable the financing of projects.

Straightforward as it sounds, many Nigerians do not understand the what, why and how of tax and oftentimes, this puts them at variance with the law.

There several taxes in Nigeria although not all applies to everyone.

There is the Company Income Tax (CIT) for companies incorporated in Nigeria-resident or not, Value Added Tax (VAT) which is an indirect tax on consumption, Withholding Income Tax (WIT), a method used to collect Income Tax in advance, Tertiary Educational Tax (EDT) on used for rehabilitation, restoration and consolidation of tertiary education in Nigeria by the Tertiary Education Trust Fund (TETFUND), Petroleum Profit Tax (PPT), among several others.

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What is Personal Income Tax (PIT)?

Personal Income Tax is an amount deductible from the income of an individual based on rates in accordance with the law, for instance the PIT Act 2011 (as amended) in Nigeria.

In simple terms, PIT is the amount on income earned whether from salary, business profit, property or investment that is to be paid to the government. The obligation is a proportion of the income (tax base) hence varies.

The Federal Inland Revenue Service (FIRS) says the tax is imposed on the income of individuals, corporate sole or body of individuals, communities, trustees or executor of any settlements.

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Other things to know about PIT

Remittance is made through the Federal or States Internal Revenue Service (IRS) although for non-residents, members of the Armed Forces, Police, and Officers of Nigerian Foreign Service, it is administered by the FIRS.

The due date for filing returns of the tax is 31st March of every year and the due date for remittance of PAYE is 10th day of every succeeding month.

FIRS requires that an employer shall file return of emoluments and tax deducted from the employees in the preceding year not later than 31st January of every year.

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Asides argument about morality, there are repercussions defaulters are liable to when they are found guilty of evading tax.

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Information on the FIRS website state that:

  • A person who fails to file a return shall be liable on conviction to a fine of N5,000 and a further sum of N100 for every day during which the failure continues or imprisonment of six (6) months or both.
  • Any employer who fails to file a return, shall be liable on conviction to a penalty of N500,000 for body corporate and N50,000 in the case of individual.

There is also a huge disservice to business or individuals in avoiding this civic duty as many the offenders would miss out on many prospects requiring Tax Clearance Certificate (TCC) to access, as is increasingly becoming the case for businesses operation today.

(In the second part, a step by step approach to calculating your personal income tax will be given.)

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