Definition of P.A.Y.E

Pay-As-You-Earn is a method by which an employee pays income Tax on his earrings from employment and other sources in twelve monthly installments over the year. It is not a tax separate or different from personal Income Tax Law No 104 of 1993 (as amended to date).

This method of deducting income tax applies to all employees resident in all Status of the Federation and to all income from employment exercised in Nigeria by such residents, even if the employee is temporarily outside Nigeria (on leave or otherwise), or receives his pay outside Nigeria.

Method of Operating P.A.Y.E

To facilitate the operation of the pay-As –You-Earn scheme by the employers and enable correct deduction of amount of tax from payments made by him to his employees; the Board provides tax Tables. The tax table guides the employer on the computations and deduction of each employee’s income tax. Slight variations.

May be noticed in monthly deduction but these are normal with the operations of the tax table. Ultimately at the end of the year, the correct tax would have been deducted.

All earning during each year of assessment, which is a year commencing on 1st January and ending 31st December, will be subject to tax deductions and under the system, earnings include salaries, wages fees, bonuses commissions and allowances paid or payable in money, except:

Tax Reliefs/Allowances

An employee who is ordinarily resident in Nigeria would normally be entitled to the following relief’s for the year 2002 and 2003:

Tax Rates and Bands

Having deducted tax relief’s from the total income, the remaining income is charged to tax at the rates stated below, for year 2002 and 2003.

Pension Income

Pension payable to employees who retire from private sector is tax free, but subject to a limit of N1,800,000.00 per annum, any payment above this limit is subject to tax while pension of Public Officers is wholly exempt from tax by the constitution of federal Republic of Nigeria (1999).

Rights of Employees

• Right to be given a tax receipt REV. 15 at the end of the year by his employer.
• Right of objection to the Board, for relief’s not properly granted.
• Right of objection to the Board for any over deduction.
• Right to be given Tax clearance Certificate by the Board if he so requests after tax has been fully paid.
• Right of refund from the Board for excess tax paid
• Right to be issued a Tax Deduction Card, having completed and returned the Annual tax Return from (Rev. 49).

Duties of Employees

• For an employee to get all relief’s due to him, he has a duty to ask for return of Income Tax Form (REV 49A) at the beginning of the year to complete and return to the Board at the beginning of each year.
• The employee is expected to declare all incomes including, income from other sources and Incomes from abroad.

Rights of the Employer

• Right to be issued a receipt on making a payment by the Board.
• Right to be issued any relevant circulars on tax policy and the operation of P.A.Y.E and other information by the Board.
• Right to be issued Annual tax Return forms (Rev 49) for distribution to its employees.
• Right to be issued Tax tables.

Duties of the Employer

• Collect Annual Return forms from the Board for distribution to its employees.
• Collect Tax tables to serve as a guide in the computation and deduction of taxes.
• Deduct taxes correctly and remit to the Board as at when due.
• Ensure that the Annual Tax Return Forms are properly and correctly completed by employees.
• Issue Tax receipts (Rev. 15) to employers at the end of the year.
• Allow officials of the Board to conduct tax audit and other investigation when the need arise.
• Issue transfer certificate to employee leaving the organization.
• Complete the employers Annual Returns Form (Rev.19) and submit to Board every January.
• Duty to deduct WHT on contracts rents, dividends, Commissions, interests directors fees, etc and remit to the Board.