I am passionate about the growth of your business. One of the biggest and common challenges of small and medium scale businesses in Nigeria is the worry about their PIT. Many business owners run from tax agencies because they do not know what to do about their taxes. They don’t know what to pay and how to pay. I’m giving you all you need to know about your personal income tax and how to pay it by yourself on phone. It’s time to show yourself as a confident entrepreneur by using this knowledge I am sharing.
WHAT IS PERSONAL INCOME TAX
This is the Tax imposed on individuals who are either in employment or are running their own small businesses, under a business name or partnership. Though collection of personal income tax is a federal responsibility, this tax is generally collected by state governments from those that are resident in their various states, regardless of whether they are federal, state, local government, or private sector workers.
The Federal Inland Revenue Service, also collects this tax but only from residents of the Federal Capital Territory as well as what may described as highly mobile federal workers; staff of the ministry of foreign affairs, other Nigerians and foreigners outside the country but earning income in Nigeria (non- residents), expatriate workers resident in Nigeria, Police Officers, and Military Officers.
You have to file your annual tax return by March 31st each year. If you do not file it in time, you will have to pay fine.
In PIT, your income consist of; Wages and Salaries, Bonuses, Allowances, Compensation Benefits, Pensions, Premiums Business Income, Percentage Ownership, Rent, Fees, Commission, Interest and dividends.
The tax reliefs include:
· Contribution to the National pension fund (NPF, at least 8% income);
· Contribution to the National Health Insurance Scheme (NHIS, 5%);
· Contribution to the National Housing Fund (NHF, 2.5%);
· Gratuities;
· Life Assurance payments;
· Dividends and Interests from the quoted companies;
· Rent and business expenses; bad debt recovered;
· Consolidated relief allowance
(1% of Gross income or #200,000 + 20% of earned income);
HOW TO CALCULATE PERSONAL INCOME TAX
If your gross annual income is #3,000,000. The statutory relief is therefore #800,000. Lets assume that your other exemptions are the payments to the NPF (8%) and the NHF (2.5%), which add up to #213,461.65. this means that you get #1,013,461.65 that are tax free.
Thus, the taxable income is #1,986,538.35. Then you take this number and apply the tax amounts to it. The first #300,000 would be taxed at 7%, which give you #21,000. Then count the tax rate for what is left (which is #1,686,538,35) and continue until you get the final #386,538.35.
If you want to make your life easier, you can just go to https://apps.firs.gov.ng/taxcalculator/ and calculate your personal income tax. The website allows you to choose between three personal income (for employed, self-employed and those who belong to a partnership), so you can calculate your income tax no matter what your employment situation is.
Still worried? Book an appointment with me here to sort it out