How to calculate your taxes using the New PAYE

So I will demonstrate how your personal income tax is calculated using the example below;Supposing Mr Ahmed earns an Annual Salary Package of N3m. His package excludes any benefits in kind and lived in Lagos from the 1st of January 2012. What should be his taxable payable?

(Remember CRA replaces all reliefs including transport, leave allowance, rents etc.)

Step 1:

For tax purposes we can break-down his salary as follows;

	%age	=N=	=N=
BASIC (B)	40.0%		1,153,846.15
HOUSING (H)	30.0%		865,384.62
UTILITY	5.0%		144,230.77
MEAL	10.0%		288,461.54
ENTERTAINMENT	5.0%		144,230.77
TRANSPORT (T)	10.0%		288,461.54
	100.0%
LEAVE ALLOWANCE (10% of annual basic)			115,384.62
BENEFIT IN KIND
EARNED INCOME			3,000,000.00

Following which we can now apply the Consolidated Relief of N200, 000 plus 20% of Earned Income and also deduct exceptions such as National Housing Fund Contribution (NHF) which is 2.5% of your Basic and also Pension which is 7.5% of your Basic+Housing+Transport to arrive at your Taxable Income (this has now been increased to 8% following the signing into law of the Pension Reform Act Amendment). Please see below;

Step 2

EARNED INCOME			3,000,000.00
RELIEFS
PERS. ALLOW (Earned Income*20%+200,000)		800,000.00
EXEMPTIONS
NHF (2.5% of B)		28,846.15
PENSION (2.5% of B+H+T)		173,076.92
TAX FREE PAY			1,001,923.08
TAXABLE INCOME			1,998,076.92

Mr Ahmed will now be taxed on N1, 998, 076.92 using the new tax table.

Step 3

TAXABLE INCOME			1,998,076.92
PAYE:
1ST	300,000.00	7%	21,000.00
NEXT	300,000.00	11%	33,000.00
NEXT	500,000.00	15%	75,000.00
NEXT	500,000.00	19%	95,000.00
NEXT	398,076.92	21%	83,596.15
	1,998,076.92
3,200,000.00	0.00	24%	0.00
PAYE PER ANNUM			307,596.15
PER MTH			25,633.01
Effective Tax Rate	10.25%

From the above, Ahmed is liable to pay a tax of N307, 596. 15 on his Income of N3m every year. This is effectively 10.25% of his Gross Salary of N3m. The amended law makes it very easy to calculate income taxes unlike before, thus eliminating the loopholes that was both exploited by tax payers and the tax man. Please consult an accountant if in doubt.

First Published in Jan 2012, amended in June 2012.

Updated July 29, 2016

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