What is PAYE?
You know those little deductions you see in your payslip, when you receive your salary, if you look closely, you will find that one of such deductions is the PAYE. For some of you, you have probably wondered, “What is PAYE?” Pay As You Earn (PAYE) is a form of tax deducted by an employer from the employee's salaries and wages. This tax deduction is also known as Personal Income Tax, and is made based on the provisions of Section 81 of the Personal Income Tax Act (PITA) . PITA applies to every income that is received by an individual.
Remitting PAYE
Employers must begin deducting tax from the salaries and wages of their employees after 6 months of the company commencing business operations. The deducted taxes are remitted to the Lagos State Internal Revenue Service (LIRS), which is the tax regulatory body for Lagos State through any designated collecting bank. After payment, has been made to the collecting bank, the employer will take evidence of payment to its tax office. Your tax office should be the nearest tax office to your primary operating premises. Here’s a list of the location of the various LIRS tax offices in Lagos.
As an employer, you must ensure that PAYE is remitted to the LIRS before the 10th of the month following the month when the deductions were made. E.G January PAYE must be remitted on or before February 10th. Note that contract employees and interns are not exempted from PAYE deduction.
At the end of the year, employers are expected to file duly updated returns on all salaries and wages paid to the employees on their payroll within the preceding tax year. Returns must be filed at the employer’s tax office before January 31st for the preceding year. For instance, 2016 returns must be filed before January 31, 2017.
PAYE rates
If you have read this far, the question on your mind is probably, “how much exactly is this PAYE?” Well, it depends. Lagos operates a graduating scale PAYE system. The tax rates increases based on the employee’s annual taxable income The scale used by the LIRS is:
a. The first N300,000 will be charged at 7%;
b. The next N300,000 will be charged at 11%;
c. The next N500,000 will be charged at 15%;
d. The next N500,000 will be charged at 19%;
e. The next N1,600,000 will be charged at 21%;
and
f. Then above N3,200,000 will be charged at 24%.
Where an employee’s annual taxable income is below the N300,000 threshold, then the appropriate tax rate will be 1%.
So, for instance, where an employee makes N5 million a year, not all of the N5 million would be taxed at the maximum of 24%, but rather the first N300,000 of the N5 million would be taxed at 7%, the next N300,000 of the remaining N4.7 million will be taxed at 11%, the next N500,000 of the remaining N4.4 million will be taxed at 15% and so on until the maximum threshold is reached.
Failure to File Taxes
Not filing taxes is a criminal offence! Any employer who fails to make proper tax deduction or fails to account properly for deductions made is liable on conviction to a penalty of the total sum of taxes due. In addition, the employer will pay 10% annual interest for every year the taxes were not filed or improperly filed. Employers are also liable to penalty and interest for failure to remit and late remittance.
To know more about PAYE, visit www.lirs.gov.ng
