How to Calculate Employee Tax in Nigeria

Nigeria as  a vibrant and dynamic nation in West Africa holds a top economic standpoint among West African countries for various reasons. One of these reasons is its emergence as a remarkable talent pool for international employers in today’s globalized workforce.

The country catches employers’ attention worldwide with its youthful population, diverse skill sets, and rapidly expanding pool of educated professionals. However, hiring from Nigeria means adhering to differences in labor and tax regulations, a challenge faced by most companies.

Employers must fulfill the requirement and take responsibility for PAYE. Errors in determining the correct amount could result in penalties, fines, and even contract termination by the Nigerian government. Consequently, companies risk these consequences.

Therefore, employers hiring from Nigeria must seek out the most reliable PAYE tax calculators to ensure compliance.

Calculating PAYE Tax in Nigeria

In Nigeria, the government taxes employed individuals through personal income tax, employing the PAYE system, also known as Pay As You Earn. This system can confuse employers since laws vary from country to country.

Employers in Nigeria are required to deduct PAYE from individuals who meet specific criteria:

  • Employees working in Nigeria
  • Employees working full-time or part-time in Nigeria
  • Employers with a permanent base in Nigeria

Employers must send the deducted amount to the revenue authority on or before the 10th of the following month. Failure to meet tax obligations could result in fines and penalties.

Calculating PAYE in Nigeria

Employers can calculate PAYE by first summing up the salary and allowances. In Nigeria, gross salary includes basic pay, housing, transport, leave, utilities, furniture, meals, and other allowances.

The next step is determining taxable income by subtracting all relevant deductions from the gross income. The total value after subtraction is the taxable income.

Employers can use this value to verify the tax rates applicable to the employee’s salary. The government implements a graduated taxing system, where individuals who earn more pay higher taxes. The current PAYE tax rates for employees in Nigeria are as follows:

How to Calculate Employee Tax in Nigeria

– Annual Taxable Income (Naira)

– Tax Rate

– First 300,000 NGN: 7%

– Next 300,000 NGN: 11%

– Next 500,000 NGN: 15%

– Next 500,000 NGN: 19%

– Next 1,600,000 NGN: 21%

– Over 3,200,000 NGN: 24%

The employer then needs to calculate the tax rate according to the tax bracket of the employee’s income.

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