The Federal Republic of Nigeria recently released an Official gazette on the Personal Income Tax (Amendment) Act, 2011 (“The Act”, “PITAM”). The Act was signed into Law by the President on 14 June 2011 but only made public recently. The Act has been years in the making and its sole purpose is to simplify the process of computing personal income tax as well as update the reliefs granted individuals to current economic realities. Read on to see why Lagos State and other States may potentially owe you and your collegues millions of naira.
This Act throws up some critical issues that will be of interest to all tax payers and relevant tax authorities (RTA) in Nigeria. To summarise, diligent tax payers (like me!) have billions of naira in savings just waiting to be claimed. Your monthly PAYE tax will be lower (for most people); the significance of your savings depends on your pay structure and the quantum of your salary, higher income earners will have less tax savings than lower income earners. Click here to download our PAYE Tax Calculator in Excel (2007 or later). It calculates your potential annual tax savings and possible refunds due to you under the new law.
Let me summarise the main points of the Act (the sections that directly affect your pockets!).
- Commencement Date: The enactment of the Act was not made public until 13 December 2011during Mr Presidents presentation of the budget to the national assembly. That version of the Act was rather vague as to the commencement date. However, the new federal gazette (made public in February 2012) cleared things up by specifically stating a commencement date of 14 June 2011. This is really significant; this means you have the right to re-compute all your taxes from 14 June 2011 to date and ask for a refund from the authorities or better still offset the excess tax paid from your taxes for this year. Lagos state sent out a circular to all employers suggesting that the commencement date of the new law is 1 January 2012. This circular has obviously been superseded by the gazette as the law clearly states that the commencement date is 14 June 2011. Lagos being the most versatile tax collector (with more than 2 million confirmed tax payers) stands to lose billions if tax payers through their employers carry out this recalculation. There is no doubt that the unions will begin clamouring for this soon.
- Section 33/Sixth Schedule: New Reliefs & Allowances: All the reliefs and allowances you previously enjoyed under the sixth schedule of the old Act (housing, transport, meal, entertainment, utility, children, dependent relative, leave and personal allowance) have been deleted and replace with a Consolidated Relief Allowance (CRA) which is the higher of 200,000 naira or 1% of your gross income plus 20% of your gross income. For all intents and purposes you can assume gross income to be every penny you earn + the monitised value of all benefits you enjoy (BIK), like driver, official car, rented accommodation etc). You are also still entitled to deduct your pension, health insurance, life assurance (previous years payment) and national housing fund contributions before arriving at your taxable pay.
- The new Tax Table (Sixth Schedule): Now this is where the big savings are to be made. The outdated tax table has been replaced with this one:
- Other Changes: There are many finer changes that will be of more interest to your employer and consultants, so I will not touch on them in detail in this post. Just remember that the new Act deleted thirty six sections of the old Act and amended the first, third and sixth schedules. Click here to download the Official Gazette for full details. I have highlighted some of the key changes below:
- Broader definition of Gross Emolument (section 33)
- Redefinition of Principal Place of Residence (first schedule)
- New Minimum Tax payable (Section 37)
- New Penalties for noncompliance (Section 47, 74(1), 81, 85)
- Expatriate double taxation issues (Section 10)
- Refund of Excess tax payments (WHT) (Section 73(4))
- Increased clout of your Tax Clearance Certificate (Section 85)
- New definition of Itinerant worker (Section 108)
- Power to make regulations (New Section 106A)
As a side note, it seems our laws have finally caught up with technology; the amendments to section 57 now allows RTA’s to serve notices of assessment to tax payers by email as against only registered post.
We will be glad to assist your organisation re-compute all taxes and manage the refund process with the RTAs or you may also wish to outsource your entire payroll management to us and save time and money in the process. Check out our outsourcing services today or contact us directly. We will be glad to be of service.