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How do I work out my taxable income in Nigeria?

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How do I work out my taxable income in Nigeria? This subject matter concerns Personal Income Tax Act  (PITA) in Nigeria, Company Income Tax Act (CITA), PAYE computation formula and Nigerian tax calculator 2018, and how to calculate company income tax in Nigeria. It explains income tax as  tax that governments impose on businesses and individuals’ income (earned and unearned) within their jurisdiction for a partiular time period.
In fact, if you are a responsible Nigerian citizen, you need to meet up with your tax obligations. That means you need to know more about tax and tax procedures in Nigeria. As an individual, one important tax matter you have to know about is the Personal Income Tax in Nigeria and how to calculate it. This post will help you raise some questions and answers you need to know about taxation in Nigeria. With them you will be able to understand how to calculate your income tax liability.

How do I work out my taxable income in Nigeria?  – What is personal income tax in Nigeria?

Basically,  Personal Income Tax (PIT) is a tax derived from  trade, business, profession, vocation activities incomes for a period of time. It’s tax applicable too to personal earned income such as wages or salaries, gratuity, superannuation or pension schemes. In fact, it covers all other income derived by reason of employment. Therefore, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums or other benefits given by the employer to the employee whether temporary or permanent are included.
Also, it can be applied to the gain or profit arising from a right granted to anybody for the use or occupation of any property – royalties, trusteeships, settlements etc. It is also applicable to interests, dividends, discount, pension as well as annuity.

What is the tax percentage for PAYE?

This simply mean Pay As You Earn. It’s taxed based on how much you earn at a time period, normally on a monthly salary. Read on, the answer to this question is illustrated below.

What are the Tax exempt Income in Nigeria?

Tax exempt income is a non-taxable income. Such income won’t be taxed, whether or not you enter it on your tax return. Every income associated with the following are not taxable. These are: National Housing Fund contributions, National Health Insurance Scheme contributions, Life Assurance Premium, National Pension Scheme and Gratuities.Now that we have dealt with certain essential definitions on this subject matter, we will now go ahead to practically illustrate their applications.

What is Consolidated Tax Relief Allowance (CRA)?

The Consolidated Relief Allowance (CRA) is a relief granted to a tax payer to reduce the tax burden on the tax payer. The CRA available to a tax payer under the Personal Income Tax Act, consists of the sum of N200,000 or 1% of the gross income whichever is higher, plus 20% of the gross income. The sum of the CRA is deducted from the gross income or profit of the tax payer to arrive at the taxable income.

Is bonus taxable in Nigeria?

Yes. After deducting the exempted income, you then claim your entire consolidated tax relief, all the other income is taxable based on the applicable tax rate on the income slab.

What is the income tax rate in Nigeria?

For income of  N300,000 or less, the deductible rate is 7%. For the next  slab of N300,000 that you earn, the rate is 11%. That takes care of the first N600,000.00. Subsequently, the rate increases to 15% for the next N500,000 and so for the next income slab of N500,000.00, the deductible rate is  19%. These make a total of N1,600,000.00, thereafter for income of N1,600,000 or greater, the rate falls between 21% and 24%.

How much do I earn before paying tax?

Note that the provision for  Consolidated Relief Allowance does not apply to a tax payer who after subtracting all allowable deductions, has no chargeable income or whose tax liability is less than 1% of his gross income. For such tax payer,  the minimum tax provision will apply in such instance.

How much can I earn before I pay tax 2018 or 2019?

Whether you are a sole trader, partner in partnership or employee, your tax calculation is based on the Personal Income tax Act as amended. Therefore, you are entitled to your income exempt, as enumerated above, then your consolidated tax relief, after these you begin to pay tax on the balance.

How much money can I make without paying taxes at all?

There is what is called minimum tax, so if your income is not enough to accommodate your consolidated tax relief, you will be made to pay the minimum tax.

What is the minimum income to file taxes in 2018 & 2019?

No matter the level of your income, you must file your tax return annually. The tax experts and the Revenue office will determine your minimum tax.

How much do you need to earn before you qualify to paying tax?

As you can see from the illustrations above, especially on the consolidated tax relief, you must at least earn so much to cover your tax relief before you begin to pay tax, otherwise, you pay the minimum tax. So work hard to earn so much so that after your tax relief allowances, you can pay your tax and your take home package will still be large.

Do you have to pay taxes if you make less than N18,000?

Yes. You will pay the minimum tax.  Clcik here

Is it against the law if you don’t file a tax return?

Yes. It’s against the law not to file your tax returns annually. In fact, there is penalty for it.
See our previous write-up on the benefits of tax clearance certificate in Nigeria.

Do you have to file taxe returns  if you have no income?

Yes. Every taxable adult must show evidence of tax payment compliance.

What  will happen to me  if I don’t file taxes but don’t owe?

You must file your tax returns before you know if you owe or not. It’s the revenue office who will issue your tax clearance certificate to confirm that you are not owing.

Who are those  required to file tax returns?

Everybody, employee, MDs, CEOs, employer, firm, business, Trading company, consulting firms, oil and gas companies, exporters and importers, business centres, agric firms, organisations, NGOs, churches etc.
How do I work out my taxable income in Nigeria?

Who must file a tax return? Who is required to file a tax return?

All that are mentioned above, must file their tax returns. Note one thing: If you don’t file your tax return you will not get your tax clearance certificate which only comes from the state or federal revenue offices.

What happens if any one doesn’t file his/her taxes returns?

If you don’t file your tax returns, you are not a responsible citizen, you will not get your tax clearance certificate. Check the benefits of Tax Clearance Certificte here.
What About These?
Tax Day and Tax Return Deadlines are specified in the Nigerian tax laws. Therefore, the tax offices have what they call ” Tax Calendar”. This specifies due date for every type of tax. So it gives answer to questions like: When is Tax Day, the deadline for filing your tax return? What is the possible tax deadline if I get an extension? How long do I have to file an amended return?

In Summary:

This post on “how do I work out my taxable income in Nigeria?” has x-rayed how you can work out your taxable income and therefrom your tax liability for a period of time or for a particular tax type.

You will agree with me that there are technicalities which only those trained tax professionals can handle. Such professionals are those of us in Complete Full Marks Consultants (CFMC) Limited.  As Chartered Accountants, Auditors and Tax experts/Consultants, we will help deal with your tax matters. If you have need of us, please contact us via, or +234 8034347851.

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Deacon Anekperechi Nworgu, a seasoned economist who transitioned into a chartered accountant, auditor, tax practitioner, and business consultant, brings with him a wealth of industry expertise spanning over 37 years.

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