Personal Income Tax (PIT) Analysis: Assessable Income – Is Assessable income equal to adjusted profit or adjusted income or Taxable income? The Nigeria personal income tax act 2014 has the answer to these. This is because the definition is important in the administration and computation of personal income tax in Nigeria, more so where wage employee’s PAYE and Sole proprietor’s Personal Income tax computations are concerned. Here is Personal Income Tax (PIT) Analysis: Assessable Income
This post gives definitions for these tax principles and how they are applied in the real life activities. Therefore, this post is very good for students of Accounting and Taxation as well as businessmen and women and other tax thinkers. This post is full of knowledge that will help you solve your tax assignments and challenges. You will be able to contact us in the end for your tax asignments. If you do that, your Tax clearance certificate will be ready in 2 week’s time.
Personal Income Tax (PIT) Analysis: Assessable Income – Personal Income Equation for Tax purposes:
Table of Contents
This is a brain storming equation for which you will learn so much from.
- For the Employee: Assessable income may equal Adjusted income
- For Sole Proprietor: Assessable income may equal adjusted profit + adjusted income. For this Sole proprietor Adjusted income/Profit – Capital Allowance = Taxable Income/Profit. This may be the same for the Employee who runs a business outfit or owns property and gets investment incomes.
So there are 3 sets of people here:
- The Wage Employee with unearnd income,
- Sole Proprietor, and
- The Wage Employee who has unearned incomes.
Personal Income Tax (PIT) Analysis: Assessable Income – Assessable Income/Profit:
Assessable income became very prominent after the introduction of Education tax by Education Tax Act, 1993, now Cap. E4 LFN 2004 as amended.
The relevant section provides that ” … there shall be charged and payable an annual education tax which shall be assessed, collected and administered in accordance with the provisions of this Act”.
Further provision is that ” Education tax which is at a rate of 2% shall be charged on the assessable profits of a company registered in Nigeria..”.
The point here is that assessable profit/income as used by the registered companies may not be the same as those used for the Sole Proprietor or an individual who don’t pay Education tax.
For the Wage Worker his income equation should be :
Gross income + other unearned income – Consolidate Relief Allowance = Taxable Income/Assessable income.
Personal Income Tax (PIT) Analysis: Assessable Income – For those in business, the income equation should be:
Gross Profit – Business Expenses + Other income – Consolidated Relief Allowance = Taxable income/Assessable profit.
But where capital allowance is involved it becomes:
Gross Profit – Business Expenses + Other Income – Capital Allowance – Consolidated Relief Allowance = Taxable income/Assessable profit.
The fact that these set of tax payers are not companies that are subject to paying Education Tax, the distinction between assessable income/profit and taxable income/profit may not matter at all.
The Gross Profit:
The individual tax payer should be able to adjust his/her income/profit with the following:
- Wages and salaries;
- Bonuses;
- Allowances;
- Compensations;
- Benefits;
- Pensions;
- Premiums;
- Business income;
- Percentage ownership;
- Rent;
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- Fees;
- Commission;
- Interests and dividends.
- Contribution to the National Pension Fund;
- Life Assurance payments;
- Contribution to the National Health Insurance Scheme;
- Contribution to the National Housing fund; Gratuities;
- Dividends and interests from quoted companies;
- Rent and business expenses;
- Bad debt recovered, and ;
- Consolidated relief allowance.
Make References:
We have other articles on Personal Income Tax Act provisions which could help you understand this topic better. Just click any one of your choice and you will be better off.
Belief you me, by the time you are through with these topics, you would have covered about 5% of Chartered Institute of Taxation of Nigeria Intermediate certificate examination.
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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.
