1. UPDATE ON THE
AMENDED PAYE
2012

2. Agenda
1. What is PAYE?
2. What are the basic features of the old PAYE?
3. What is the effective date of the new PAYE?
4. What is the gazzetted date of the new PAYE?
5. What are the basic features of the new PAYE?
6. Definition of Gross Income
7. Definition/Make-up of Allowances
8. Applicable Tax Rate
9. Other benefits available in PITA (Tax Planning)
10. Implication of the New PITA

3. What is PAYE?
A Pay as you earn tax (PAYE) is a withholding tax on income payments to
employees. Amounts withheld are treated as advance payments of income tax
due. They are refundable to the extent they exceed tax as determined on tax
returns.
Every employer is required to file a return with the RTA (Relevant Tax
Authorities) of all emoluments paid to its employees, not later than 31 st
January of every year in respect of all employees in its employment in the
preceding year.
FIRS is responsible for the PAYE of the following:
Persons employed in the Nigerian Army, the Nigerian Navy, the Nigerian Air force, the
Nigerian Police Force other than in a civilian capacity
•Officers of the Nigerian Foreign Service
•Residents of the Federal Capital Territory
•Person resident outside Nigeria who derives income or profit from Nigeria.

4. Basic Features of The Old PAYE
• Tax free allowances such as Leave allowance, housing allowance, etc.
were enjoyed during the Old PITA regime.
• The statutory reliefs relevant to the Old Paye remained constant at:
• 1) Personal Allowance- 20% of Earned Income + N5,000
• 2) Additional Disabled person allowance- higher of N3,000 or 20% of
Earned Income
• 3) Children Allowance : N2,500 per child (max of 4)
• 4) Dependent Relative Allowance: N2,000 (max of 2)
• 5) Leave Allowance- 10% of Total Basic Salary, P.A
• 6) Housing Allowance - Maximum allowance pegged @ NGN150,000,
P.A
• 7) Entertainment Allowance - Maximum allowance pegged @
NGN6,000, P.A
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5. Basic Features of Old PAYE Cont’d
• Transport Allowance - Maximum allowance pegged @ NGN20,000, P.A
• 9) Utility Allowance - Maximum allowance pegged @ NGN10,000, P.A
• 10) Meal Allowance - Maximum allowance pegged @ NGN5,000, P.A
• 11) Actual Life insurance premium
• The Applicable Tax rates in the Old PITA were:
1. First N30,000 at 5% (N1,500)
• Next N30,000 at 10% (N3,000)
• Next N50,000 at 15% (N7,500)
• Next N50,000 at 20% (N10,000)
• Above N160,000 at 25%
• Minimum Tax – 0.5% of Annual Emolument
•
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6. Effective Date Of New PAYE
The effective date of commencement of the PITAM is 14 June 2011, based
on the Federal Republic of Nigeria Official Gazette No.115, Vol.98. This
date is the same as the date of assent of the Act by the President.
Gazzetted Date
The Personal Income Tax (Amendment) Act 2011 was officially gazetted on
Tuesday 31 January 2012 .
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7. Basic Features of the New PITA
• Introduction of a consolidated tax free allowance of N200,000 or 1% of gross
income, whichever is higher, plus 20% of the gross income. Gross emolument (or
income) is defined to include benefits in kind, gratuities, superannuation and any
other incomes derived solely by reason of employment.
• Principal place of residence redefined to include places where branch offices and
operational site of companies are situated. Operational sites are defined to include
oil terminals, oil platforms, flow stations, construction sites, etc. with a minimum of
50 workers.
• Change in income tax table: The PITAM replaces the Sixth Schedule of
the PITA with a new Schedule as follows:
• FirstN300,000taxedat7%
• Next N300,000taxedat11%
• Next N500,000taxedat15%
• Next N500,000taxedat19%
• Next N1,600,000taxedat21%
• Above N3,200,000taxedat24%
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8. Basic Features of the New PITA Cont’d
* Increase in minimum tax rate from 0.5% to 1% of gross income
* Benefit in kind now specifically included in gross emolument and by implication
taxable income
* Temporary staff now specifically liable to tax. This will include casual workers,
interns and other contract staff.
* Reimbursements and expense claims still applicable as the relevant provision of the
law was not deleted by the amendments. Also it cannot be argued that
reimbursements (by their nature) are included in consolidated allowances. This means
that employees will continue to enjoy tax free cost of passage, medical and dental
expenses etc.
* Conditions for exemption from personal income tax for any employment wholly or
partly performed in Nigeria now modified to require evidence that such individuals are
liable to tax in another country under the provisions of a double tax treaty. Also where
the remuneration is borne by a fixed base of the non-resident employer in Nigeria, the
individual will be deemed to be liable to tax in Nigeria. In addition, the 183-day
residency rule has been modified to include periods of temporary absence or leave.
* Appeal against unresolved assessments to be handled by the Tax Appeal Tribunal.
•·
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9. Basic Features of the New PITA Cont’d
* Interest on WHT default to be at the Central Bank of Nigeria Monetary
Policy Rate (MPR).
* Interest on default in payment of tax due to be at bank base lending rate to
be imposed on an annual basis from the date when the tax becomes due
until it is paid. This means simple interest will now be charged as against
the current practice of a flat rate (one-off) interest.
* Filing of annual returns now 31 January (previously 31 March).
* Minimum of 5% retention of revenue collected by tax authorities for
administrative purposes. It is not clear whether this would also cater for tax
refunds.
* Tax officers now required to apply to the High Court for a warrant of
distrain before exercising their powers to distrain for failure by taxpayers to
pay final and conclusive tax liability under the law.
* Itinerant worker redefined to include any individual irrespective of status
who works in more than one state for at least 20 days in at least 3 months of
every assessment year.
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10. Basic Features of the New PITA Cont’d
• Tax exemption for individuals on interest income on debt instruments
including corporate bonds.
• Individual tax clearance certificates (TCC) to be demanded for change of
ownership of vehicles and application for land title transfer or perfection
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11. Gross Income
Gross income’ is not defined by PITAM.Rather ‘gross
emoluments', which is not used anywhere in the Act, is
defined as “wages, salaries, allowances (including
benefits in kind (BIKs)), gratuities, super annuation and
any other incomes derived solely by reason of
employment”. Assuming that ‘gross income’ includes, at
least, ‘gross emoluments’, the definition is more robust
than that of ‘earned income’ under PITA, and therefore
provides a larger base for the claim of CRA by taxpayers.

12. Implications of the new PITA
Matters arising from the implementation of the New PITA include:
Commencement – Based on the amendments as gazetted in
January 2012, the commencement date is 14 June 2011 which is the
date the bill was signed into law by the President. A number of
challenges will arise from applying the new changes in retrospect
including re-computation of pay-as-you-earn (PAYE) tax liabilities for
2011 for all staff. In particular employers need to consider impact of
over or underpaid taxes in respect of disengaged employees. The
new amendments also require employers to file a return of
emoluments paid to employees by 31 January in respect of the
previous year.

13. Implications of the new PITA Cont’d
• Old tax free allowances and consolidated relief allowance: Previously, tax
free allowances include Housing of N150,000, Transport of N20,000,
Personal allowance of N5,000 plus 20% of earned income, leave
allowance at 10% of basic pay, Utility of N10,000, Meal of N5,000,
Entertainment of N6,000, Children allowance not exceeding N10,000,
Dependant relative of N4,000. The fixed components of these allowances
add up to N210,000. However under the new PITA the old tax free
allowances have
• been replaced with a consolidated relief allowance of 20% of gross
income plus higher of 1% of gross income or N200,000. However the
relevant subsections of Section 33 on children and dependant relative
allowances were not removed. This means that these allowances will
continue to apply although the insignificant amount involved may not
sufficiently justify the related administrative work
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14. Implications of the new PITA Cont’d
• Principal place of residence: Where a staff has more than one place of
resident for any year, the principal place of residence, where applicable,
will be the location of the branch office or operational site where such
individual works provided there is a minimum of 50 workers at such
branch or site. Some of the grey areas include the definition of a worker
and what happens where the threshold is reached temporarily? Employers
will have to reconsider the state of residence of their employees and
decide whether to re-file taxes to the appropriate state tax authorities in
retrospect.
• Taxation of expatriates: An expatriate is now liable to tax in Nigeria if his
employment costs are recharged to a Nigerian company or borne by a
„fixed base‟ in Nigeria; or he is in Nigeria for an aggregate of 183 days in
any 12-month period (including leave and temporary absence); or where
he is not liable to tax in another country which has a double tax agreement
with Nigeria. Employers will have to carry out a review of the retrospective
application of the law to expatriate staff bearing in mind their terms of
employment, secondment arrangements and recharges even for
expatriates who never performed their employment duties in Nigeria.
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15. Implications of the new PITA Cont’d
• Interest: Under the old PITA, interest may be imposed on tax defaults but
there was no prescription on how the interest should be applied.
Historically tax authorities apply the interest at a flat rate on a one-off
basis. The new amendments now explicitly require interest to be
calculated on an annual basis. This means simple interest method
whereby interest on tax due for a period is multiplied by the number of
years outstanding. Where the period contains less than a whole year,
then the interest must be prorated on a monthly or daily basis from the
date the tax becomes due until it is paid.
• Limitations of powers of the states: The word “imposed” in the charging
section has been replaced with the word “collect”. This implies that no
state government or tax authority may impose tax on the income of any
individual by limiting their powers to collection of taxes rather than
imposition.
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16. Implications of the new PITA Cont’d
• E-communication: Section 57 of PITA has been amended by adding
electronic mail and courier service to the existing means of delivering
assessment notices. The new law did not state whether taxpayers may
also correspond with tax authorities via email including objection to
assessments. The expectation is that this will be the case – if it is good
for the taxman then it must be good for the taxpayer.
• Withholding (WHT) refund: There is an amendment to Section 73 to
create a refund mechanism for excess WHT remittances with respect to
dividend, interest, rent and directors‟ fees to be made within 90 days or
use as credit to offset future tax liabilities payable. Given that WHT on
dividend is final tax, and WHT is either final tax on interest or not at all
applicable while rent and director fees are liable to further tax with a
remote possibility that the effective tax rate for landlords and directors will
be less than the WHT suffered. It does appear therefore that this
amendment is a cure for an ailment that does not exist. Refunds for
excess WHT on business profit and PAYE would have been more
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relevant and desirable. © Deloitte Touche Tohmatsu 2008. All rights reserved

17. Implications of the new PITA Cont’d
• Taxation of President etc.: the “official emoluments” of the President,
Vice President, Governors and Deputy Governors are no longer tax
exempt. This implies that the income of these officials (including
allowances and benefits in kind) are now fully taxable. If properly
implemented in line with the law as applicable to other individuals, the
President, Vice President, Governors and Deputy Governors could
technically become bankrupt as their personal income tax liabilities will
most likely exceed the cash component of their emoluments.
• Gratuity and pension - Gratuity and pension are part of an individual's
“gross emolument” but the amendments now specifically classify gratuity
and pension under the Pension Reform Act as deductions allowed. This
does not mean that contributions to a gratuity or pension scheme on
behalf of the employee by the employer should be included in gross
emolument for the purpose of computing consolidated relief allowance.
Such treatment will be wrong since the contributions have not been
received or otherwise enjoyed by the employee and they do not
constitute deductions from his emolument as envisaged under the new
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Schedule 6 of the amended PITA. © Deloitte Touche Tohmatsu 2008. All rights reserved

18. Implications of the new PITA Cont’d
• Reimbursements – amounts allowed are now limited to expenses incurred in
performance of duties and from which it is not intended that the employee should
make any gain or profit. Employers must consider what qualifies as expenses
incurred in performing employment duties as distinct from activities which are the
personal responsibilities of the employee. Cost of passage, medical
reimbursement etc. may no longer qualify.
• Itinerant workers – an itinerant worker is now defined as an individual who works
during a year of assessment (other than as a member of the armed forces) for
wages, salaries or livelihood in more than one state for a minimum of twenty (20)
days in at least three (3) months of every assessment year. This poses a
challenge in terms of implementation as to the split of tax between the states. Also
will itinerant workers be able to obtain TCCs from all states where they file and
pay taxes?
• Powers of the Minister - it is expected that the Minister for Finance will issue
guidelines on the grey areas as soon as possible. The amendments empower the
Minister to make regulations generally on the recommendations of the Joint Tax
Board (JTB) for giving full effect to the provisions of the Act. Contrary to general
belief, this does not include powers to amend the law - for instance the effective
© authority.
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19. Implications of the new PITA Cont’d
• National Tax Policy – Overall the amended PITA will reduce tax for the
middle class with a marginal increase on the rich. Although the taxable
income bands have been increased and the top tax rate reduced
marginally from 25% to 24% the minimum tax rate has also been
increased from 0.5% to 1% of gross income. Unfortunately this means
about 100% increase in tax for the poorest of the poor. This in a way
contradicts the National Tax Policy objective of reducing direct taxation
including personal income tax.
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20. Analyses of implications
The amendments will mean different things to different people, possibly with some unintended consequences.
Many may have to pay more while some will pay less and a few will be indifferent.
Below is the analysis of the annual gross income bands and the implications for different categories of income earners:
Gross annual income Tax Comments
implication
N345,000 Higher taxes These category of individuals will
suffer 100% increase in tax as a result
of the increase in minimum tax from
0.5% to 1% of gross emolument
N441,500 Indifferent Tax payable is the same under the
new amendment but any individual
earning less than this would see their
taxes increase by up to 100% in some
cases (see above)
N441,500 - N12,150,000 Lower taxes Individuals in this gross income
bracket will see a reduction in their tax
liability of up to 4.8%
Above N12,150,000 Higher taxes Any individual earning more than
N12.15m per annum will pay higher
taxes by up to 1.5% in view of the
higher effective tax rate under the new
amendments notwithstanding the
marginal reduction in the top tax rate
from 25% to 24%.
Assumptions:
The above analysis is based on the following assumptions:
o No other allowances are granted under the amended PITA other than the
consolidated allowance and personal relief.
o Individuals comply with all statutory deductions and contributions including
NHF and pension.
o The compensation under the old PITA was structured for tax efficiency (the
result will be different if otherwise). If the compensation under the old PITA was
not structured for tax efficiency then the amended PITA will result in a decrease in
tax liability for all individuals regardless of income bracket.
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