Personal Income Tax a type of tax that is paid by individuals to the government. It is classified into two: Pay-As-You-Earn (PAYE) - deducted at source for those in paid employment - and Direct Assessment -for self-employed individuals.

Based on Residency rule, the PIT is paid to the state authority in which an individual is deemed to be resident for the period under review.

As a salary Earner, it is important for you to keep tab of your tax deductions and whether your company remits the deducted tax. You are to be issued tax clearance certificates by the tax authority at the end of each year as evidence of tax payments.

How is your PAYE calculated?

In order to understand how your PAYE is calculated, you have to be familiar with the following terms:

1. Gross Annual Income: This is the total amount of income accruing to you at the end of each year. It includes your salary, allowances, bonuses, benefits in kind (accommodation, car, gardeners, cooks etc.) and other employment income.

2. Consolidated relief: This is the tax free portion of your Gross Income. It is calculated as #200,000 (or 1% of Gross Income, whichever is higher) plus 20% of your Gross Income.

NB: By virtue of the latest amendment by the Finance Act 2020, the Gross Income referred to here is now exclusive of tax exempt items and statutory contributions.

3. Allowable deductions: These are the contributions that are allowed under the Act to be deducted in arriving at the taxable income. These contributions are Pension (8% of Basic salary, Housing and Transport), NHF i.e. National Housing Fund (2.5% of Basic salary), Health Insurance Scheme, Life Assurance (Max of 10% of Gross Annual Income), and Gratuities.

NB: By virtue of the latest amendment by the Finance Act 2020, all these contributions are no longer allowable deductions. They will now be deducted from the Gross Income before calculation of Consolidated Relief Allowance.


4. Taxable Income: This is the portion of your Gross Income that is subject to tax after deducting the consolidated relief and allowable deductions.

5. Tax rate: This is the rate that is applied on your taxable income. It is divided into bands as outlined below:

1st #300,000 - 7%
Next #300,000 - 11%
Next #500,000 - 15%
Next #500,000 - 19%
Next #1,600,000 - 21%
#3,200,000 and above - 24%

6. Minimum tax: This is applicable where the Gross Annual Income of an Individual is below #300,000.

NB: The latest amendment by Finance Act 2020 exempts people earning #30,000 and below monthly from PAYE. Effectively, this means that anybody earning #360,000 and below annually are exempt from PAYE.

7. Annual tax: This is the total amount of tax you are required to pay on your Gross Annual Income. This amount is then divided by 12 (12 months) to arrive at your monthly tax.

To calculate your PAYE easily, you can make use of the template I created on Google Sheets here: https://docs.google.com/spreadsheets/d/1ufPPkf4yGPq_W0S8VuYTHBvGsIufmn4pmmdp73rtPjg/edit#gid=0
Just fill out the required fields (in red) and get the result in seconds.