Overview of Tax Law
The Nigeria Personal Income Tax Act of 2021 governs the taxation of individuals. It covers residents and non-residents, ensuring all income earned within Nigeria is taxed, whether from employment, business, or investments.
Tax Rates and Bands
The law introduced progressive tax rates ranging from 7% to 24%. Surprisingly, the highest rate applies to annual incomes exceeding ₦3.2 million, which is relatively low compared to global standards, affecting a significant portion of the workforce.
Exemptions and Reliefs
Certain incomes are exempt, such as those from pensions, gratuities, and compensation for loss of office. Additionally, tax reliefs include Consolidated Relief Allowance (CRA), which is the higher of ₦200,000 or 1% of gross income plus 20% of earned income.
Penalties for Non-Compliance
Non-compliance results in severe penalties, including fines up to ₦50,000 for individuals on first offense and up to ₦100,000 for subsequent offenses. Moreover, persistent defaulters may face imprisonment, aiming to enforce strict adherence.
Innovative Collection Methods
The 2021 law introduced digital tax payment systems, significantly reducing evasion. The Federal Inland Revenue Service (FIRS) now leverages technology to track and collect taxes, ensuring transparency and efficiency in the taxation process.Unusual Taxable Items
In Nigeria, certain traditional rulers' stipends and gifts are considered taxable income, showcasing how tax laws adapt to cultural specifics.
What rate applies above ₦3.2 million?
15%
24%
30%
Company
