Update on the Personal Income Tax (Amendment) Act 2011

We have obtained a copy of the gazetted Personal Income Tax (Amendment) Act 2011. This confirms our views on the original version of the amendment as contained in our previous analysis (see post of 6 January 2012).

Specifically the gazetted copy of the amendment has laid to rest the status of old tax free allowances (housing, transport, leave allowance etc) and the controversy as to whether these allowances could be claimed in addition to the newly introduced consolidated allowance. The section of the law containing the old allowances has been deleted and replaced with a new section thereby confirming that the old tax free allowances are no longer applicable.

Also, based on the gazetted amendment, expenses incurred by an employee in the performance of his duties, and from which it is not intended that the employee will make any profit or gain will continue to be tax free. However, some of the items such as medical or dental expenses, cost of passage etc which were specifically listed in the old law as non taxable have been removed. This implies that for any expense claim by the employee to be eligible as non taxable, it must have been incurred in the performance of employment duties.

The commencement date of the amendment is 14 June 2011, the date the amendment bill was signed into law. As a result, employers will have to recalculate their payroll taxes with effect from 14 June 2011 and re-file their returns under the new amendment. In the event that the recalculations result in overpayment, this should be set off against future PAYE tax payments while refunds should be paid to relevant employees as appropriate.

Going forward, employers need to review their payroll processes including software and packages, staff policy document, employment contracts, compensation structure etc to align with the new amendments.

Comments

[Taiwo]

@Bright - Call/shift allowances are taxable and have always been taxable, may be your organisation was not treating it properly before.

[Taiwo]

@Biola - You should apply 7%.

[Taiwo]

@Onyinye - Please check our past posting on this blog for a copy of the act.

[Onyinye]

Dear Taiwo I have subscribed to this Tax information. Can you assist in providing me with the reviewed PAYE act?

[Biola]

Dear Taiwo,
I have gone through the computation, but i want to know what rate to charge on taxable income that is less than 300,000. Is it 7% or 1%.

[Igbinoba Bright]

Your write up is quite revealing. Thanks. Pls i need clarification on why call duty/shift duty allowances in the health sector are included as taxable in the current dispensation. It used to be non taxable. It is not income earned during regular work hours and we feel it should have tax relief. Your kind evaluation and advise would be highly appreciated. Thanks

[Jennifer Hill]

The employee will incur additional expenses if they will pay tax in relation to their performance of the job. If an employee will gain profit from other extra work in which they gain money from it, they shall also be subjected to tax.

[Taiwo]

@Samuel - The commencement date for the amended PITA is 14 June 2011. You can download a copy of the gazetted amendment from my post of 3 March 2012 on this blog.

[Samuel Sunday Ajiwe]

Please when should companies start implementing the recent personal income tax rates. Please I also need a copy of the gazetted PITA. Thanks.

[Taiwo]

@Amarachi - You can get a copy of the amendment to the act containing the new rates, reliefs and allowances etc from my previous posts on Personal Income Tax.

[nwosu amarachi confidence]

1. Pls send me the new rates for personal reliefs in nigeria
2. Also, the new rate for computing personal income tax liability.

[Taiwo]

@Gboyega - I have sent you a copy but you can also download the amendment from this blog. See my post of 3 March 2012 for the link.

[Gboyega]

Hello,
I've been looking for a copy of the new PITAM without success. Could you send a copy to me, please? Thanks.

[Taiwo]

@Seye - PAYE calculated on a monthly when aggregated for the whole year should be the same as the annual computation. You need to double check your computation to ensure there is no error but in any case the tax authority will focus on the annual tax during audit.

[Taiwo]

@ Dosumu - The precise commencement date for the amended PITA is 14 June 2011.

[Taiwo]

@Omo - The position has not changed. Those who earn more than N12.15m per annum will pay more under the amended PITA. However you should note that the analysis is based on a tax efficient structure pre-amendment. The result will be different if the compensation structure was not tax efficient.

[Omo]

Based on your January 6 post, it appears that people with gross income > than 12.5m will pay more, but going by the further clarifications in these post, this should not be the case.
Please clarify. Are people that earn more than 12.5m annual gross going to pay more tax with the new PITA?

[Seye]

Please I am calculating PAYE based on annual and monthly income but both are not giving the same figure. The figure for montly is lower than that of annual if aggregated. Please which of the calculation is acceptable to the tax authorities?

[Seye]

Good and educative article. Please can I get a copy of the gazetted PITA. Thanks.

[Sirkay]

Dear Taiwo,

Pls send me a copy of the new PIT Act

Thank you.