income tax
Income tax is the tax you pay on what you earn, and for most salaried Nigerians it is deducted before the money ever reaches you.
In plain English
The salary you agreed is not the salary you receive, and the gap has a name.
Income tax in Nigeria is charged on what you earn, and for anyone employed it is usually collected through PAYE, which stands for Pay As You Earn. Your employer works it out, deducts it and sends it to the state before you see a naira. This is convenient, and it is also why so few Nigerians know what they actually pay.
It is charged in bands. The first slice of your income is taxed lightly, later slices more heavily. This means a pay rise does not push all of your income into a higher rate, only the portion above the threshold, which is something almost everybody misunderstands and worries about unnecessarily.
Certain things are deducted before the tax is calculated, and this is where money is actually saved. Pension contributions. The National Housing Fund. Life assurance premiums. If you are not claiming what you are entitled to, you are paying tax on money you were never meant to be taxed on.
Read your payslip. Once. It will take fifteen minutes and it may be the highest paid fifteen minutes of your year.
Your gross salary is ₦600,000 a month but ₦480,000 lands. The difference went to tax and pension. If your pension contribution is deducted before tax is calculated, then contributing more can reduce your tax bill while also building your retirement.
Questions people ask
What is PAYE?
Pay As You Earn, the system where your employer deducts income tax from your salary and remits it on your behalf. You never handle the money.
Does a raise push all my income into a higher band?
No. Only the portion above each threshold is taxed at the higher rate. A raise always leaves you with more, whatever people tell you.
What if I am self employed?
You are responsible for filing and paying yourself, usually through your state tax authority. Keep records from day one, because reconstructing them later is painful and expensive.
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