What is PAYE and who must comply in Nigeria?
Pay As You Earn (PAYE) is a system under the Personal Income Tax Act (PITA) Cap P8, LFN 2004 (as amended) requiring employers to deduct income tax from employees' salaries monthly and remit it to the relevant state's Internal Revenue Service (IRS). Every employer with staff — whether incorporated or not — must register for PAYE with the state IRS where their employees reside. The Nigerian Revenue Service (NRS, formerly NRS) administers PAYE for FCT (Abuja), while state IRS handles all other states. There is no minimum employee threshold — even hiring one person triggers PAYE obligations.
What are the PAYE tax rates in Nigeria (2025)?
Nigeria uses a progressive PAYE tax table. Annual consolidated relief allowance (CRA) is ₦200,000 + 20% of gross income (whichever is higher). After deducting CRA, the remaining taxable income is taxed: First ₦300,000 — 7%; Next ₦300,000 — 11%; Next ₦500,000 — 15%; Next ₦500,000 — 19%; Next ₦1,600,000 — 21%; Above ₦3,200,000 — 24%. Note: Minimum tax applies where an employee's annual income exceeds the CRA — the minimum tax payable is 1% of gross income if the regular tax calculation yields less. The Finance Acts of 2019–2023 have updated various thresholds.
When must PAYE be remitted in Nigeria?
Under the Personal Income Tax Act, PAYE deductions must be remitted to the relevant state IRS by the 10th day of the month following the deduction. For example, January salaries deducted must be remitted by 10 February. Additionally, employers must file monthly PAYE returns showing all employees, their gross salaries, deductions, and net payments. An annual tax return (Form IT01) must be submitted by 31 January of the following year showing the full year's PAYE data. Failure to remit on time attracts penalties of 10% of the tax due plus interest.
How does an employer register for PAYE with the state IRS?
To register for PAYE: (1) Obtain your company's TIN from NRS/JTB, (2) Visit the state IRS office for each state where employees are resident (not where the office is located — PAYE follows employee residence), (3) Submit: CAC Certificate, TIN certificate, list of employees with their names, addresses, and BVN/NIN, (4) Complete the employer registration form, (5) Receive your employer PAYE file number. Some states (Lagos, Rivers, Kano, Abuja) have online portals. In Lagos, register via the LIRS portal (lirs.gov.ng). In Abuja/FCT, register with NRS directly.
What are the other statutory deductions alongside PAYE?
Nigerian employers must also handle: (1) Pension — under the Pension Reform Act 2014, both employer (10% of monthly emoluments) and employee (8%) contribute to a Pension Fund Administrator (PFA). Mandatory for companies with 3+ employees, (2) NHIS/NHIA — National Health Insurance Authority: 10% employer + 5% employee contribution for formal sector, (3) NSITF — Nigeria Social Insurance Trust Fund: 1% of total monthly payroll by employer only. Registration with each body is separate. Kontrol's HR module automates all these statutory deductions alongside PAYE.
What tax reliefs can reduce an employee's PAYE in Nigeria?
Under PITA, employees can claim: (1) Consolidated Relief Allowance (CRA) — ₦200,000 or 20% of gross income, (2) Pension contribution — 8% of basic salary (employee contribution is tax-deductible), (3) NHF contribution — National Housing Fund at 2.5% of basic salary, (4) Life assurance premium on own life or spouse, (5) NHIA contribution. For self-employed individuals, business expenses are deductible. Employers should collect relief claims from employees on Form A before computing PAYE to ensure accurate deductions.
What happens if an employer fails to remit PAYE?
Consequences of PAYE non-compliance are severe: (1) Penalty of 10% of the unremitted amount per month plus interest at the prevailing CBN rate, (2) Directors of defaulting companies can be held personally liable under PITA, (3) State IRS can issue a 'distress warrant' to seize and sell company assets to recover unpaid PAYE, (4) NRS (for Abuja) and state IRS can freeze company bank accounts, (5) The company may be unable to obtain Tax Clearance Certificates (TCC) needed for government contracts and imports. PAYE is often the first thing checked in a tax audit.
Does PAYE apply to part-time workers and contractors?
PAYE applies to all employees — full-time, part-time, and casual workers. For independent contractors (who are not employees), the applicable tax is Withholding Tax (WHT) deducted at 5% by the payer, not PAYE. The key distinction: if you control how, when, and where the work is done, it's employment (PAYE applies). If the person supplies a service at their own discretion, it's contracting (WHT applies). Misclassifying employees as contractors to avoid PAYE is illegal and is a common target of NRS and state IRS audits.
