- I don’t have to pay personal income tax if I do not earn a salary
Not true. Sections 3 and 33 of the Personal Income Tax Act (as amended) (PITA) cover income from other sources beyond salaries. These include income from trade or business, investment, and other taxable earnings, excluding tax-exempt income or earnings. Thus, even without a salary, you may still have taxable income. That said, if your only income is a salary at or below the minimum wage (currently NGN70,000), you don’t have to pay personal income tax.
- If my employer already deducts and remits Pay-As-You-Earn (PAYE) taxes, I don’t need to file tax returns
Employees often assume that if their employer deducts Pay-As-You-Earn (PAYE) tax, they don’t need to file tax returns on an individual basis. This assumption is incorrect! PAYE deductions only apply to income from employment. While employers are responsible for remitting these tax deductions to the tax authority, individuals are still required to file their personal income tax returns, including total earnings from other sources.
Tax compliance goes beyond PAYE. It also includes being personally accountable when disclosing total earnings. Whether you have other sources of income (investments, rental income, etc) or not, you have a statutory obligation to declare your income from all sources in your tax returns to the relevant tax authority.
- I pay huge taxes, but get no personal benefit for it
This is a wrong assumption! Tax is a compulsory contribution backed by law, not a payment-for-service from which you expect direct personal benefits.
Revenue generated from taxes are applied towards provision of public utilities and other essential services intended for collective good.
- Tax authorities won’t notice if I under-remit or under-report income
The Federal Inland Revenue Service and State Internal Revenue Services are increasingly using technology to track income and ensure compliance. In today’s economy, it’s crucial to stay current on your taxes to avoid hefty interest and penalties
- Tax Avoidance and Tax Evasion are one and the same thing
Not at all! Tax avoidance is entirely legal as it entails using tax laws to structure business affairs in a manner that minimises tax liability albeit within the bounds of the law. However, aggressive tax avoidance schemes may be frowned at, with the tax authorities always alert to tighten the noose on any loopholes in the law. Tax evasion on the other hand is outrightly illegal and means deliberately falsifying reports, concealing income or misrepresenting obligations to avoid paying taxes. A learned judge once held that, “no man… is under the smallest obligation, moral or other, to arrange his legal relations to his business or property so as to enable [the tax authorities] put the largest shovel in his stores. The [tax authorities] are not slow to take advantage open to them under the taxing statutes for the purpose of depleting the taxpayers’ pocket….”
Use the law smartly, but don’t cross the line!
- I can’t enjoy deductible allowances if I am not a company
The Personal Income Tax Act (as amended) allows individuals to claim deductible allowances, just as companies are allowed to, under the Companies Income Tax Act. While individuals are entitled to claim consolidated relief allowance, pension contributions, life assurance premiums, and national housing fund contributions for tax purposes, companies are allowed to claim capital allowances.
For tax related insights, contact our tax team – [email protected] and subscribe to our newsletter.