How to calculate your taxes using the New Personal Income Tax Amendment Act

News filtered in Late in December that President GEJ had signed into law an amendment to the Personal Income Tax Act. I had in a blog post in October attempted to explain how to calculate taxes and as such deem it fit to do a rejoinder following the new law. The new amendments affect several sections of the Personal Income Tax Act, particularly Section 33 which deals with Personal Relief and Relief for Children, dependants etc. This has now being replaced with a Consolidated Relief Allowance (CRA) of N200,000 + 20% of gross income. They have also reviewed Minimum Tax upwards from 0.5% to 1%. The Tax Table has also being notably amended.

So I will demonstrate how your personal income tax is calculated using the example below;

Supposing Mr Ahmed earnes an Annual Salary Package of N3m. His package excludes any benefits in kind and lived in Lagos from the 1st of January 2012. What should be his taxable payable?

(Remember CRA replaces all reliefs including transport, leave allowance, rents etc.)

Step 1:
For tax purposes we can break-down his salary as follows;

Following which we can now apply the Consolidated Relief of N200,000 plus 20% of Earned Income and also deduct exceptions such as National Housing Fund Contribution (NHF) which is 2.5% of your Basic and also Pension which is 7.5% of your Basic+Housing+Transport to arrive at your Taxable Income. Please see below;

Step 2

Mr Ahmed will now be taxed on N1,998,076.92 using the new tax table.

Step 3

From the above, Ahmed is liable to pay a tax of N307,596.15 on his Income of N3m every year. This is effectivey 10.25% of his Gross Salary of N3m. The amended law makes it very easy to calculate income taxes unlike before, thus eliminating the loopholes that was both exploited by tax payers and the tax man. Here is a simple template to help calculate your taxes by yourself. Pls consult an accountant if in doubt.

First Published in Jan 2012, amended in June 2012