Amongst other tax laws, the Finance Act 2020 introduced changes to the Personal Income Tax Act (PITA).
With the changes introduced, have you considered how your salary and PAYE tax will be impacted? It is important to note that Section 20 of the Finance Act 2020 substituted Subsections 2 & 3 of Section 33 of the PITA with a new Subsection 2, which provides for a new definition of gross income for the purpose of computing the Consolidated Relief Allowance (CRA) as follows;
Gross income means “income from all sources less all non-taxable income, income on which no further tax is payable, tax-exempt items listed in paragraph (2) of the Sixth Schedule and all allowable business expenses and capital allowances.”
Implications of the Amendment
By implication, any non-taxable income, franked investment income, allowable business expenses, capital allowance and any tax-exempt item listed in paragraph (2) in the Sixth Schedule of PITA such as contributions by employee to the National Housing Fund Scheme (NHF), National Health Insurance Scheme (NHIS), Life Assurance Premium and National Pension Scheme (Pension) will now be deducted from the gross income before the calculation of the CRA. CRA is the higher of 1% of gross income and N200,000 plus 20% of gross income.
Based on this amendment, See full article below for new PAYE Computation
The changes highlighted above is effective from 1 January 2021. Hence, employers are to take note of these changes when computing January 2021 PAYE for their employees. Where January salaries have already been paid without taking into consideration these amendments, employers should ensure that adjustments are made for January’s PAYE tax from salaries to be paid in the subsequent months. Should you require further clarifications with regards to these new changes, please contact us at Mazars Nigeria.