Introduction:
Pay-As-You-Earn (PAYE) tax is a crucial component of Nigeria’s taxation system, impacting both employees and employers. However, like any complex system, PAYE tax has its share of myths and misconceptions. In this article, we aim to debunk some common PAYE tax myths and provide clarity on the facts.
Myth 1: PAYE Tax is Optional
Fact: PAYE tax is not optional. It is a legal requirement in Nigeria for employers to deduct and remit the appropriate amount of income tax from their employees’ salaries to the relevant tax authority. Failure to do so can result in penalties and legal consequences.
Myth 2: All Allowances and Benefits are Taxable
Fact: While many allowances and benefits are taxable, not all fall under this category. Some allowances and benefits, such as contributions to the National Housing Fund and the National Pension Scheme, are exempt from taxation. Employers should be aware of the distinction between taxable and non-taxable allowances and benefits.
Myth 3: Employees Can Choose Whether to Pay PAYE Tax
Fact: Employees do not have the option to choose whether to pay PAYE tax or not. The responsibility for deducting and remitting PAYE tax lies with the employer. Employees must comply with this legal requirement, and employers must ensure accurate deductions are made.
Myth 4: Employers Can Use Any Tax Rate for Deductions
Fact: PAYE tax in Nigeria is calculated based on specific tax rates set by the government. Using incorrect tax rates can lead to under- or over-deductions, which may result in issues for both employers and employees. It is crucial to apply the correct tax rates when calculating deductions.
Myth 5: PAYE Tax Deductions are Not Subject to Review
Fact: PAYE tax deductions are subject to review and audit by tax authorities. Employers are required to maintain accurate records of employee earnings, deductions, and remittances. Tax authorities may conduct audits to ensure compliance with tax laws.
Myth 6: Employers Have No Responsibility for Employee Tax Affairs
Fact: Employers have a significant responsibility for their employees’ tax affairs. This includes deducting and remitting PAYE tax, providing employees with accurate tax certificates, and ensuring compliance with tax laws. Employers play a vital role in facilitating employees’ tax compliance.
Myth 7: All Employees Pay the Same Amount of PAYE Tax
Fact: PAYE tax is progressive, meaning that individuals with higher incomes pay a higher percentage of their income as tax. The tax bands in Nigeria are structured to reflect this progression. Employers must apply the appropriate tax bands to individual employees based on their income levels.
Myth 8: PAYE Tax Laws Are Static
Fact: Tax laws and regulations, including those related to PAYE tax, can change over time. Employers must stay informed about any updates or changes in tax laws that may affect their PAYE tax obligations.
Conclusion:
Dispelling common PAYE tax myths is essential for promoting accurate understanding and compliance with tax regulations in Nigeria. Employers and employees alike should be aware of the facts surrounding PAYE tax to ensure responsible tax management. Seeking professional guidance and collaborating with tax authorities, such as the State Inland Revenue Service (SIRS), can further aid in accurate PAYE tax compliance and foster a transparent and responsible business environment in Nigeria.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.
