PAYE and the Nigeria’s tax system


TAX – This is likely one of the most used words in the World particularly if you work or run a Business.

Taxes is a word used to describe the mandatory FEES Individuals and Citizens pay to the Government.

In return, Government is committed to using these MONIES to run its projects and programs alongside PAYMENT of Civil Servants and Appointed Public Servants who work for the good of the Nation and Citizenry.

In Nigeria, we can debate from today until eternity about whether TAXES paid to Government COFFERS has achieved its purpose? What do we think?

Ever wondered what the P.A.Y.E stands for – This is the most POPULAR Tax Bracket because it affects the large majority of Nigerians who are EMPLOYEES and work in structured large, medium or small businesses.

Do you imagine how your personal income taxes are calculated, debited and spent by our respective Governments?

No worries, the Nigerian Global Affairs Council (NIGAC) got you covered, it will SIMPLIFY and breakdown Nigeria’s TAX SYSTEM for your benefit.


Nigeria operates a GRADUATED Tax System. The P.A.Y.E which means ‘PAY AS YOU EARN’ is a Federal Finance Law adopted and replicated across the 36 states of the Federation that MANDATES that Employees have their TAXES deducted from SOURCE: their companies PAYROLL, and that these deducted MONIES be paid to the State Government in which that EMPLOYEE resides FULL-TIME.

Every CITIZEN who pays taxes to their State Government where they reside is ENTITLED to a SPECIAL TAX IDENTIFICATION NUMBER (TIN) which is attached to their NAMES for LIFE. Having a TIN is MANDATORY and your RIGHT so long you are PAYING your TAXES through your ORGANIZATION or directly on your own by reporting your earnings.

Let us use an ANALOGY to explain how TAXES are DEDUCTED and remitted to the State Government.

Let’s say ABIOLA earns 1.5 Million Naira per ANNUM at GROSS – After statutory deductions like Healthcare, Pension and Housing including Social Insurance has been deducted, ABIOLA annual take-home comes to 1 MILLION NAIRA. When divided, ABIOLA likely earns SLIGHTLY above 80,000 per MONTH. This is where it gets TECHNICAL.

Remember we said that Nigeria operates a GRADUATED TAX SYSTEM, also remember that Abiola has an annual NET PAY of 1 Million Naira.

The first 300k that makes up ABIOLA ANNUAL PAY is taxed at 7% – It equals N21,000
The next 300k that makes up ABIOLA ANNUAL PAY is taxed at 11% – it equals N33,000
The last 400k that makes up ABIOLA ANNUAL PAY is taxed at 15% – it equals N60,000

The total ANNUAL TAX ABIOLA is liable to pay will be N114,000 which comes to N9,500 per MONTH.

This MONEY will be deducted from his NET SALARY after STATUTORY DEDUCTIONS have been removed, in cases where STATUTORY DEDUCTIONS are not AVAILABLE, it is the GROSS SALARY which happens to be the NET SALARY too that TAXES are deducted from.

If one happens to earns up to 3.2 MILLION per ANNUM, Graduated TAX will get to 19%, 21% and 24%.

With the explanation above, it tells you how much money States Government are able to generate if there are truly structures in place to deliver VALUE to the citizens as a way to encourage citizens paying up their personal income taxes. This same tax formula works for individuals who are self-employed or freelancers and want to be captured by the TAX Authority in case they need a TAX CLEARANCE CERTIFICATE in future.

Now that you know this, it is quite important that you HOLD your STATE GOVERNORS ACCOUNTABLE and ask the TOUGH questions of what EXACTLY your TAXES are used for – it is your RIGHT.

What do we think? Share your thoughts in the comment section or send as an email to

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