Overview of Employer Tax Obligations in Nigeria
Employers in Nigeria are subject to various tax obligations and social contributions that must be deducted from employee salaries and remitted to relevant authorities. The Nigerian tax system operates a Pay-As-You-Earn (PAYE) structure alongside mandatory social security contributions administered by federal agencies.
The primary regulatory framework governing employer tax obligations includes the Personal Income Tax Act (PITA) 2004 as amended, the Pension Reform Act 2014, and various state tax laws. Employers must navigate both federal and state-level requirements, with compliance varying across Nigeria's 36 states and the Federal Capital Territory (FCT).
Pay-As-You-Earn (PAYE) Tax
PAYE Tax Rates and Structure
Under the Personal Income Tax Act 2004 as amended, Nigerian employers must deduct PAYE tax from employee salaries using the following progressive tax bands:
- First ₦300,000 of annual income: 7%
- Next ₦300,000 (₦300,001 to ₦600,000): 11%
- Next ₦500,000 (₦600,001 to ₦1,100,000): 15%
- Next ₦500,000 (₦1,100,001 to ₦1,600,000): 19%
- Next ₦1,600,000 (₦1,600,001 to �N3,200,000): 21%
- Above ₦3,200,000: 24%
Personal Relief Allowance and Deductions
Employers must apply the following relief allowances when calculating PAYE:
- Personal Relief Allowance: ₦200,000 or 1% of gross income (whichever is higher), capped at ₦200,000
- Dependent Relief: ₦2,500 per child (maximum of 4 children)
- Disabled Relief: 5% of gross income for employees with disabilities
- Life Assurance Premium: Up to ₦100,000 or 15% of gross income (whichever is lower)
PAYE Remittance Requirements
Employers must remit PAYE deductions to the relevant State Internal Revenue Service within 10 days of the end of each month. Late remittance attracts penalties of 5% for the first month and 2% for subsequent months, plus interest at prevailing Central Bank of Nigeria rates.
Pension Contributions
Contributory Pension Scheme
Under the Pension Reform Act 2014, employers with 3 or more employees must participate in the Contributory Pension Scheme (CPS). The contribution structure is:
- Employer contribution: Minimum 10% of monthly emoluments
- Employee contribution: Minimum 8% of monthly emoluments
- Total minimum contribution: 18% of monthly emoluments
Employers may choose to contribute more than 10%, but the total employer-employee contribution must not exceed 20% of monthly emoluments without approval from the National Pension Commission (PenCom).
Pension Fund Administrators (PFAs)
Employers must register with licensed Pension Fund Administrators and ensure monthly remittances are made within 7 days of paying salaries. Failure to remit pension contributions attracts penalties of 2% per month of the outstanding amount.
National Housing Fund (NHF)
Under the National Housing Fund Act, employers must deduct 2.5% of monthly basic salary from employees earning ₦3,000 or more per annum. This contribution is mandatory for all employees and must be remitted to the Federal Mortgage Bank of Nigeria within 30 days of deduction.
Key NHF requirements include:
- Deduction rate: 2.5% of monthly basic salary
- Minimum threshold: Employees earning ₦3,000+ annually
- Remittance period: Within 30 days of deduction
- Penalties: 5% penalty for late remittance
Nigeria Social Insurance Trust Fund (NSITF)
The Employees' Compensation Act 2010 established the Nigeria Social Insurance Trust Fund, requiring employers to contribute to employee compensation insurance. The contribution structure includes:
- Employer contribution: 1% of total monthly payroll
- Employee contribution: 0.5% of monthly gross salary
- Coverage: Work-related injuries, disabilities, and occupational diseases
All employers with one or more employees must register with NSITF and make monthly contributions. Non-compliance attracts penalties and potential prosecution under the Act.
Industrial Training Fund (ITF)
Under the Industrial Training Fund Act, employers with 25 or more employees, or annual payroll exceeding ₦50 million, must contribute 1% of their total annual payroll to the ITF. This contribution supports skills development and vocational training programs across Nigeria.
ITF contribution requirements:
- Rate: 1% of annual payroll
- Threshold: 25+ employees OR ₦50 million+ annual payroll
- Due date: Within 60 days of year-end
- Penalties: 10% of assessed levy for late payment
State-Specific Taxes and Levies
Development Levy
Various states impose development levies on employers, with rates and structures varying by state. Common development levies include:
- Lagos State Employment Trust Fund: 0.25% of annual gross salary
- State development levies: Varies by state (to be verified for specific rates)
- Local government levies: Applied at local government area level
Withholding Tax Obligations
Employers must deduct withholding tax on various payments to third parties at rates specified under the relevant tax laws:
- Dividends: 10% (7.5% for listed companies)
- Interest: 10%
- Rent: 10%
- Professional fees: 10%
- Consultancy fees: 10%
Compliance and Record-Keeping Requirements
Documentation and Filing
Employers must maintain comprehensive records and file various returns:
- Monthly PAYE returns to relevant State Internal Revenue Service
- Annual Income Tax returns by March 31st following tax year
- Monthly pension contribution schedules to PFAs
- Quarterly VAT returns (if applicable)
- Annual ITF returns and payments
Penalties and Enforcement
Non-compliance with employer tax obligations attracts various penalties:
- Late filing penalties: ₦25,000 for companies, ₦10,000 for individuals
- Late payment penalties: 5% first month, 2% subsequent months
- Interest charges: At prevailing CBN rates
- Criminal prosecution: For willful tax evasion
- Business closure: For persistent non-compliance
Recent Developments and Updates
Recent changes in Nigerian employer tax obligations include:
- Introduction of electronic filing systems across various states
- Enhanced enforcement through inter-agency collaboration
- Digital payment platforms for tax remittances
- Updated penalty structures in various states (specific details to be verified)
Employers should regularly consult with qualified tax advisors and monitor updates from relevant agencies including the Federal Inland Revenue Service, State Internal Revenue Services, PenCom, and NSITF to ensure ongoing compliance with evolving requirements.