Topic Content:
- Income Tax and PAYE (Pay as You Earn)
Income Tax: is the part of a person’s income above a minimum value that is paid to the Government. The government uses taxes to pay for public services such as healthcare, education, transport, defence, etc.
PAYE (Pay As You Earn): This is a method of paying tax where employers deduct income tax from their employee’s pay.
The method of calculating taxes varies in different countries and tax rates change from time to time.
The table below shows an example:
Rate of Income Tax
| Tax bands on taxable income ₦ | Rate of Tax |
| First ₦200,000 | 10% |
| Over ₦200,000 and up to ₦400,000 | 15% |
| Over ₦400,000 and up to ₦600,000 | 20% |
| Over ₦600,000 | 25% |
This table simply means, First ₦200,000, Next ₦200,000, Next ₦200,000 etc.
For example ₦565,000 will be 10% of ₦200,000 + 15% of ₦200,000 + 20% of N165,000.
₦165,000 is not up to ₦200,000 so we will stop here.
Note that ₦200,000 + ₦200,000 + ₦165,000 = ₦565,000
For any wage or Salary earner:
Taxable Income = Total Income – Allowance
Allowances are as follows:
(i) Personal allowance = ₦60,000
(ii) Child allowance = ₦25,000 for each child under 16 years of age (for a maximum of 4 children)
(iii) Dependent relative allowance = Maximum of ₦40,000
Note: Only one working parent can claim child allowance.
Example 1.2.1:
A man has 7 children and claims ₦30,000 for a dependent relative. What is the man’s allowance?
Solution
Personal allowance = ₦60,000
Child allowance = 4 × ₦25,000 = ₦100,000 (maximum of 4 children)
Dependent relative allowance = ₦30,000
Total allowance = Personal allowance + Child allowance + Dependent relative allowance
Total allowance = ₦60,000 + ₦100,000 + ₦30,000
Total allowance = ₦190,000
Example 1.2.2:
A man has a total income of ₦528,000 per month. He has three young children. He claims ₦37,000 for a dependent relative. Calculate the amount of tax he pays.
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Let’s say for example,his taxable income is #655 000, how what will be the tax? Thank you in anticipation of your response.
10% of #200,000 + 15% of #200,000 + 20% of #200,000 + 25% of #55000
= #20,000 + #30,000 + #40,000 + #13750
= #103,750
Thanks for this
pls i do not understand could someone help me with income tax and paye
Wow amazing.
Wow ,so interesting