Nigeria Personal Income Tax Act (PITA) & PAYE Guide: CRA & State IRS Deductions

1. The Statutory Architecture of Nigerian Payroll Tax

In Nigeria, individual income taxation is codified under the Personal Income Tax Act (PITA) 2011 (as amended by successive Finance Acts). While federal taxation (Companies Income Tax, VAT) is administered by the Federal Inland Revenue Service (FIRS), PAYE on individual employee compensation is collected by the State Internal Revenue Service (SIRS) of the state where the employee resides (e.g. LIRS in Lagos State, KDIRS in Kaduna).

Every employer is legally designated as a collection agent, required to calculate, deduct, and remit PAYE on or before the 10th day of the month following payment of remuneration.

2. The Consolidated Relief Allowance (CRA) and Allowable Deductions

Under Section 33 of PITA, every individual taxpayer is granted a Consolidated Relief Allowance (CRA). The CRA is deducted from Gross Remuneration before the progressive tax brackets are applied.

The statutory formula for the Consolidated Relief Allowance is: CRA = Higher of [ ₦200,000 or 1% of Gross Income ] + [ 20% of Gross Income ]. For any employee earning above ₦20,000,000 per year, 1% of Gross Income exceeds ₦200,000; for incomes below this threshold, the fixed ₦200,000 base applies.

In addition to the CRA, the following statutory contributions are fully tax-deductible:

• Employee Pension Contribution: Minimum 8% of Basic Salary, Housing Allowance, and Transport Allowance under the Pension Reform Act 2014.

• National Housing Fund (NHF): 2.5% of monthly basic salary.

• National Health Insurance Scheme (NHIS) contributions.

• Approved Life Assurance Premiums paid on the life of the taxpayer or spouse.

3. The 6-Tier Progressive Marginal Tax Brackets (PITA)

Once the CRA and allowable deductions are subtracted from Gross Income, the remaining balance (Chargeable Income) is assessed against Nigeria’s 6 progressive tax bands:

4. The Statutory Minimum Tax Clause (1%)

Section 37 of PITA incorporates a minimum tax provision: where an employee’s calculated taxable income results in total tax payable of less than 1% of gross remuneration (or where deductions wipe out all taxable income), the employee is statutorily assessed a minimum tax equal to exactly 1.0% of their gross remuneration.

However, under recent Finance Act amendments, low-income earners who earn the National Minimum Wage or less are completely exempt from personal income tax, protecting the most vulnerable workers from tax liability.