Many Nigerians speak of Personal Income Tax and PAYE as if they are two distinct taxes, but they are not. PIT is the actual tax charged on an individual's taxable income, while PAYE—Pay as You Earn—is merely the collection mechanism through which that tax is deducted from employment income as salaries are disbursed. In essence, PIT is the substantive obligation; PAYE is one of the channels for fulfilling that obligation. The 2025 reforms preserve this distinction and add much-needed clarity to the roles of both employers and employees.
For an employee, salary forms part of taxable income and therefore falls under PIT. Rather than requiring the employee to compute and remit the tax in a lump sum at year-end, the law mandates the employer to deduct it progressively from emoluments as they are paid. Section 51(6) of the Nigeria Tax Administration Act (NTAA) 2025 provides that income tax chargeable on an employee shall be deducted by the employer from emoluments, while section 51(7) obliges the employer to ensure that total deductions for the year equal the income tax chargeable on that employment income. This is PAYE in operation: a withholding and remittance method for PIT on salaries and wages.
The 2025 reforms are significant because they affirm that while the employer serves as the remitting agent, the employee remains the taxpayer. Section 14 of the NTAA requires every employer to file an annual return of all emoluments paid to employees no later than 31 January each year, detailing gross emoluments, deductions, net emoluments, and tax deducted. Crucially, section 14(3) goes further: irrespective of the employer's PAYE return, the employee must still file an annual return of income from all sources, in line with section 13. This provision dismantles the long-held misconception that once PAYE is deducted, the employee has no further filing responsibility. PAYE addresses the collection side for employment income, but PIT remains the individual's broader tax obligation, particularly where the person has income from sources beyond salary.
Compliance consequences are now more explicit under the new framework. Section 49 of the NTAA stipulates that tax due must be paid on or before the filing due date. Section 105 imposes an administrative penalty of 40 per cent of the amount not deducted where a person who ought to have deducted tax fails to do so. Section 107 raises the stakes still further: where tax has been deducted, collected, or withheld but not remitted by the 21st day of the following month, the defaulter becomes liable for the unremitted amount, a 10 per cent per annum administrative penalty, and interest at the prevailing Central Bank of Nigeria monetary policy rate. The revised legislation therefore not only clarifies roles but also makes the cost of non-compliance significantly more explicit.
PIT and PAYE are not competing taxes. They belong to the same tax chain. PIT is the underlying tax on personal income; PAYE is the administrative channel for collecting that tax from employment income. Under the 2025 reforms, employers bear clearer duties to deduct, report, and remit, while employees remain responsible for declaring their full income position. Same tax, different delivery.
