A common point of confusion among Nigerian taxpayers and even some professionals is the distinction between Personal Income Tax (PIT) and Pay As You Earn (PAYE). The short answer: they are the same tax, differentiated only by how they are collected.
PIT is the tax imposed on the income of individuals, communities, and families under the Personal Income Tax Act (PITA), Cap. P8, LFN 2004. It applies to all taxable income earned by an individual, whether from employment, business, investment, or other sources.
PAYE, on the other hand, is not a separate tax. It is simply the method by which PIT is deducted at source from an employee's salary or wages by the employer and remitted to the relevant State Internal Revenue Service (SIRS). Under Section 81 of PITA, every employer is required to deduct tax from the emoluments of its employees and remit same to the tax authority of the state where the employee is resident.
This means that when an employer makes monthly PAYE deductions from a worker's pay, it is PIT that is being collected. The employee does not have a separate PAYE obligation outside of PIT.
For self-employed individuals, professionals, and business owners, PIT is paid directly to the tax authority through self-assessment and filing of annual returns, rather than through the PAYE mechanism.
The distinction matters for compliance purposes. Employees whose taxes are fully remitted via PAYE may still need to file annual returns, particularly if they have additional income sources beyond their employment. Self-employed persons must handle both assessment and remittance independently.
Understanding that PAYE is merely the delivery channel for PIT helps taxpayers better grasp their obligations and avoid the misconception that the two represent separate or cumulative tax liabilities.
