Personal Income Tax (PIT) and Pay As You Earn (PAYE) are often used interchangeably in Nigeria, yet they describe two distinct aspects of the same tax.
PIT is the tax itself — a statutory obligation imposed by the Personal Income Tax Act (PITA) Cap P8 LFN 2004 on the income of individuals, communities, families, executors, and trustees. It applies to all taxable income earned by a person in a given year of assessment.
PAYE, by contrast, is not a separate tax. It is the collection mechanism through which an employer withholds PIT at source from an employee's salary or wages and remits the deducted amount to the relevant State Internal Revenue Service (SIRS). The employer acts as an agent of the tax authority, computing the liability, deducting it monthly, and filing returns on behalf of the employee.
The distinction matters for compliance. An employee whose tax is fully covered by PAYE deductions generally has no further filing obligation for that employment income. However, individuals earning income outside the PAYE net — such as self-employed professionals, consultants, or those with multiple income streams — must file annual PIT returns directly with the tax authority.
Both PIT and PAYE operate under the same graduated tax rates, consolidated relief allowance, and other deductions prescribed by the PIT Act. The difference is purely one of delivery: PIT names the obligation, while PAYE names the remittance channel.
