Explainer: 15 Things You Should Know About New Personal Income Tax (PIT) Framework
There has been a lot of anxiety and misinformation surrounding Nigeria’s updated Personal Income Tax (PIT) framework. Much of this fear is driven by misunderstandings about how taxes are assessed, collected, and enforced. The reality is far less dramatic than many online claims suggest.
Chief John Oladapo, an X user, has taken the time to break down some of the main items to note in the implementation of the revised tax.
Source: UGC
1. The government does not have the power to arbitrarily enter your bank account and deduct personal income tax. There is no valid law that allows automatic debiting of personal bank accounts for PIT without due process. Tax collection must follow established legal procedures.
2. PIT is only assessed and collected through recognised legal mechanisms. These include Pay-As-You-Earn (PAYE) deductions for employees, self-assessment and tax filings for self-employed individuals, and formal assessments or demand notices issued by the tax authority after review. Taxes do not happen randomly or informally.
3. Banks are not tax enforcement agencies. Your bank statement is not a tax return, and money paid into your account is not automatically treated as taxable income. Financial institutions simply hold funds; they do not determine tax obligations on behalf of the government.
4. The narration or description attached to a bank transfer does not determine whether tax is due. Writing “gift,” “family support,” “soft life,” or similar labels does not legally alter the nature of the transaction. That said, it is still good financial practice to describe transactions accurately for record-keeping and clarity.
5. Tax law focuses on substance rather than labels. What truly matters is the economic reality of the transaction. If money is earned as salary, it remains salary regardless of what it is called. If it is business income, it does not become non-taxable simply because it was described as “support.”
6. Genuine gifts are generally not treated as taxable income. However, tax authorities look beyond isolated transfers. When “gifts” are frequent, regular, or tied to services rendered or business activity, they may be reclassified as income. In such cases, concepts like presumptive taxation may apply.
7. Tax authorities do not rely on guesswork or random bank inflows. PIT assessments are based on audits, employment records, business activity, tax filings, and supporting evidence. Investigations are structured and evidence-based, not speculative.
8. Mislabeling transactions can backfire. If funds are falsely described and later reclassified during an audit, the taxpayer may face back taxes, penalties, and interest. Trying to be clever with descriptions often creates more risk than protection.
9. Personal Income Tax applies to income, not to spending. It is charged on earnings such as salaries, wages, bonuses, allowances, and other personal income, not on what you buy or how you spend your money.
10. PIT itself is not new. It has always existed under the Personal Income Tax Act (PITA). What the recent reforms changed is the structure of taxation—income thresholds, tax bands, and how the burden is distributed—not the concept of taxing income.
11. The reforms significantly protect low-income earners. Under the new regime, individuals earning up to ₦800,000 per year pay zero personal income tax. Previously, taxation began at much lower income levels, meaning even very low earners were taxed. The policy shift reflects a clear intention to stop taxing survival income.
For example, someone earning ₦600,000 annually:
- Under the old system, PIT was applied after limited reliefs.
- Under the new system, the individual pays ₦0 PIT.
Middle-income earners are taxed only on income above ₦800,000. For instance, a person earning ₦1.2 million annually is taxed only on ₦400,000, not on their entire income as before.
High-income earners contribute more because larger portions of their income fall into higher tax brackets. Under the old system, generous reliefs and early rate caps reduced their effective tax burden. The new structure narrows those shelters and applies higher rates to higher income levels, aligning with global best practices.
12. Because most Nigerians fall into low-income categories, the majority of people now either pay no PIT at all or pay less than they did under the previous regime.
Source: Facebook
13. For salaried workers, PIT is deducted automatically through PAYE. Employees do not calculate or remit this tax themselves; their employers handle it on their behalf.
14. Once PIT is deducted, employers are legally required to remit it to the tax authority. Employers act only as collection agents, and failure to remit deductions attracts penalties and sanctions.
15. Self-employed individuals remain subject to PIT, but they also benefit from the same zero-tax threshold and progressive tax bands introduced by the reforms.
Bottomline:
- The old tax structure taxed people too early and too harshly.
- The new regime shields low-income earners and focuses taxation on those with greater capacity to pay.
- This shift reflects a globally accepted approach to fair and progressive taxation.
Understanding these points helps replace fear with facts—and misinformation with clarity.
Source: Legit.ng
