Personal income tax in Nigeria is widely misunderstood. Below, we address six common misconceptions under the Personal Income Tax Act (as amended) (PITA).
1. I don’t have to pay personal income tax if I do not earn a salary
Not true. Sections 3 and 33 of PITA cover income beyond salaries. That includes income from a trade or business, investments and other taxable earnings, apart from exempt income. So even without a salary, you may still have taxable income.
There is one exception. If your only income is a salary at or below the minimum wage (currently NGN70,000), you do not pay personal income tax.
2. If my employer deducts PAYE, I don’t need to file tax returns
Many employees assume that Pay-As-You-Earn (PAYE) deductions end their obligations. That assumption is wrong.
PAYE covers only employment income. Your employer remits those deductions, but you must still file your own personal income tax return. Whether or not you earn from investments, rent or other sources, the law requires you to declare income from all sources to the relevant tax authority.
3. I pay huge taxes but get no personal benefit
This misunderstands what tax is. Tax is a compulsory contribution backed by law, not a fee for a service you personally receive.
Instead, government applies tax revenue to public utilities and essential services for the collective good.
4. Tax authorities won’t notice if I under-report income
They increasingly will. The Federal Inland Revenue Service and State Internal Revenue Services now use technology to track income and enforce compliance. Staying current on your taxes is therefore the best way to avoid heavy interest and penalties.
5. Tax avoidance and tax evasion are the same
Not at all. Tax avoidance is legal. It means using tax laws to structure your affairs so that you pay less tax, within the bounds of the law. However, tax authorities frown on aggressive avoidance schemes and move quickly to close loopholes.
Tax evasion, on the other hand, is illegal. It means deliberately falsifying reports, hiding income or misrepresenting obligations to avoid paying tax.
A learned judge once held that “no man… is under the smallest obligation, moral or other, to arrange his legal relations to his business or property so as to enable [the tax authorities] put the largest shovel in his stores. The [tax authorities] are not slow to take advantage open to them under the taxing statutes for the purpose of depleting the taxpayers’ pocket….“
In short, use the law smartly, but don’t cross the line.
6. I can’t claim deductible allowances if I am not a company
You can. PITA lets individuals claim allowances, just as the Companies Income Tax Act lets companies claim capital allowances. Individuals may claim consolidated relief allowance, pension contributions, life assurance premiums and National Housing Fund contributions.
Note that Nigeria’s 2025 tax reforms change several of these rules from January 2026, including replacing the consolidated relief allowance with a rent relief. Our guide to employment income taxation under the Tax Reform Acts explains the new position, and our Q1 2025 review of the Nigerian tax landscape covers other recent developments.
For tax related insights, contact our tax team – tax@olaniwunajayi.net and subscribe to our newsletter.