This mail is to update your organisation of monthly statutory obligation to relevant tax authority. Our focus of this write up are as follows:
• Pay As You Earn (PAYE) – Any salary, wage, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums, benefits or other perquisites allowed, given or granted by any person temporary or permanent employee other than so much of any sums as or expenses incurred by him in the performance of his duties, and from which it is not intended that the employee should make any profit or gain.
Every employer is required to deduct PAYE from staff salary and remit it to the relevant tax authority. According to Section 74 (1) Any person or body corporate who, being obliged to deduct tax under section 69, 70, 71 or 72 of this Act, fails to deduct, or having deducted, fails to remit such deductions to the relevant tax authority within stipulated period shall be liable to a penalty of an amount of 10 % of the tax not deducted or remitted in addition to the amount of tax not deducted or remitted plus interest at the prevailing monetary policy rate of the central bank of Nigeria.
The summary of the aforementioned is that all employer must deduct PAYE from staff salary and remit not later than 10 days after deduction. In practice it must be remitted by 10th day preceding the month of deduction. Failure to deduct or deduct and not remit would attract penalty of 10% and interest at ruling bank rate.
PAYE is paid to the state of residence of the employee
N.B we advise relevant tax authority is communicated to if there are genuine reasons why salary would not be paid in a particular month or period. Note that once salary is paid, PAYE must be paid.
• Value Added Tax (VAT) – A vatable entity is expected to remit and file VAT payable to Federal Inland Service on or before 21st of the month after deduction.
In determining VAT payable, input VAT and Output VAT need to be computed and the difference payable to Federal Inland Revenue Service.
It should be noted that only VAT paid on purchases are allowed for deduction from output VAT. Input VAT of service oriented entity are expensed to Profit or Loss while those on fixed assets are to be capitalized and added to cost of the asset.
Current VAT rate is 5%.
Failure to deduct or deduct and not remit within stipulated time frame is N5, 000.00 per months as long as the default continues. Note that the N 5,000.00 is compounding monthly.
• Withholding Tax (WHT) – This is not a separate type of tax but a means of collecting tax. Withholding tax is an advance tax payment. Entity are expected to deduct a specific percentage of invoice value before payment is made to supplier or service provider.
WHT rate applicable is dependent on nature of transaction and relevant revenue authority the tax is due to. Withholding tax paid in advance can be used to offset income tax liability.
Withholding tax deducted must be remitted within 21 day of deduction and failure to remit within specified period would attract penalty and interest.