Tax Insight 1- Contributions to the Voluntary Pension Scheme (VC) are tax free, although the National Pension Commission (PENCOM) has recently issued a Circular to all Pension Fund Custodians (PFC) and Pension Fund Administrators (PFA) to, among other things, restrict withdrawals from the VC to only once in every 2 years, and to not more than 50% of incremental contributions at each time of such withdrawals. This directive will become effective from 1 December 2017.
Tax Insight 2- Some other deductible items under Pay-as-You-Earn (PAYE) include:
- Contributions to pensions (employer and employee portions, including voluntary contributions);
- Gratuities;
- National housing fund contributions;
- National health insurance schemes;
- Life assurance premium;
- Interest on mortgages taken for owner occupied houses;
- Consolidated relief allowance of N200,000 plus 20% of gross income, subject to a minimum tax of 1% of gross income, whichever is higher;
- Children and dependent relative allowances;
Tax Insight 3- When computing Pay-As-You-Earn (PAYE):
- seek out the tax exempt/ deductible items of your payroll;
- add them to the gross incomes of employees
- calculate and deduct the personal allowances (20% of gross income) and other allowances
- remove the exempt/ deductible items again, before applying the tax table
- Adding these exempt/ deductible items to the gross incomes first will increase the gross incomes, ensure you claim the maximum personal allowances for your employees and thus reduce the taxes payable.
Tax Insight 4: Effective 1 January this year, 2017, when computing Employee Compensation Levy (ECA Levy, formerly NSITF Levy) at 1% of payroll cost, you are allowed to deduct the following from the payroll cost before applying the 1%.
- Pension contributions (employer and employee portions, including voluntary contributions)
- Bonuses – performance related payments (whether monthly, quarterly or yearly)
- Overtime payments
- Irregular one-off payments (e.g. driver’s allowances, medicals, 13th month salary, etc.)