Key Changes to Payroll from Finance Act 2020
We wish to bring to your notice some of the amendments to the Finance Act 2020 as it relates to employment tax.
President Muhammad Buhari, on 31 December 2020, signed into law the 2021 Appropriation Bill and the 2020 Finance Bill.
The Finance Act, 2020 amends portions of various tax provisions including that of the personal Income Tax.
Below are a few of these amendments as it relates to employment tax:
- The Finance Act 2020 has introduced a provision to exclude the income of a person earning gross income at the National Minimum wage has defined under the National Minimum Wage Act or less in any year of assessment from payment of Personal Income Tax (PIT).Under the minimum wage act, 2019 the current National Minimum Wage in Nigeria is #30,000 per month thus, individuals who are paid the National minimum wage of #30,000 or less per month are exempted from Personal Income Tax (PIT).
- Amendment in the computation of Pay As You Earn (PAYE). The intent is to prevent a situation where nontaxable income (such as employers’ contribution to pension, Franked Investment Income) and tax-exempt items are considered in the computation of Consolidated Relief Allowance (CRA), including them will lead to an unintended effect of an additional 20% relief over and above the initial 100%.
The impact of deducting tax-exempt items (i.e., pension, health insurance scheme) is that there will be an increase in tax as a result of the increase in chargeable income.