Earnings and Tax Matters in Nigeria

NPA/ALO-OKI
Financial Education and
Investment Intelligence
Workshop
ALO-OKI NOVEMBER 2013

What is Money?
What things you do with money?
What better things can you do with money?
How do you manage your income?
What is tax?
What are your tax liabilities?
Why do you need to pay your taxes
Content produced by Seun Adeogun SigniCraft
Nigeria for Summit Strategic services

Money is a particular currency used as a
medium of exchange.
An object or document that is widely
accepted for payments of goods and
services and for the repayment of debts.

The truth is that money
is so powerful that
people do strange things
to get it.
People run around
chasing it (Hustling)
Some wait for it to come
meet them.
Others make money run
after them.
Nevertheless, some
people make money
work for them.
Worse still, some steal it,
do rituals to get it and
even scam unsuspecting
individuals to get money.

Your money is a huge part of your life.
It can determine what you can do and where you
can go.
Learning how to manage your money the right way
is an important step toward taking control of your
life.
There’s a common adage in Yoruba parlance that
‘Money is a visitor’
Where do you belong?

If you think about it, there are really only five things
you can do with money, reasonably…
Earn it-receiving it as an income, salary, wage, etc.
Spend it-using it to acquiring things you need or want or
payment for services or loan repayment.
Save it-keeping it for future use.
Invest it-putting it where it can multiply
Give it-helping others who are in need or buying attention
or feeding your ego, etc.

Waste it: Lavishing or squandering or wasting or
misusing it (on beer, women, luxury, unnecessary and
unimportant items and gadgets etc.)
Spending it aimlessly
Investing it in what you don’t know

Personal money management is about being
organized.
As an income earner you need to account for every
Naira you receive as salary or make through any
other means.

Money management isn't something that we just
instinctively know how to do.
It's a skill which is either learnt from parents,
friends, in school, or through reading.
He who can’t manage his money, ends up living in
regrets and abject poverty.
Let’s consider few ways to manage your income

First, determine your monthly income.
This includes your salary, rental income from property
you own, or returns on your business or investments
and anything that comes in on a monthly basis.
Next, figure out how much you will need to spend,
save or invest out of this total income.

A budget is a tool for determining your monthly financial picture.
It is nothing but a periodic expense plan.
Setting up a budget takes effort, and if you do it right, the
benefits will outweigh the time invested.
A good budget doesn’t just help you save money
It helps you stay on track in reaching your financial goals
Implementing a good budget only works if what you’ve set up is
completely accurate.

List all your spending under these three
categories:
 Fixed expenses i.e. include housing rent, payments,
things that don’t change from month to month. If you
have to pay for all these yearly, then divide the sum by 12
to get the monthly cost.
(E.g. N50,000 per annum as rent. N50,000/12=N4,167.)
 Committed expenses Under committed expenses, list
utilities such as PHCN bills, LAWMA bill, Land use
charge, phone cards or data subscription charges, food,
transportation, children’s school fees, wife’s allowance
and allowances for parents – these are things you’re
committed to.

Discretionary expenses- Everything else falls
under discretionary expenses i.e. spending on clothing,
entertainment, school books, children’s extra-curricular
activities, medical bills, etc.
Once you’ve written everything down, you’ll have a true
picture of where your money goes or the direction is about
to go.
You should be the one to dictate what to do with your
money, don’t let your money dictate what you can and can’t
do. Take charge!

This is the very basic principle of financial discipline .
Take a good hard look at your expenses.
If there’s more money going out than coming in, it’s
time to reduce your spending.
Start with discretionary expenses because it’s usually
the easiest to cut back.

Next, look at your committed expenses.
Is there any way to reduce the amount of expenses on
transportation (may be waking up early to catch a
cheap bus to work), or food you eat outside or
entertainment?
If your fixed expenses are more than your monthly
income…
You may have to think about making some big lifestyle
changes or else you won’t be able to save any money.

Try saving money on your cable TV bill by getting rid of
channels that you don't need.
Perhaps you can get rid of the car if it’s costing you more
expenses.
Or move into a smaller, cheaper yet convenient
apartment.
Remember, the goal of a budget is to help you build up
your savings

How much should you be spending or saving?
It depends on whether you’re single or married, have
children, live with your parents or support them, and
how old you are.
A general rule of thumb is you should be saving at least
15 to 20 percent of your income after tax.
Obviously, the more the better, but this is the
minimum you should be saving.

As for expenses, housing is typically your biggest cost and
here you should only spend one-third of your take home
pay.
If you’re just starting out in making a budget, you could try
the 50-30-20 plan.
Your fixed and committed expenses should make up half of
your after-tax income;
30 percent is discretionary spending and the final 20
percent goes to savings.
It may seem frightening and a bit overpowering to go from
barely making ends meet to saving a chunk of your income,
but having a plan in place is the first step.

If you have some extra time while as an employee it
won’t be a bad idea if you start a small business or look
for other additional legitimate ways to add to your
income.
Having a multiple streams of income is a great idea!
A fraction out of the little you receive as salary saved
overtime can be enough to start a business or be
invested in something that would make it multiply.

Tax is a compulsory contribution to state revenue, levied
by the government on workers' income and business
profits, or added to the cost of some goods, services, and
transactions.
The word Tax can also be in form of tariff, duty, toll,
excise, charges, fees, etc. collected by government and
its agencies at different levels (Federal, State and Local
Government)

Everyone pays taxes in one form or another-mostly
income and sales taxes.
As long as you are an income earner .
The Nigerian tax system is based on our "ability
to pay."
The more money we earn, the more taxes we
pay. And the opposite is also true. If we earn a
small income, we pay less taxes.

Taxes can be divided into two
Indirect taxes
Direct taxes.

The Indirect taxes are taxes like
 Value Added Tax (VAT)
The VAT rate in Nigeria is 5% of the price of the product
purchase Exempt goods and services include basic
foodstuffs, medicines, medical devices and medical
services, and exported goods and services.
 Withholding Taxes (WHT)
The indirect taxes are not deducted from your earnings
rather you pay them when you purchase goods and services
like shopping at ShopRite or paying for the services of an
Accountant or a Lawyer or lodging in a hotel.

Direct taxes are taxes like
Personal Income Tax which is direct because
it is deducted from your salary or earnings.
Corporate tax
Remember
Tax is inevitable.
 You can’t avoid tax for long
And moreover, there are lots of taxes we pay everyday as
individuals either as a citizen or a visitor.

As an employee, you are liable to remitting your
Personal Income Taxes
And this is deducted from the source, i.e. before
you are given your salary.
The amount deducted from your income as tax
depends on the way your Basic Salary and
Allowances are broken down.

Taxable Income Tax Rate
N0 - N30,000 5%
N30,001 - N60,000 10%
N50,001 - N110,000 15%
N110,001 - N160,000 20%
Above N160,000 25%

Taxable Income Tax Rate
First N300,000 7%
N300,001 - N600,000 17%
N600,001 - N1,110,000 15%
N1,100,001 - N1,600,000 19%
N1,600,000 - N3,200,000 21%
Above N3,200,000 24%

ANY QUESTIONS?

THANK YOU
FOR
LISTENING!

Earnings and Tax Matters in Nigeria

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