HOW TO REDUCE TAX LIABILITY FOR YOUR EMPLOYEES.
Since the signing of the Personal Income Tax (Amendments) Act 2011, a lot had been written and said about it. The focus of this write–up is to look at one of the implications that favour the employees.
The Income Tax Table in the Sixth Schedule to the Principal Act has been substituted with the New Tax Rates as stated in the Table below (Fig.1). The first tax band has been widened from the initial base of =N=30,000 at the rate of 5% to =N=300,000 but now 7% while the last band of above =N=160,000 taxed at the rate of 25% was replaced with =N=3,200,000 at a marginally reduced rate of 24%.
The above table indicate that an employee earning up to =N=600,000 will be liable to pay a tax liability of about =N=54,000 per annum. For an employee with up to =N=1,600,000 per annum as earned income, the person tax liability will be =N=224,000.
Any employee whose income falls within the range =N=3,200,000 and above the tax liability will be within the range of =N=336,000 and =N=560,000. It becomes high as the earned income rises.
The implication is that the tax on the emolument of some low and medium income earners would reduce while those in the high income bracket would pay more taxes. Let us take a look at the hypothetical case of company ABC in (Fig.2) below.
The emoluments per annum of ABC Limited with five employees and applying both the old and new income tax rate respectively to their income, we arrived at annual tax liabilities of each of the employee as indicated in the table Fig.2.
By Femi Adigun
ClearEdge Professional Services Limited
Ampak Plaza, Plot 3 Otunba Jobi Fele Way
Central Business District, Alausa, P.O. Box 12594 Ikeja
Lagos. Cell: 234-8033462408, (0)8099925302