Curious about the secret to legally reducing your company’s PAYE obligations?
You are not alone. In Nigeria, Pay As You Earn (PAYE) tax is a statutory obligation every employer must handle on behalf of their team. But many business owners unknowingly miss out on legal tax planning strategies that can ease the burden and improve payroll efficiency.
If you are ready to explore how to structure your payroll smartly, stay compliant, and support your employees without overpaying, this guide is for you.
What You Will Learn in This Blog
- What PAYE tax is and how it is calculated in Nigeria
- 5 legal and effective strategies to reduce your PAYE tax burden
- How pension schemes, Maximize Consolidated Relief Allowance (CRA) and other tax exempt items reduces your tax liability
- How to take control of your tax filing process efficiently
What Is PAYE Tax?
PAYE tax is the system the government uses to collect personal income tax on taxable individual directly from their income at source and to be remitted to the state internal revenue services. That way, you are paying taxes gradually as you earn instead of in one big lump sum. It is calculated based on gross income using Nigeria’s progressive tax rate system.
Understanding and compliance with PAYE tax deductions is the first step in effective employer tax planning in Nigeria.
4 Legal Ways to Reduce Your PAYE Tax in Nigeria
1. CRA
CRA is your first line of relief granted in respect of PAYE reduction. Under the Personal Income Tax Act (PITA). You can also get information about current practice trends by contacting Wells Accounting and Tax Service.
What to do
- Ensure you applies CRA correctly to monthly payroll
- If self employed, consult a tax expert to apply it on your tax computation
- Ensure the pay slip is proper calculated
it is vital to underline that CRA is one of the most underutilized Nigeria personal income tax tips that can lead to big savings to the Company.
2. Understand Tax Deductible Allowances in Nigeria
Several statutory contributions are tax deductible, and they reduce gross taxable income. These include
- Pension Contributions
- National Housing Fund (NHF)
- National Health Insurance Scheme (NHIS)
- Life Insurance Premiums
What to do
- Make sure these deductions are visible in the payslip
- Confirm that this deduction above are being remitted to the appropriate bodies
- Keep copies of deduction records for auditing or future tax filing
These deductions are legally approved under PITA and should be claimed on every eligible employee.
3. Enroll in Approved Pension Schemes
Approved pension schemes are a smart way to reduce your PAYE burden while preparing for retirement. By law, employees contribute 8% of their salary to a Retirement Savings Account (RSA), which is tax exempt.
What to do
- Register with a Pension Fund Administrator (PFA)
- Confirm monthly pension deductions are accurate
- Review quarterly RSA statements for consistency
4. Explore Voluntary Pension Contributions (VPC)
In addition to the statutory 8%, you can pay tax deductible Voluntary Pension Contributions
What to do
- Contact your PFA to start voluntary contributions
- Decide on a monthly amount and automate it
- Leave contributions in your RSA for the required holding period
VPCs are a smart, long term PAYE reduction strategy for employees looking to grow wealth and reduce tax.
Ensure changes comply with PITA and local tax laws. Allowances should not be inflated to avoid taxes; auditors search for red flags.
Filing gives you control, opens refund opportunities, and supports your financial credibility.
Real Life PAYE Example
Let us say you have just hired Bisola as part of your growing team. She earns a monthly gross income of ₦250,000, totaling ₦3,000,000 annually. As a responsible employer, you want to ensure her PAYE is calculated legally, accurately, and efficiently, using all allowable reliefs under Nigerian tax laws.
Here is how you determine her annual PAYE liability
Step 1: Apply CRA
Bisola is entitled to a CRA of ₦800,000.
Step 2: Deduct Statutory Pension Contribution
She contributes 8% of her salary to a pension fund (₦240,000 annually).
Note: Her employer’s 10% contribution is not tax-deductible for her.
Step 3: Determine Chargeable Income
Annual Gross Income: ₦3,000,000
Less CRA: ₦800,000
Less Pension Contribution: ₦240,000
Chargeable Income = ₦1,960,000
Step 4: Calculate PAYE Tax Based on PITA Bands
| Income Band | Tax Rate | Tax Amount |
| First ₦300,000 | 7% | ₦21,000 |
| Next ₦300,000 | 11% | ₦33,000 |
| Next ₦500,000 | 15% | ₦75,000 |
| Next ₦500,000 | 19% | ₦95,000 |
| Balance ₦360,000 | 21% | ₦75,600 |
Total PAYE Tax Payable (Annually) ₦299,600
PAYE Tax Payable (Monthly) ₦24,966.67
Frequently Asked Questions (FAQs)
Q. Can salary earners legally reduce PAYE in Nigeria?
A. Yes. Strategies like CRA, pension contributions, and tax-exempt allowances help reduce PAYE legally.
Q. How to lower your PAYE in Nigeria without breaking the law?
A. Use all legally available reliefs, contribute to pension schemes, and file your personal tax returns.
Q. Is tax planning only for high earners?
A. No. Every employee regardless of salary level can and should apply tax planning strategies to reduce their PAYE burden.
Need Help With Your Tax Strategy?
At Wells Accounting and Tax Services, we help individuals and businesses legally optimize their taxes, file returns, and structure compensation the smart way.
If you are looking for expert assistance on how to reduce your PAYE tax in Nigeria, we’re here to help.
Call : +234 913 377 1456
Visit: www.wellsaccountingtax.com
Email: info@wellsaccountingtax.com