Clarification on the Implementation of the Consolidated Relief Allowance in the Personal Income Tax
September 24, 2012 / Federal Inland Revenue Services
The attention of FIRS has been drawn to the misunderstanding of the concept of the “Consolidated Relief Allowance” as provided in section 33(1) of the Personal Income Tax (Amendment) Act, 2011 by a section of the tax payers.
This group of Taxpayers in their interpretation erroneously believe that the Consolidated Relief Allowance is a form of Salary Increase to be paid to Workers.
According to them “it appears that by not implementing this raise in their salary the Personal Income Tax (Amendment) Act, 2011 is being breached by the Federal Government who is suppose to be propagating it”
The Service wishes to correct this misconception of the Consolidated Relief Allowance in the law by stating as follows”
I) Consolidated Relief Allowance (CRA) is not a pay rise but rather, it is a portion of the income of an employee that will not be assessed to tax, or the amount that is tax exempted.
II)Consolidated Relief Allowance (CRA) replaces the erstwhile Personal Allowance, Children Allowance, Dependent Relative Allowance, Leave Allowance etc. in the amended law.
III)The provisions of the Personal Income Tax (Amendment) Act, 2011 which came into effect after the Publication of the Act in a Gazette of the Federal Government of Nigeria (see Gazette No. 115 Vol. 98 dated 24th June, 2011) is being implemented.
IV)It is not also true to say that “ the Honourable Minister of Finance has ‘refused to implement the aspect of 2011 PIT law that reviews the allowances of workers and nobody has drawn her attention to this breach of law”
V)Before the amendment of the law, low income earners were only entitled to allowances that were far less than N200,000 on their income but now, they are entitled to N200,000 + 20% of their gross income which is not taxable any longer.
VI)Minimum Tax provision of 1% is charged on the Gross Income if after granting the Consolidated Relief Allowance (CRA) plus 20% of the Gross Income, there is no tax payable or the tax payable is less than 1% of the Gross Income, then the minimum tax will apply.
The rationale behind the Personal Income Tax (Amendment) Act, 2011 is to ensure that the Principal Act which was enacted in 1993 is in line with the current realities while also seeking to provide an equitable Tax system for the country.
Sample Computation of Tax Liability of Different Salaries Based on the PIT Amendment Act 2011
Pay-As-You-Earn (PAYE) Computation based on 2011 Federal Consolidated Public Services Salary Structure (CONPSS), for a public servant on Grade 1 step 1 that contributes to Pension and Housing fund only
Pay-As-You-Earn (PAYE) Computation based on 2011 Federal Consolidated Public Service Salary Structure (CONPSS), for a public servant on grade 16 step 3 that contributes to Pension and Housing fund only
Tax Computation for a Taxpayer on Twenty Four Million Naira (N24,000,000.00) gross income that contributes to Pension and Housing fund only
For further enquiries please contact 08037118102
Director, Communication & Liason Department
Federal Inland Revenue Service