Employee Benefits & Tax Exemptions

Designing a compensation package that is competitive yet tax-efficient is a key retention strategy. In Nigeria, the Personal Income Tax Act (PITA) outlines what constitutes taxable income and what is exempt.

Taxable vs. Exempt Income

Taxable:

• Basic Salary
• Housing Allowance
• Transport Allowance
• Bonuses and Commissions

Tax-Exempt (Conditions Apply):

• Reimbursements: Expenses incurred in the performance of duties (with receipts) are generally not taxable.
• Pension Contributions: Employer contributions to approved pension schemes.
• NHF Contributions: Mandatory statutory contributions are deductible before tax.
• Life Insurance Premiums: Premiums paid by the individual or employer on their behalf.

Structuring for Efficiency

Employers can optimize tax liability by maximizing the use of non-taxable benefits where appropriate. For instance, providing a company car (Benefit in Kind) might have different tax implications compared to a cash transport allowance.

Note: Always seek professional tax advice when restructuring compensation to avoid aggressive tax avoidance schemes that may trigger audits.

Conclusion

Understanding tax exemptions helps employees take home more of their earnings while keeping the company compliant. It’s a win-win for employer branding and employee satisfaction.