30/12/2025
Theophilus Kognet wrote:
PIT vs PAYE vs CIT — THEY ARE NOT THE SAME
Many Nigerians use PIT, PAYE, and CIT interchangeably. From an audit and tax perspective, this is incorrect.
They apply to different people, different types of income, and are assessed differently.
Understanding the difference helps you know:
▪️ what tax applies to you
▪️ when it is paid
▪️ why disputes often arise
1️⃣ PERSONAL INCOME TAX (PIT)
What PIT is
Personal Income Tax (PIT) is a tax on the income of individuals. It applies whether you are employed, self-employed, or earning income from personal investments.
Under the new tax framework, PIT remains the tax that applies to individual persons, not companies.
📌 Law reference: Personal Income Tax Act (PITA), Section 3
(Now consolidated under the Nigeria Tax Act 2025 framework)
What PIT covers (in simple terms)
PIT applies to income such as:
▪️ Business income (trading, sole proprietorships)
▪️ Professional income (consultants, freelancers, doctors, lawyers)
▪️ Rental income (houses, shops, properties)
▪️ Investment income (interest, dividends, certain gains)
2️⃣ PAYE (PAY AS YOU EARN)
PAYE is NOT a separate tax
PAYE is simply a method of collecting Personal Income Tax.
It does not replace PIT and it is not an additional tax.
📌 Law reference: PITA, Section 81 – Employer’s obligation to deduct PAYE
PAYE applies only to employment income, such as:
▪️ Salaries
▪️ Wages
▪️ Bonuses
▪️ Allowances attached to employment
Under PAYE:
▪️ Tax is deducted monthly
▪️ The employer remits the tax on behalf of the employee
A Simple example: If you work in a bank and earn ₦400,000 monthly, your employer deducts PAYE every month, you don’t wait till year-end to pay tax.
You are still paying PIT, but through PAYE.
3️⃣ COMPANY INCOME TAX (CIT)
CIT applies to companies, not people.
Company Income Tax (CIT) is charged on the profits of registered companies.
📌 Law reference: Companies Income Tax Act (CITA), Section 9
(Now harmonized under the Nigeria Tax Act 2025)
CIT is charged on:
▪️ Profits, not revenue
▪️ Profits after allowable business expenses
This is a key distinction auditors emphasize.
A simple example
A company that recorded ₦20 billion in sales and incur ₦19.5 billion in costs.
Tax is charged on the ₦500 million profit, not the ₦20 billion revenue.
CIT assessments rely heavily on:
▪️ Audited financial statements
▪️ Expense substantiation
▪️ Revenue recognition
🎯 KEY TAKEAWAYS
✒️ PIT is the tax on individuals.
✒️ PAYE is how PIT is collected from salaries.
✒️ CIT is the tax on company profits.
They are related, but they are not the same.
In practice: If you know who you are (individual or company) and how you earn, you will know which tax applies.