03/01/2026
Some of the facts and the false of tax under the Personal Income Tax for businesses either registered as enterprises or unincorporated...
First, before we dive in, know that under the personal income tax, we have two forms of assessments which are P.A.Y.E and Direct Assessment.
PAYE which means Pay As You Earn is for people in formal setting/employed labour market while the direct assessment is for those in trades but are either registered as enterprises or unregistered, or self employed/petty traders.
Also, under the personal income tax, taxable income is derived from gross income and not just on your earnings in formal setting or on your one trade and that's why we have self assessment which covers your whole income source either from active or passive income and not just one source of income.
Now, let us get started:
1. Is capital allowance claimable under the personal income tax?
Yes, it's claimable with the following conditions: first, that they fall under QCE(Qualifying Capital Expenditures). Second, the assets must be purchased in the proprietor(s) name and not in the business name since under the law, sole proprietorship has no what we call legal/corporate personality so it cannot stand on its own. Third, for assets that are up to and above 5 million, they need the Certificate of Acceptance from the Ministry of Interior which is issued by the Inspectorate Division of the ministry to claim the allowance.
2. Does the tax law allow me to pay myself a salary and base my taxable income on the salary I pay myself?
No! The law doesn't see your business as a separate entity from you under the direct assessment of the personal income tax. You are taxed at the profit of the business and not the salary you pay yourself. So, you are not expected to pay yourself a salary since you are the business and the business is you. In fact, you are charged at the graduate rate also known as progressive order; the higher you earn, the higher you pay (the higher the profit, the higher the tax)
3. Does the tax law allow me to claim expenses under the personal income tax?
Yes, the tax law allows you to claim expenses as a business owner that either registered as a business name or unregistered. Although, this is tricky and still remains an argument among the Tax scholars as it seems the tax agency has the power to decide on what is qualified... and not. However, Section 20(1) (formerly Section 24 in older versions) of the personal income tax sets the general rule that any expense "wholly and exclusively incurred in the production of income" is deductible when computing the income or loss of an individual or unincorporated business.
Section 20(1)(a) & (b) permits the deduction of interest paid on loans borrowed and used as capital for generating business income.
Section 20(1)(c) & (d) allows for the deduction of rent for business premises and expenses incurred for the repair of business premises and equipment.
Section 20(1)(e) provides for the deduction of bad debts that are proven to have become irrecoverable during the relevant assessment period.
PS: It's painful the initial and original writing of this got deleted while I was writing it on Facebook and I didn't have the back up for it since it was being written off head hence, this released version is not as full as the original.
Anyways, the purpose of the sections of tax law quoted are for research purposes and to also have a strong evidence to support your claim wherever it's needed maybe defending yourself before the tax authority.
Please, don't forget to reference me when this is copied.
Also, for your tax consultation, don't forget to send a dm to us at Andy-Tech Business Consulting and we also run the best business regulatory compliance firm in Nigeria.
~ Daniel
