[Nigeria] Higher PAYE penalties prompt tighter payroll compliance

In Nigeria, the cost of payroll non-compliance has grown with administrative penalties under the PAYE system reaching up to 40 per cent, forcing employers to strengthen payroll controls and reporting processes, Business Day reports.

The higher penalty regime means payroll errors pose a material financial risk, particularly for companies that remain reliant on manual or poorly integrated systems.

“The compliance template has been flipped,” Abideen Akande - special adviser to the executive chairman of the Lagos State Internal Revenue Service (LIRS) - said. 

Mr Akande was reportedly speaking at a Deloitte-hosted webinar, Integrating Tax Strategy with Total Rewards Philosophy, on January 13.

He said the cost of non-compliance is now higher than the cost of establishing proper systems, and the shift is changing employer behaviour.

According to Business Day, the Nigerian Tax Administration Act (NTAA) 2025 expands employer liability under the PAYE framework. Section 105 of the Act provides that any person required to deduct, collect or withhold tax, but who fails to do so, is liable to an administrative penalty of 40 per cent of the amount not deducted.

Section 107 also states that where tax is deducted but not remitted by the 21st day of the following month, the employer is liable to pay the outstanding tax, an administrative penalty of 10 per cent per annum, and interest at the prevailing Central Bank of Nigeria monetary policy rate.

These provisions significantly increase the cost of payroll errors and late remittances, and narrow the margin for informal practices which were previously undetected.

In 2024, PAYE contributed N705.41 billion to Lagos State’s revenue. In the first quarter of 2025 alone, PAYE collections reportedly stood at N243.613 billion, accounting for 73 per cent of the state’s total internally generated revenue for the period.

“Payroll and employee reward systems are central to revenue certainty and fairness in the tax system,” Mr Akande said. He added that the reforms now place employers at the centre of PAYE compliance rather than treating them as passive collection agents.

The revised PAYE system is reducing tolerance for informal payroll practices, according to tax specialists. 

With penalties rising and more targeted enforcement, organisations failing to strengthen payroll compliance risk higher financial and regulatory exposure.

Source: Business Day

(Quotes via original reporting)

In Nigeria, the cost of payroll non-compliance has grown with administrative penalties under the PAYE system reaching up to 40 per cent, forcing employers to strengthen payroll controls and reporting processes, Business Day reports.

The higher penalty regime means payroll errors pose a material financial risk, particularly for companies that remain reliant on manual or poorly integrated systems.

“The compliance template has been flipped,” Abideen Akande - special adviser to the executive chairman of the Lagos State Internal Revenue Service (LIRS) - said. 

Mr Akande was reportedly speaking at a Deloitte-hosted webinar, Integrating Tax Strategy with Total Rewards Philosophy, on January 13.

He said the cost of non-compliance is now higher than the cost of establishing proper systems, and the shift is changing employer behaviour.

According to Business Day, the Nigerian Tax Administration Act (NTAA) 2025 expands employer liability under the PAYE framework. Section 105 of the Act provides that any person required to deduct, collect or withhold tax, but who fails to do so, is liable to an administrative penalty of 40 per cent of the amount not deducted.

Section 107 also states that where tax is deducted but not remitted by the 21st day of the following month, the employer is liable to pay the outstanding tax, an administrative penalty of 10 per cent per annum, and interest at the prevailing Central Bank of Nigeria monetary policy rate.

These provisions significantly increase the cost of payroll errors and late remittances, and narrow the margin for informal practices which were previously undetected.

In 2024, PAYE contributed N705.41 billion to Lagos State’s revenue. In the first quarter of 2025 alone, PAYE collections reportedly stood at N243.613 billion, accounting for 73 per cent of the state’s total internally generated revenue for the period.

“Payroll and employee reward systems are central to revenue certainty and fairness in the tax system,” Mr Akande said. He added that the reforms now place employers at the centre of PAYE compliance rather than treating them as passive collection agents.

The revised PAYE system is reducing tolerance for informal payroll practices, according to tax specialists. 

With penalties rising and more targeted enforcement, organisations failing to strengthen payroll compliance risk higher financial and regulatory exposure.

Source: Business Day

(Quotes via original reporting)