The PAYE ( Pay As You Earn) in Nigeria is an example of ______

1. Analyze the question The question asks what type of tax PAYE (Pay As You Earn) is. PAYE is the income tax deducted directly from employees' salaries in Nigeria.

2. Explain the concept Taxes are classified by how the rate changes with income:

• Progressive tax: The tax rate rises as income rises, so higher earners pay a larger percentage of their income.
• Regressive tax: The tax takes a larger percentage from low earners than from high earners (for example, some consumption taxes).
• Proportional (flat rate) tax: The same percentage is charged on everyone, regardless of income.
• Community tax: A local levy imposed on residents of a community, not tied to employment income.

3. Solution Under the Personal Income Tax Act in Nigeria, PAYE is calculated using graduated tax bands. The first portion of income is taxed at a lower rate, and each higher portion is taxed at a higher rate. For example, under the older bands, the rate climbed from 7% on the first band up to 24% on the highest band. Because people with higher incomes pay a higher percentage, PAYE is a progressive tax.

• A. Flat rate: wrong, because the rate is not the same for everyone.
• B. Community tax: wrong, because PAYE is a payroll income tax, not a local community levy.
• C. Regressive: wrong, because the burden does not fall more heavily on the poor.
• D. Progressive: correct.

4. Answer The correct option is D. Progressive tax.

5. Exam tip Remember: "Pay more as you earn more" = Progressive. If a question links income tax to graduated bands or rising rates, think progressive. If the rate stays the same for everyone, think proportional or flat.