Market News

By Joseph Chibueze, Abuja

The Chairman of the Presidential Fiscal Policy and Tax Reform Committee, Taiwo Oyedele, said under the expected personal income tax regime, about 90 per cent of workers in the public service and private sector will pay lower taxes.

Many Nigerians, including top politicians, have expressed fear about the new personal income tax being proposed by the committee.

But Oyedele, on his X handle, explained how the changes in personal income tax would affect the citizens. He said that under the current regime, high inflation and lack of review have resulted in “fiscal drag” where many low-income earners have been pushed to the top tax bracket over time.

“This means that an individual earning just N400 thousand a month is paying the same top marginal income tax rate as a wealthy individual earning say N20 million per month. Therefore, the tax table has become regressive rather than progressive as it was originally designed,” he said.

Oyedele explained that contrary to the general perception that workers will pay more tax under the bills, individuals earning about N1.7 million or less per month would pay lower pay as you earn (PAYE) tax under the bills while those earning the new minimum wage and slightly more will be fully exempted.

He said high-income earners would pay slightly more in a progressive manner up to 25 per cent for the ultra-high net worth individuals.

“This is particularly beneficial to low-income earners. Also, the new tax bands and rates have been designed to avoid a situation where individuals earning slightly more than the exemption threshold are taxed to an extent that makes them worse off than a person whose income is within the exemption threshold.

“For example, a person earning N30 thousand per month is exempt from tax while a person earning N30,001 per month will pay about N500 leaving the latter with a net of N29,500 which is N500 worse than the person earning N30,000. Under the tax bills, this problem has been addressed as everyone will be eligible to the first tax-free bracket,” he said.

He explained that by comparison, the second band under the bills which is to be taxed at 15 per cent is currently being taxed at a marginal rate of 21 per cent even after all reliefs and allowances.

“So, while the 15 per cent may appear steep from 0 per cent for the first band, it is lower compared to the current tax table,” he noted, adding that the real impact for a person earning about N3 million per annum equivalent to the aggregate of the first and second brackets is a lower effective tax rate of 10 per cent compared to about 12 per cent under the current tax table.

“The impact of the Consolidated Relief Allowance (CRA) and personal relief have been incorporated into the tax table such that the overall goal of exempting low-income earners and reducing taxes for middle-income earners is achieved.

“By integrating the reliefs into the tax brackets and rates, many taxpayers with basic education would be able to calculate their taxes with little or no assistance thereby achieving the dual objectives of lower tax burden and tax simplification,” he noted.