Tax Panel Clarifies PAYE For Minimum Wage Earners

Tax Panel Clarifies PAYE For Minimum Wage Earners

The Chairman of the Presidential Fiscal Policy and Tax Reform Committee, Taiwo Oyedele, has said that Nigerians earning minimum wage or a little above it will be exempted from the Pay As You Earn tax under the new tax reforms.

Oyedele disclosed this on Monday via his X handle as he answered questions about the tax reform bills.

President Bola Tinubu on September 3, 2024, transmitted four tax reform bills to the National Assembly for consideration.

The bills are the Nigeria Tax Bill 2024, which is expected to provide the fiscal framework for taxation in the country, and the Tax Administration Bill, which will provide a clear and concise legal framework for all taxes in the country and reduce disputes.

Others are the Nigeria Revenue Service Establishment Bill, which will repeal the Federal Inland Revenue Service Act and establish the Nigeria Revenue Service, and the Joint Revenue Board Establishment Bill, which will create a tax tribunal and a tax ombudsman.

The tax reform bills which stemmed from the recommendations of Oyedele’s committee have divided members of the National Assembly.

Answering the 10 most frequently asked questions on the tax reform bills, Oyedele said, “The current taxable income bands and rates were introduced in 2011. Due to the lack of review, the structure has resulted in a ‘fiscal drag’ where many low-income earners have been pushed to the top bracket over time due to high inflation.

“Also, the system discourages formalisation given that the tax rate on companies is nearly double that of enterprises which also encourages arbitrage in many cases. The proposal seeks to address these issues and simplify the system by eliminating various reliefs and allowances while adjusting the bands and rates to achieve an overall lower effective tax rate for workers.

“This will ensure that an individual with basic education should be able to file their tax returns without any assistance. There is a rent relief allowance to provide additional benefits for low-income earners. Individuals earning about N1.7m or less per month will pay lower PAYE tax while those earning the new minimum wage and slightly more will be fully exempted.

“These thresholds will result in about 98 per cent of workers in the public and private sector paying lower taxes while the top two per cent will pay slightly more in a progressive manner up to 25 per cent for high net worth individuals.”

He added that the new tax bill will eliminate all state consumption taxes, except the Value Added Tax.

“Imposition of parallel consumption taxes in some states along with VAT which increases the tax burden on the people and contributes to multiple taxation. The reform seeks the discontinuation of all consumption taxes other than VAT.

“The controversy has arisen from the perception that the proposed formula would lead to lower revenue for some states. However, the 5 per cent to be ceded by the FG can be set aside for equalisation transfers to cater for any shortfall to a state under the new model. This ensures that no state is worse off in the short term while significantly enhancing economic activities and revenue for all states in the medium to long term,” Oyedele said.

At the heart of the debate at the National Assembly is the proposed shift to a derivation-based model for Value Added Tax distribution, which would allocate tax revenue to the states where goods and services are consumed, rather than where companies have their headquarters.