Chairman of the Presidential Fiscal Policy and Tax Reform Committee, Taiwo Oyedele, has said that Nigerians earning minimum wage and slightly above will be exempted from the Pay as You Earn (PAYE) tax once the Tax Reform Bills are signed into law.
Oyedele stated this on Monday while answering 10 questions on the bills as part of moves to sensitise Nigerians on the proposed tax law that has continued to draw criticisms in some parts of the country.
Recall that President Bola Tinubu in July this year approved a new national minimum wage of N70,000 for workers, pushing it up from N30,000.
In addition, Oyedele said Nigerians earning N1.7 million or less would pay reduced tax under the proposed law.
Answering the question of whether workers will pay more PAYE tax under the proposed law, Oyedele said:
“Individuals earning about N1.7 million or less per month will pay lower PAYE tax while those earning the new minimum wage and slightly more will be fully exempted.”
Current tax regime
While noting that the current taxable income bands and rates were introduced in 2011, Oyedele said due to the lack of review, the structure has resulted in “fiscal drag” where many low-income earners have been pushed to the top bracket over time due to high inflation.
- He added that the system also discourages formalisation given that the tax rate on companies is nearly double that of enterprises which also encourages arbitrage in many cases.
- According to him, the proposed law 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, he said, would ensure that an individual with basic education should be able to file their tax returns without any assistance.
On the exemption for minimum wage earners and reduction of tax for low-income earners, Oyedele said:
“These thresholds will result in about 98% of workers in the public and private sector paying lower taxes while the top 2% will pay slightly more in a progressive manner up to 25% for high net worth individuals.”
Proposals for lowest-income earners
Oyedele further revealed that the lowest-income earners accounting for about one-third of all workers will be fully exempted from tax while low and middle-income earners will pay less.
“This is consistent with the policy philosophy of not taxing poverty.
“Also, self-employed persons and entrepreneurs will enjoy tax exemptions available to individuals in formal employment,” he said.
“The VAT reform includes a zero (0%) rate for food, education, health, and the exemption for rent and public transportation. These items constitute an average of 82% of household consumption and nearly 100% for low-income households which will ameliorate the rising cost of living for the masses,” he added.
Taxing remote workers’ income
Oyedele said there are also proposed changes to the income tax laws to facilitate remote work opportunities for Nigerians in Nigeria within the global business process outsourcing.
According to him, this would empower Nigerian youths to play a key role in the digital economy space.
- Answering the question of whether the committee would make any impact going by records of the past government committees, Oyedele noted that the Presidential Fiscal Policy and Tax Reforms Committee was set up with a broad mandate covering fiscal governance, revenue transformation, and economic growth facilitation.
- In addition, he said the committee is charged with implementation rather than merely submitting a report of recommendations at the end of its assignment which has a much lower chance of success
