The chairman of the Presidential Fiscal Policy and Tax Reform Committee, Taiwo Oyedele, said minimum wage earners in Nigeria may be exempted from the Pay As You Earn (PAYE) tax model once the Tax Reform Bills become law.
Oyedele made the disclosure during a question and answer session to educate Nigerians on the proposed law.
Under the PAYE tax model, Oyedele stated that “Individuals earning about N1.7 million or less per month will pay lower PAYE tax, while those earning the new minimum wage and slightly above it will be fully exempted.”
He pointed out that the current taxable income bands and rates, introduced in 2011, have not been reviewed, leading to a situation known as “fiscal drag,” where many low-income earners have gradually been pushed to the top tax bracket due to rising inflation.
On the exemptions for minimum wage earners and tax reductions for low-income earners, Oyedele noted, “These new thresholds will result in approximately 98% of workers in both the public and private sectors paying lower taxes, while the top 2% will progressively pay slightly more, with rates reaching up to 25% for high-net-worth individuals.”
He explained that the lowest-income earners, who account for about one-third of all workers, will be fully exempt from tax, while low and middle-income earners will pay less.“This approach aligns with the policy philosophy of not taxing poverty,” he said.
“Furthermore, self-employed individuals and entrepreneurs will benefit from tax exemptions similar to those available to formal employees.”
Oyedele also mentioned that the VAT reform includes a zero percent (0%) rate for essential items such as food, education, and health, as well as exemptions for rent and public transportation.
Section 40 of the current VAT Act, the revenue is allocated as follows: 15% to the Federal Government, 50% to the States and the Federal Capital Territory (FCT), and 35% to Local Governments.
The allocation to states and local governments also incorporates a derivation principle of at least 20%.
He said the items make up an average of 82% of household consumption, nearly 100% for low-income households, which will help alleviate the rising cost of living for many.
Oyedele noted that there will also be proposed changes to income tax laws to facilitate remote work opportunities for Nigerians engaged in global business process outsourcing, empowering Nigerian youth to play a significant role in the digital economy.
The new tax bills, Oyedele said, are being introduced to eliminate all state-level consumption taxes, except VAT.
Oyedele also expressed concerns about the derivation model for VAT allocation to states and assured that no state would be left disadvantaged.
He explained that the law allocates 5% for equalisation transfers to support states that might collect less under the new model.
