The Federal Government, through the Presidential Fiscal Policy and Tax Reform Committee, announces plans to exempt Nigerians earning the national minimum wage and slightly above from the Pay As You Earn (PAYE) tax, pending the approval of the Tax Reform Bills. This development is confirmed by the committee’s chairman, Taiwo Oyedele, who, on Monday, addresses the public to clarify key aspects of the proposed tax changes.
Oyedele explains that individuals with monthly earnings up to approximately N1.7 million will experience a reduction in PAYE taxes, while those earning the new minimum wage of N70,000 or slightly more will be fully exempted. This adjustment aims to provide financial relief to low-income earners who have been increasingly impacted by outdated tax brackets introduced in 2011. These unadjusted rates have resulted in “fiscal drag,” pushing more low-income individuals into higher tax bands over time due to inflation.
The revised tax thresholds are set to benefit about 98% of employees in both the public and private sectors, resulting in lower tax payments, while the top 2% of high-income earners will see a modest increase in their tax rate, which could go up to 25% for the wealthiest individuals. Oyedele emphasizes that these changes align with the government’s policy of not taxing the poor, ensuring that the lowest-income earners, who make up roughly one-third of the workforce, are entirely exempt from taxes, while middle-income earners will benefit from reduced rates.
Additionally, the new tax reform includes significant Value Added Tax (VAT) exemptions on essential goods and services such as food, healthcare, education, rent, and public transportation. These zero-rated items account for an average of 82% of household expenditures and nearly 100% for low-income families, aiming to reduce the cost of living and alleviate financial burdens on vulnerable groups.
Addressing concerns over the VAT allocation formula, which has met resistance from some regional stakeholders, Oyedele assures that no state will experience a drop in revenue under the new derivation model. He explains that the reform includes a 5% equalisation transfer fund to support states that may receive less revenue due to the new allocation method. This approach ensures revenue stability for all states in the short term while promoting broader economic growth in the medium to long term.
To support the expanding digital economy, Oyedele outlines proposed changes to income tax laws designed to facilitate remote work opportunities for Nigerians, particularly in the global business process outsourcing industry. This initiative is expected to create more job prospects for the nation’s youth in the digital space.
Further, the proposed tax reform bills aim to streamline consumption taxes by abolishing all subnational levies, except for VAT, to tackle the issue of multiple taxation, which burdens both businesses and consumers. Oyedele clarifies that these reforms will not result in the merger or dissolution of existing revenue agencies, such as the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) and the Nigerian Customs Service (NCS). Instead, these agencies will continue to perform their regulatory duties, with their operations funded through the national budget rather than through direct fee collections.
These tax reforms are part of the Federal Government’s broader strategy to modernize Nigeria’s tax system, increase revenue generation, and establish a fairer tax structure that reflects current economic conditions.
