Nigeria’s Federal Government is proposing a significant tax reform that targets high-income earners, aiming to create a more equitable tax system.
According to Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, individuals earning N100 million or more monthly will face a 25% personal income tax rate if the new tax bill is passed by the National Assembly.
Oyedele emphasized the need for a more streamlined and equitable tax system, stating that a staggering 90% of current taxpayers are individuals who shouldn’t be taxed.
“If you earn N100m a month, we are taking up to 25% from the rich people. That’s because we need to balance the books,” Oyedele explained during a breakout session at the ongoing 30th Nigeria Economic Summit organised by the Nigerian Economic Summit Group and the Ministry of Budget and National Planning in Abuja.
The proposed reforms have a dual focus. Firstly, they aim to alleviate the tax burden on lower-income earners. Middle-income earners making N1.5 million or less per month will see decreased personal income tax obligations.
Conversely, those earning higher amounts will face incremental tax rate increases, eventually reaching 25%. Lower-income earners will be fully exempt from personal income tax, providing much-needed relief.
Additionally, the reforms seek to ease the tax burden on businesses. Oyedele noted that businesses will receive 100% credit back on services and assets, reducing costs and pricing. “Today, whatever VAT you pay on assets—whether you’re building a factory, buying a laptop, or vehicles—you bear it. This increases your cost, and therefore, your pricing will go up. Once our reforms are implemented, you get the credit back 100 percent on services and assets,” Oyedele said.
The government is determined to ensure the right individuals pay taxes. To achieve this, Oyedele’s committee will utilize primary data identification channels to accurately bring taxpayers into the tax bracket. He emphasized that people will pay taxes once the committee decides they have to.
The corporate income tax rate is also set to drop from 30% to 25%, described by Oyedele as “huge” for businesses. Furthermore, the reforms include a reduction or elimination of Value Added Tax (VAT) on essential goods and services such as food, health, education, accommodation, and transportation. These essential services make up a large portion of household expenditure for the lower-income population, and the proposed reforms aim to lessen their financial burden.
However, Oyedele acknowledged that not all sectors would benefit from reduced tax rates.
For other goods and services, the VAT rate would increase to ensure the government’s revenue book balance. He also pointed out that inflation had already acted as a “disorderly” tax on the population, eroding the value of their money without the need for legislation.
Regarding concerns over tax incentives and waivers, Oyedele argued that indiscriminate incentives harm the economy.
“We cannot give all the incentives you are asking for. We think the biggest low-hanging fruit is removing these incentives, and that’s exactly what we are doing,” Oyedele concluded.
These proposed reforms are expected to take effect from January 2025, pending passage of the bill by lawmakers.
