In a move aimed at easing the tax burden on low-income earners, the Chairman of Nigeria’s Presidential Fiscal Policy and Tax Reform Committee, Taiwo Oyedele, has announced that individuals earning the minimum wage or slightly above it will be exempt from the Pay As You Earn (PAYE) tax under a set of new tax reforms. Oyedele shared this update via his social media account while addressing frequently asked questions about the tax reform bills.
The reforms follow President Bola Tinubu’s submission of four tax reform bills to the National Assembly on September 3, 2024. These bills include the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill. Together, these bills are intended to establish a comprehensive framework for tax policy, streamline tax administration, and replace outdated tax legislation, such as the Federal Inland Revenue Service Act.
Key among the proposals is a restructuring of Nigeria’s tax bands and rates, which have remained unchanged since 2011. This lack of review, combined with persistent inflation, has pushed many low-income earners into higher tax brackets, creating what Oyedele described as “fiscal drag.” The reforms aim to simplify the system, reduce the effective tax rate for workers, and eliminate certain reliefs and allowances to improve clarity. Under the proposed changes, individuals earning up to approximately N1.7 million per month will pay lower PAYE taxes, while those at minimum wage levels will be fully exempt.
“The reforms will ensure that an individual with basic education can file their tax returns independently,” Oyedele explained, adding that a new rent relief allowance will provide additional benefits for low-income earners. He noted that 98% of workers in both public and private sectors would see a reduction in their tax obligations, while the top 2% of earners would see a gradual increase, with high net worth individuals paying up to 25%.
The reform bills also address issues related to consumption taxes. The proposal seeks to eliminate state-level consumption taxes, aside from the Value Added Tax (VAT), which has led to concerns of multiple taxation. The government has assured states that potential shortfalls in revenue will be offset by a 5% federal set-aside fund for equalization transfers, ensuring no state is disadvantaged by the changes in the short term.
One of the more contentious aspects of the proposed reforms is the shift to a derivation-based VAT distribution model. This approach would allocate tax revenue to the states where goods and services are consumed rather than where companies are headquartered, a move that has sparked debate within the National Assembly. Supporters argue that the derivation-based model would stimulate economic activity at the local level, while detractors worry it could lead to revenue imbalances among states.
The reform bills have stirred mixed reactions among lawmakers and stakeholders, with some applauding the shift toward a more progressive and equitable tax system, while others raise concerns over potential impacts on state finances. Oyedele remains optimistic that the changes will boost economic activity and provide long-term benefits for Nigeria’s fiscal stability.
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