Tax Relief for Nigeria’s Lowest Earners as Sweeping Reforms Target Fairer Fiscal System

In a significant shift aimed at easing the tax burden on Nigeria’s lowest earners, Taiwo Oyedele, Chair of the Presidential Fiscal Policy and Tax Reform Committee, has confirmed that Nigerians on the minimum wage, and those earning just above it, will be exempt from Pay As You Earn (PAYE) tax under the new fiscal reform measures. Oyedele shared the news on Monday on his X handle, addressing common queries around the proposed tax bills.

This exemption is part of a broader suite of tax reforms submitted to the National Assembly by President Bola Tinubu in September. The four bills—the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill—are set to overhaul Nigeria’s tax landscape, simplifying compliance and expanding revenue generation. However, the proposed changes have sparked intense debate within the Assembly.

Oyedele explained that under the current system, introduced in 2011, inflation has pushed many low-income earners into higher tax brackets. The new structure seeks to redress this by adjusting income bands and lowering effective tax rates for most workers while also simplifying the process, allowing an individual to file their taxes independently.

“This will mean a lower PAYE tax for those earning around N1.7m or less monthly, while minimum-wage earners will be fully exempt,” Oyedele explained, adding that these adjustments will benefit approximately 98% of workers in both public and private sectors. The highest earners—around 2% of the workforce—will face slightly higher rates, scaling up to 25% for high net-worth individuals.

Additionally, the reform package seeks to eliminate most state-level consumption taxes, leaving only the Value Added Tax (VAT) in place. Oyedele noted that duplicate consumption taxes across states have increased the tax burden on individuals and contributed to what he termed “multiple taxation.” The plan aims to discontinue these taxes, streamlining VAT as the sole consumption tax, thus simplifying compliance.

This proposed reform, however, has led to a rift in the Assembly, particularly around the derivation-based model for VAT distribution. Under this new framework, revenue from VAT would be allocated based on where goods and services are consumed rather than the location of company headquarters. This adjustment is seen as a means of fostering economic activity across all states, though some fear it could reduce immediate revenues for specific states.

To address these concerns, Oyedele proposed setting aside 5% of the Federal Government’s VAT share to support equalisationtransfers, ensuring no state experiences a shortfall in the transition to the new model.

While the reform package promises far-reaching benefits, including lower taxes for the majority and a fairer distribution of VAT revenue, the National Assembly remains divided. At its core, the debate over the derivation model reveals deep-seated concerns about state-level revenue impacts and the broader restructuring of Nigeria’s fiscal landscape.