FG Targets High Earners: 25% Tax on N100m+ Incomes

Wealthy Nigerians Face 25% Tax Hike

“People will pay tax once we decide that they have to pay. What we realize is that almost 90 per cent of people...”

Nigeria's Presidential Fiscal Policy Committee proposes tax reforms to ease burden on low-income families, boost businesses, and maintain government revenue.

Nigeria is considering a significant tax reform that could impact high-income earners. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, recently proposed a 25% personal income tax rate for individuals earning N100 million or more per month. This change is contingent upon the National Assembly's passage of a new tax bill.

Oyedele emphasized the need for reform, highlighting that 90% of current taxpayers are individuals who shouldn't be taxed under a fair system. He advocates for a more balanced and just tax framework, particularly for low-income earners. This announcement was made at the 30th Nigeria Economic Summit in Abuja, co-hosted by the Nigerian Economic Summit Group and the Ministry of Budget and National Planning.

Points of the Proposed Tax Reform:

• Tax Rate Increase: 25% personal income tax rate for individuals earning N100 million or more per month
• Reform Objective: Create a more balanced and just tax framework
• Focus on Low-Income Earners: Relief for those unfairly taxed under the current system

Background:

Nigeria has been working on economic reforms, including macro-fiscal reforms aimed at stabilizing the economy and promoting growth. The World Bank has been supporting these efforts, recognizing the need for sustained reforms to address development challenges.

Taiwo Oyedele stressed the need for a fairer tax system in Nigeria, where the wealthy contribute their due share to support government revenues while easing the tax burden on the less privileged. This means implementing policies that promote economic growth and reduce poverty, ensuring that those who have more contribute to the system, and providing relief to those struggling to make ends meet.

In essence, Oyedele's proposal aims to strike a balance between taxation and social welfare. By doing so, Nigeria can create a more equitable society where everyone contributes their fair share, and the government can generate revenue to fund essential public services and infrastructure.

Some potential strategies to achieve this goal include:

• Tax Administration Reform: Improving tax collection efficiency and reducing evasion.
• Progressive Taxation: Implementing tax rates that increase with income levels, ensuring the wealthy contribute more.
• Social Protection Programs: Implementing initiatives that support low-income households and vulnerable populations.

Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, recently shed light on two critical economic concerns. Firstly, he pointed out that inflation has effectively acted as an unofficial tax, reducing Nigerians' purchasing power without any formal legislation. This “disorderly tax" has significant implications for the country's economic stability.

Regarding tax incentives and waivers, Oyedele stressed that indiscriminate tax breaks can harm the economy. He proposed eliminating unnecessary incentives, arguing that this would benefit businesses while maintaining government revenue. This approach aims to strike a balance between supporting businesses and ensuring the government's financial sustainability.

Key Facts:

• Inflation's Impact: Inflation has reduced Nigerians' purchasing power, acting as an unofficial tax.
• Tax Incentives: Indiscriminate tax breaks harm the economy and should be removed.
• Economic Balance: Eliminating unnecessary incentives will benefit businesses without reducing government revenue.
• Taiwo Oyedele unveiled plans to slash corporate income tax from 30% to 25%, providing significant relief to businesses.

The proposed reforms also target Value-Added Tax (VAT). Essential goods and services like food, healthcare, education, housing, and transportation will see reduced or eliminated VAT, easing financial burdens on low-income families.

However, not all sectors will benefit from lower tax rates. To maintain government revenue, VAT rates will increase for other goods and services.

“If you earn N100 million a month, we are taking up to 25 percent from the rich people. That's because we need to balance the books,” Oyedele stated.

Nigeria is on the verge of significant tax reforms, aiming to create a fairer system where the wealthy contribute their share. Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, emphasized the government's commitment to ensuring taxes are paid by those who should be paying.

Proposed Tax Reforms:

• Reduced Tax for Middle-Income Earners: Those making N1.5 million or less per month will see a decrease in personal income tax.
• Gradual Increases for Higher Earners: Those above the threshold will face gradual tax rate increases, capping at 25% for the highest earners.
• Exemption for Lower-Income Earners: Individuals with lower incomes will be exempt from paying personal income tax altogether.

These reforms are expected to take effect in January 2025, pending lawmakers' approval. Oyedele's proposal aims to redistribute wealth and ease the tax burden on low-income earners. Currently, 90% of taxpayers are individuals who shouldn't be taxed under a fair system, highlighting the urgency for reform.

The tax reforms also aim to ease the tax burden on businesses, fostering a conducive environment for economic growth.

Oyedele noted: “Today, whatever VAT you (businesses) 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.”

“People will pay tax once we decide that they have to pay. What we realize is that almost 90 per cent of people who are paying taxes are those who should not have been paying in the first place,” he said.

Taiwo Oyedele's committee has a plan to ensure the right people pay taxes in Nigeria. They're developing a system that uses national identity numbers for individuals and corporate registration numbers for businesses, linking all economic activities to these identifiers. This will bring transparency to tax reporting and automatically track transactions, reconciling any discrepancies between declared income and actual economic activity.

The goal is to make sure those who should be paying taxes are doing so, particularly high-income earners. Currently, 90% of taxpayers are individuals who shouldn't be taxed, mostly low-income earners in the formal sector. Oyedele's committee aims to change this by:

• Streamlining Tax Collection: Using primary data identification systems to accurately identify taxpayers
• Increasing Transparency: Linking economic activities to national identity numbers and corporate registration numbers
• Reducing Discrepancies: Automatically tracking transactions to reconcile declared income and actual economic activity.

This is part of the government's broader effort to promote economic growth and fairness in the tax system.

Taiwo Oyedele unveiled plans to slash corporate income tax from 30% to 25%, providing significant relief to businesses.

The proposed reforms also target Value-Added Tax (VAT). Essential goods and services like food, healthcare, education, housing, and transportation will see reduced or eliminated VAT, easing financial burdens on low-income families.

However, not all sectors will benefit from lower tax rates. To maintain government revenue, VAT rates will increase for other goods and services.

Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, recently shed light on two critical economic concerns. Firstly, he pointed out that inflation has effectively acted as an unofficial tax, reducing Nigerians' purchasing power without any formal legislation. This “disorderly tax” has significant implications for the country's economic stability.

Regarding tax incentives and waivers, Oyedele stressed that indiscriminate tax breaks can harm the economy. He proposed eliminating unnecessary incentives, arguing that this would benefit businesses while maintaining government revenue. This approach aims to strike a balance between supporting businesses and ensuring the government's financial sustainability.

Takeaways:

• Inflation's Impact: Inflation has reduced Nigerians' purchasing power, acting as an unofficial tax.
• Tax Incentives: Indiscriminate tax breaks harm the economy and should be removed.
• Economic Balance: Eliminating unnecessary incentives will benefit businesses without reducing government revenue.

"“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.