FG Unveils 50% Corporate Tax Cut to Enhance Staff Remuneration

Government Offers 50% Tax Break to Support Salary Increases

“A company shall be entitled to an additional deduction of 50 per cent in the...”

Nigerian Federal Government introduces 50% corporate tax reduction to boost employee wages. This strategic move aims to support companies in increasing staff salaries, enhancing workforce welfare & competitiveness.

The Federal Government of Nigeria is proposing a 50% tax relief for companies that increase salaries or provide transportation allowances to low-income employees. This initiative aims to reform Nigeria's tax system and is part of a broader bill titled ”A Bill for an Act to Repeal Certain Acts on Taxation and Consolidate the Legal Frameworks relating to Taxation and Enact the Nigeria Tax Act to Provide for Taxation of Income, Transactions, and Instruments, and Related Matters,” dated October 4, 2024.

According to the bill, which was reviewed on October 25, specific income tax exemptions will be implemented to encourage companies to adjust employee salaries. This move is likely to impact various sectors, including compensation and employee benefits in Nigeria, which are crucial for retention and attrition rates.

Highlights of the Proposed Bill:

50% Tax Relief: Companies that raise salaries or provide transportation allowances to low-income employees will be eligible for a 50% tax relief.

Income Tax Exemptions: Specific exemptions will be implemented to encourage companies to adjust employee salaries.

Reform of Nigeria's Tax System: The bill aims to reform Nigeria's tax system and consolidate legal frameworks relating to taxation.

It's essential to note that this information is based on a proposed bill, and its implementation is subject to approval by the relevant authorities. For more information on Nigeria's tax laws and reforms, you can consult resources like KPMG Nigeria or Workforce Africa.

Tax Deduction Eligibility for Companies

Companies are now eligible to claim an additional 50% deduction on their relevant assessments for expenses incurred in the 2023 and 2024 calendar years. To qualify, expenses must fall under specific categories, including wage increases, transportation subsidies, or transport allowances. However, there's a crucial condition: these benefits must be provided to employees with gross monthly earnings of N100,000 or less.

Employee Eligibility Criteria

It's essential to note that salary increases for employees earning above N100,000 per month do not qualify for this tax deduction. On the other hand, companies that achieve a net increase in their workforce between 2023 and 2024 are also eligible, provided the newly hired employees remain with the company for at least three years and are not involuntarily terminated.

A section of the bill read, “A company shall be entitled to an additional deduction of 50 per cent in the relevant years of assessment in respect of costs incurred in 2023 and 2024 calendar years on the following;

“(a) wage awards, salary increases, transportation allowance or transport subsidy granted to a low-income worker, which bring the gross monthly remuneration of the worker up to an amount not exceeding N100,000.00; provided that any additional award or salary increase to an employee earning above N100,000.00 as monthly salary shall not qualify for the additional deduction under this subsection; and

“(b) salaries of any new employee constituting a net increase in the average number of new employees hired in 2023 and 2024 calendar years over and above the average net employment in the 3 preceding years, provided that such new employees are not involuntarily disengaged within a period of 3 years post-employment.”

The Federal Government is set to introduce an Economic Development Incentive Certificate, offering tax benefits to companies investing in capital projects. To obtain this certificate, companies will need to apply through the Nigerian Investment Promotion Commission (NIPC), paying a non-refundable fee of 0.1% of their capital expenditure, capped at N5 million.

Here's a breakdown of the application process:

Application Submission: Companies submit their applications to the NIPC.

Fee Payment: A non-refundable fee of 0.1% of capital expenditure, up to N5 million, is paid.

Evaluation: The NIPC evaluates the applications and recommends eligible candidates to the Minister.

Final Approval: The Minister forwards recommendations to the President for final approval.

This initiative aims to encourage investments in key sectors, similar to the existing Pioneer Status Incentive (PSI), which grants tax holidays to qualifying industries. The PSI is governed by the Industrial Development (Income Tax Relief) Act and administered by the NIPC.