The Presidential Committee on Fiscal Policy and Tax Reform has proposed a new Personal Income Tax Bill that aims to change how the country collects taxes. The new bill focuses on making sure that people with higher incomes pay a fairer share of taxes.
The bill stands to remove the current tax break called the Consolidated Relief Allowance (CRA) and introduce a 25% tax rate for people who earn more than N100 million annually.
The bill also includes a list of deductions in Section 28 that help taxpayers lower the amount of income that are paying tax.
Table below for salary brackets and their associated taxes.
Who pays more?
Our analysis shows that the proposed tax system would result in lower taxes for Nigerians who earn less than N1,450,000 monthly (assuming statutory allowances are not deducted). However, those earning above this amount are likely to pay more.
- For Nigerians earning N70,000 monthly, which is the national minimum wage, the monthly tax would drop to N500 compared to N3,326 under the current system.
- Those earning below the minimum wage would not pay any taxes. For individuals earning N250,000 monthly, the new tax system would result in a monthly tax payment of N27,500, slightly lower than the N29,100 payable under the current system.
See the table below for likely taxes for different salary ranges.
Higher taxes for the super-rich
- The chairman of the FPTR committee, Taiwo Oyedele, also highlighted the impact of the proposed tax rates on high-income earners. Nigerians earning more than N50 million annually (or roughly N4.4 million monthly) will face significantly higher taxes.
- Our analysis reveals that those earning above N3 million monthly will pay an effective tax rate exceeding 20%. The effective tax rate is calculated as the total taxes paid divided by gross salary.
- In contrast, under the current system, no individual pays more than 20% in effective taxes.