FG proposes 25% effective tax rate on wealthy Nigerians earning N100 million monthly
The Federal government is looking at imposing a 25% effective tax rate on rich Nigerians proposing that individuals earning N100 million and above monthly in the country should start paying this rate.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele stated this at a breakout session during the Nigeria Economic Summit organised by the NESG.
Oyedele explained that the 25% effective tax on the rich was needed to strike a balance that eases the tax burden on low-income earners while ensuring that higher-income individuals contribute more to government revenue.
What Taiwo is saying
According to Taiwo Oyedele, the government expects the effective tax rate for rich Nigerians to rise to 25% stating that no rich Nigerian pays up to 19% in effective tax rate.
- “If you earn N1.5 million or less your personal income tax bill will go down, of course at the lower end completely exempted but if you earn more than that amount you see it going up incrementally up to 25%. Today if you earn up to N100 million a month nobody pays 19% effective personal income tax rate. We are taking that up to 25% for the rich people and that is because you need to balance the book.”
It is unclear if he meant that the 25% effective rate should be paid by Nigerians earning above N1.5 million or if this is the highest tax band rate being proposed for those that fall into this tax bracket.
However, it is clear the intention is for those who earn above N100 million to have an effective tax rate of 25%. The current effective tax rate for Nigerians earning N100 million is around 18% according to Nairametrics analysis.
He also stated the federal government plans to pay back to businesses 100% of the Value Added Tax (VAT) paid by them on assets and services.
- According to him, businesses paying VAT on assets such as cars, laptops etc increases their overall cost which contributes to inflation.
- It is expected that this proposal would enable companies to deduct the VAT paid on goods and services used in production from their tax liabilities, potentially alleviating cash flow challenges and boosting economic activity.
Recent tax reform proposals and changes
The Taiwo Oyedele Chaired Committee has proposed a range of fiscal measures aimed at increasing government revenues while alleviating the tax burden on businesses and stimulating economic activities.
- Some of their proposals and approved changes so far include; a new withholding tax regime which exempts manufacturers and small businesses from paying withholding tax, a proposal to exclude food and transport from taxes, the introduction of Tax ID for bankers and those who work in the financial services sector etc.
- Currently, the committee has sent ten new bills to the National Assembly on constitutional changes to the nation’s tax laws.
- The committee pointed out that some of the identified issues require legislative amendments, rather than just executive orders.
What this means
Nigeria operates a progressive personal income tax system, often referred to as “Pay As You Earn” (PAYE), where tax rates increase with income levels.
- Under this system, taxpayers first receive a N200,000 plus 20% tax-free allowance on their gross annual income, after which taxes are levied on a sliding scale.
- For instance, the first N300,000 monthly net income is taxed at 7%, and the rates continue to rise until reaching a maximum of 24% for net incomes above N1.6 million monthly.
- This structure results in an effective tax rate that is lower than the highest marginal rate of 24%. Currently, Nigerians earning over N100 million annually pay an effective tax rate of around 18%
- However, a proposed adjustment to the tax system appears to aim at increasing the effective tax rate for high-income earners to 25%, ensuring a more substantial contribution from wealthy Nigerians.
Note: This article was updated to capture the word “effective” which is what was used by Taiwo Oyedele in his remarks.
