Recently, the Presidential Committee on Fiscal Policy and Tax Reform (FPTR) submitted a proposed Personal Income Tax Bill aimed at restructuring Nigeria’s tax system, particularly targeting high-income earners. The proposed bill brings significant changes, including the elimination of the Consolidated Relief Allowance (CRA) and the introduction of a 25% tax rate for individuals earning over N50 million annually.
If you’re wondering how this proposed tax bill affects your salary, join us as we take a deep dive into the details of the proposed changes and how they compare to the current tax system.
Understanding the Current Tax System
Under the current tax system, the Consolidated Relief Allowance (CRA) allows salary earners to deduct 20% of their gross income plus N200,000 before calculating their personal income tax. This reduction lowers your taxable income, making it a critical part of tax relief for many Nigerians.
For example:
• If your annual salary is N4 million, you can deduct 20% (N800,000) plus N200,000, totaling N1 million. This leaves you with a taxable income of N3 million.
• In addition to the CRA, you can deduct statutory contributions such as pensions, the National Housing Fund, and life insurance premiums, further reducing your taxable income.
Proposed Income Tax Changes
The proposed tax system introduces several major changes, including the elimination of the N200,000 plus 20% CRA deduction. However, statutory deductions (such as pensions and housing contributions) remain in place, and a new rent allowance of either N200,000 or 20% of your rent (whichever is lower) is introduced.
Here’s how the proposed tax system would work for someone earning N6 million annually:
• 0% on the first N800,000 (tax-free)
• 15% on the next N2.2 million
• 18% on the next N9 million
• 21% on the next N13 million
• 23% on the next N25 million• 25% on the next N50 million
Who Pays More?
Based on the proposed system, individuals earning less than N1,450,000 monthly (or N17.4 million annually) would pay slightly lower taxes compared to the current system, assuming no statutory allowances are deducted.
For example:
• Nigerians earning N70,000 monthly (the national minimum wage) would see their monthly tax drop to N500 from the current N3,326.
• For someone earning N250,000 monthly, the monthly tax would be N27,500, compared to N29,100 under the current system. However, for high-income earners, the proposed bill introduces significantly higher taxes. Individuals earning more than N50 million annually (or N4.4 million monthly) will face a 25% tax rate on income exceeding this threshold.
Final Thoughts
Summarily, the proposed Personal Income Tax Bill is designed to create a more equitable tax system by placing a greater burden on higher-income earners while offering relief to those with lower salaries. If passed into law, this bill would bring about significant changes to Nigeria’s tax landscape, making it essential for individuals and businesses to stay informed and adjust their financial planning accordingly.
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