Minimum wage earners to get tax exemption under new reforms–Oyedele

The Chairman of the Presidential Fiscal Policy and Tax Reform Committee, Taiwo Oyedele, announced that Nigerians earning minimum wage or just above will be exempt from Pay As You Earn (PAYE) tax under the new Tax Reform Bills.

This development comes as the government seeks to alleviate the financial burden on low-income earners and address economic inequalities once the bills are enacted into law.

Oyedele made these remarks during a public Q&A session on Monday aimed at clarifying the provisions of the proposed tax reforms, which have sparked discussions and concerns in some regions of the country.

The new measures align with President Bola Tinubu’s approval of a higher national minimum wage of N70,000 in July 2024, up from the previous N30,000.

One of the key highlights of the proposed law is the reduced tax burden for individuals earning N1.7 million or less annually. Oyedele explained, “Workers earning around N1.7 million or less per month will see lower PAYE tax obligations, while those at or slightly above the minimum wage level will be exempt altogether.”

He further elaborated that the tax structure, which has remained unchanged since 2011, has led to a condition known as “fiscal drag,” where inflation pushes low-income earners into higher tax brackets over time.

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The current system, with its dated taxable income bands, has discouraged formal business operations and fostered tax arbitrage due to higher tax rates for companies compared to enterprises.

Oyedele pointed out that the proposed tax law aims to streamline the tax system, removing various allowances and reliefs while revising income bands and rates. This adjustment seeks to reduce the overall effective tax rate for employees, making the process simpler and more transparent.

“With these changes, even individuals with basic education should be capable of filing their tax returns independently,” he stated.

On the specific reliefs for minimum wage earners, Oyedele emphasized that about 98% of workers in both public and private sectors would benefit from lower tax rates, with only the top 2%—those considered high-net-worth individuals—paying progressively higher taxes, up to a maximum of 25%.

Additionally, the reform envisions that the lowest-income earners, representing approximately one-third of the workforce, will be entirely tax-exempt, while other low- to middle-income earners will experience tax reductions.

“This approach aligns with the principle of not taxing poverty,” Oyedele said. He also assured that self-employed workers and entrepreneurs would enjoy similar exemptions as those in formal employment.

The proposed VAT reform is another significant component, introducing a 0% rate for essential items such as food, education, health services, and exempting rent and public transportation. These sectors account for up to 82% of household spending, and nearly 100% for low-income families, aimed at reducing the cost of living pressures.

“These exemptions will help mitigate the inflationary impact on the most vulnerable,” Oyedele added.