Nigeria’s Tax Overhaul Promises Relief for Most Workers -

The majority of Nigerian workers could soon see significant tax relief under sweeping reforms proposed by President Bola Tinubu’s administration. According to Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, over 90% of employees in both public and private sectors will benefit from reduced tax burdens if the reforms are enacted.

Oyedele took to his X handle on Monday to clarify the implications of the proposed changes, introduced in October 2024 as part of four Tax Reform Bills. These include the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill. Together, the Bills aim to streamline tax administration, enhance revenue generation, and consolidate existing tax laws.

A Progressive Tax Shift

Under the new framework, individuals earning ₦1.7 million annually or less will pay reduced Pay-As-You-Earn (PAYE) tax, while those on the new minimum wage or just above it will be fully exempt. “These thresholds will ensure over 90% of workers benefit from lower taxes,” Oyedele explained, adding that ultra-high net-worth individuals would face a modest increase in their tax rates, up to 25%, in line with progressive taxation principles.

The proposals also address long-standing anomalies in the current tax system. Oyedele highlighted the problem of “fiscal drag,” where low-income earners are pushed into higher tax brackets over time. For instance, under the current regime, an individual earning ₦400,000 a month pays the same top marginal tax rate as someone earning ₦20 million. The reforms aim to correct this imbalance by adjusting tax brackets and incorporating existing reliefs into a simplified system.

Relief for Low-Income Earners

The reforms include notable provisions for low-income workers, such as a tax exemption on the first ₦800,000 per annum and a rent relief of up to ₦200,000 annually. Combined, these measures exempt individuals earning up to ₦1 million annually—roughly ₦83,000 per month—from taxation.

Crucially, the proposed tax structure eliminates the “tax cliff” effect, where workers earning slightly more than the exemption threshold are worse off than their lower-earning counterparts. For example, under current rules, someone earning ₦30,001 monthly pays ₦500 in tax, netting less than someone earning ₦30,000. The new system addresses this discrepancy by ensuring equitable treatment across income bands.

Controversial Trade-Offs

Despite its benefits, the reform package includes contentious measures such as increasing Value Added Tax (VAT) from 7.5% to 10% by 2025, with further hikes anticipated, and imposing a 5% excise duty on telecommunications services. These provisions have drawn strong opposition from stakeholders, with critics arguing they will disproportionately burden consumers.

President Tinubu, however, remains steadfast. Insisting the reforms are essential for Nigeria’s economic stability, he has ruled out withdrawing the Bills from the National Assembly despite mounting pressure.

A Test for Fiscal Policy

The proposed reforms represent a bold attempt to modernize Nigeria’s tax system, addressing inefficiencies and ensuring fairness. Yet, as the debate over VAT increases and excise duties intensifies, the success of the legislation will depend on its ability to balance revenue generation with public acceptance and economic inclusivity.