FG proposes 25% tax rate on wealthy Nigerians earning N100 million monthly

The Federal government of Nigeria is considering a significant change to its tax policy, proposing a 25% tax rate for individuals earning N100 million or more monthly. This information was shared by Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, during a session at the Nigeria Economic Summit organised by the NESG.

Oyedele explained that this new tax rate for high-income earners is part of a broader strategy to balance the tax burden across different income levels. The plan aims to reduce taxes for lower-income earners while ensuring that those with higher incomes contribute more to government revenue.

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He stated, “If you earn N1.5 million a month or less, your personal income tax bill will go down. At the lower end, it is completely exempted. But if you earn more than that amount, you see it going up incrementally up to 25%.”

The proposal would mark a significant increase from the current system, where individuals earning N100 million monthly face an effective Personal Income Tax (PIT) rate of about 19%. Oyedele emphasized the need for this change, saying, “Today, if you earn N100 million a month, it is a 19% effective Personal Income Tax (PIT) rate, we are taking that up to 25% for the rich people and that is because we need to balance the books.”

In addition to personal income tax reforms, the government is also considering changes to Value Added Tax (VAT) policies. Oyedele announced plans to reimburse businesses 100% of the VAT paid on assets and services. This move aims to reduce overall costs for businesses, potentially helping to curb inflation and stimulate economic activity.

These proposals are part of a broader set of fiscal measures being put forward by the committee chaired by Oyedele. Other initiatives include a new withholding tax regime exempting manufacturers and small businesses, proposals to exclude food and transport from taxes, and the introduction of Tax IDs for those working in the financial services sector.

The committee has already submitted ten new bills to the National Assembly, proposing constitutional changes to Nigeria’s tax laws. They’ve noted that some of the identified issues require legislative amendments rather than just executive orders.

Currently, Nigeria operates a progressive personal income tax system known as “Pay As You Earn” (PAYE). Under this system, taxpayers receive a 20% tax-free allowance, after which taxes are levied on a sliding scale. The rates start at 7% for the first N25,000 of monthly net income and increase to a maximum of 24% for net incomes above N133,000 monthly. This structure results in effective tax rates lower than the highest marginal rate of 24%, with high-income earners currently paying around 18% on annual incomes over N100 million.

The proposed changes aim to increase the contribution from wealthy Nigerians by raising the effective tax rate for high-income earners to 25%. This adjustment represents a significant shift in Nigeria’s tax policy, potentially impacting the country’s revenue generation and wealth distribution.