New Tax Regime To Protect Low, Middle Income Earners

The Chairman of the Federal Inland Revenue Service, Mrs Ifueko Omoigui-Okauru earlier in the week shed some light on the new tax regime in Nigeria, product of the  Personal Income Tax (Amendment) Act, which came into effect on June 14, last year, compelling the president and his deputy as well as governors and their deputies to pay tax on their earnings. 

According to the FIRS boss, the law was conceived to bridge the gaps identified in the old Act, especially with respect to its impact on the take home earnings of low and middle income earners, which is the band within which most of us fall.

The tax agency by this singular action is lending weight to opinion shared by several tax experts that “Productivity declines as the tax rate increases, as people choose to work less.

The higher the tax rate, the more time people spend evading taxes and the less time they spend on more productive activity. So the lower the tax rate, the higher the value of all the goods and services produced.”

As if the  FIRS management had seen in advance the many burdens Nigerians would bear this year; higher petrol cost resulting from the partial removal of petrol subsidy and the attendant higher cost of goods and services, hence the repeal of the Personal Income  Tax Act which was last reviewed in 1993.

With the new Act, Dr Ifueko Omoigui-Okauru, said the government has demonstrated it has listening ears and has reduced the overall burden on low and middle income earners, while recouping the reduction from high networth individuals, who could bear higher burden given their level of earnings.

Not a few commentators have described the action of the FIRS boss as courageous  given the caliber of persons the new law is targeting.

The new law will put more money in the hands of those in the middle class and the poor. Observers of trends in Nigeria have often wondered why in the past, Nigeria could not attempt to bridge the gap between the super rich, by making them  pay higher taxes as it is done in other developed and emerging economies. 

Beyond using progressive tax to ensure wealth is evenly distributed and ensure the poor are protected in free market economies, this tax type can also be used to dematerialize the value system and compel the citizenry to strive for such virtue as the collective good of all as opposed to the exploitation of the majority by a few privileged capitalists. 

In climes where the rich and poor can aspire to similar heights, the hatred for the rich by the poor is minimal and nonexistent in some cases, more so, when everyone knows and believes all heights are attainable.

Sociologists have argued that in a near just society, the expression of hatred against a social arrangement which enriches a few and pauperises the majority, which sometimes  takes the form of crime is minimal. It is a matter for debate.

On how the agency would  ensure that President Jonathan complies with the provision of the Act, Omoigui-Okauru noted that since the President gave the directive, he would not need anyone to force him to comply.

According to Omoigui-Okauru, the president last year processed his tax clearance certificate accordingly in order to win other taxpayers’ confidence.

In fact, the President, the Vice-President, Governors and Deputy Governors have been paying tax on all their incomes as done by every taxpayer in the country, the FIRS boss told Journalists in Abuja.

She said: "Review of income exempted from tax under the Act, includes in f official emoluments of the president, vice-president, come from bond issued by government and corporate entities in tax exempt income and the removal of governors and deputy governors from income exempted tax under the Act.

With these new provisions, the president, vice-president, governors and deputy governors of states will now pay tax on all their income as is done by every other taxpayer."

Local govts lose power to collect levy
Omoigui-Okauru said part of the recommendations made by the Joint Tax Board for the reform was that the local government area councils would no longer have the power to collect taxes, noting that such power will be ceded to the state governments.

The idea of the local government shedding tax collecting power is to enhance a centrally co-ordinated collection to eliminate multiple taxation.

"In short, one of the recommendations I remember is that the local government should have no taxing power. Whatever revenue to be generated should be done on behalf of the local government by the state,"she said.

She said the state governments have to come with a working code with which they can collect on behalf of the local governments, adding that following the amendment, the JTB is working out a tax calculator for taxpayers to compute their income tax once they feed their correct income into the website.

This, she said, could aid taxpayers to challenge the tax collectors in case of any disparity. She recalled that the Personal Income Tax Act was reviewed and passed into law in 1993, which led to the removal of obsolete, unrealistic and outdated reliefs and allowances from the Act.

With the amended Act, she said there was a simplified process of voluntary compliance and enhanced penalties and sanctions for violation of the Act.

Omoigui added that other provisions introduced into the new Act include a consolidated relief allowance of N200,000 plus 20 per cent gross income as deductible allowance from one’s income before computing tax on the balance.

She said the new income tax rates and income tax table in the Act provide closer income bands and lower income tax rates leading to reduction in tax payable by low and middle income earners.

The minimum tax rate for the lowest possible income earners which was previously 0.05 has been increased to one per cent.

The new Act will enhance administrative powers to tax authorities especially in the States with the provision of statutory qualifications for appointment as chairman and members of state Boards of Internal Revenue and provisions of basis for funding through them the retention of a percentage of tax collected.

Okauru also said the new Act introduced a presumptive tax regime for the informal sector and other persons whose incomes are not easily verifiable.

Other provisions in the Act include enhanced penalty provisions and sanctions for violation of the provisions of the act; provision of powers to the Minister of Finance to make regulations for the administration of the Act.