Presidential committee proposes 95% tax break for Nigeria’s informal sector

• Oyedele committee begins major exposure of work to public

Onome Amuge

The Presidential Fiscal Policy and Tax Reforms Committee, committed to boosting the Nigerian economy, said it is leaving no stone unturned in its efforts to provide tax relief to the country’s vast informal sector. 

Taiwo Oyedele, chairman of the committee, confirmed this during a recent interaction with journalists on the sidelines of the Committee’s close-out meeting in Abuja following a similar interaction with journalists in Lagos.

Outlining the committee’s vision, Oyedele disclosed that it is working tirelessly to create a system that will ensure that not less than 95 percent of informal businesses and individuals within Nigeria’s informal economy will enjoy tax relief.

The committee’s approach, driven by data-backed insights, showed  that the informal sector constitutes hard-working individuals striving to support themselves through legitimate means.

As a result, the reforms under deliberation propose exempting 95 percent of this sector from the burden of a host of taxes, including withholding tax, company income tax and payroll taxes.

The committee also seeks to redefine the financial landscape for Nigeria’s small businesses and low-income earners, leveraging data-driven insights to bolster the current N25 million tax exemption threshold for companies.

Oyedele affirmed that this crucial threshold will be adjusted to reflect inflationary pressures, effectively relieving a significant number of small businesses and low-income earners from the weight of both company income tax and VAT obligations.

Oyedele outlined the committee’s strategy of shifting the focus of tax collection towards the top 5 percent of Nigeria’s informal sector, which includes the middle class and the elite.

With the drafting of the necessary legislative instruments already underway, the chairman expressed confidence that the committee’s proposed reforms would usher in a new era of fiscal policy and tax reform in Nigeria, one that prioritises fairness, efficiency, and sustainability.

Highlighting the critical nature of compliance, Oyedele appealed to all stakeholders including individuals, businesses, and government agencies alike to take up their responsibility in supporting the implementation of the new fiscal and tax policies.

He stated, “We’re looking at increasing that significantly, first to recognise the inflation we’ve had to contend with over the past few years and also because we think that this whole idea and concept of ‘your money is in the informal sector’ is not supported by data.

“We think that the informal sector are people who are trying to earn [a] legitimate living, we should allow them [to] be and support them to grow to a point where they can then have the ability to pay taxes.

“So we think that 95% of the informal sector should be legally exempted from all taxes; withholding tax, company income tax, even payee on their staff, let them be.

“We can then focus our attention on the top 5% of that sector and of course, the middle class and the elite. We think that the days of being above the law in paying taxes are over.

“The same thing we’re saying to our leaders, whether they are elected or appointed, we think they have to lead by example by showing that they have paid the taxes, not only on time, but correctly to the lawful authorities as contained in the various laws.”

With Nigeria’s tax collection procedures and processes often plagued by inefficiencies, Oyedele stated that one of the primary objectives of the proposed reforms is to refine and streamline tax collection, eliminating redundancies and increasing the speed and accuracy of revenue collection.

Highlighting the necessity for a comprehensive approach to the Nigerian tax system, Oyedele stressed the importance of avoiding temporary, piecemeal solutions that would merely delay rather than remedy the systemic issues at hand.

In his assessment, a comprehensive overhaul of the current tax system was the only way to deliver lasting change and transform Nigeria’s revenue landscape in a sustainable manner.

Oyedele cautioned against unrealistic expectations, acknowledging that the complex challenges facing Nigeria’s fiscal system would not disappear overnight. However, as the committee continues its work from initial concepts to practical implementation, Oyedele expressed his unwavering optimism that Nigerians would witness a steady improvement in the country’s fiscal landscape.

Dwelling on the meticulous and collaborative nature of the reform process, Oyedele highlighted the extensive consultations that are being conducted with key stakeholders in the private sector.

With a comprehensive timetable in place, Oyedele projected that the committee’s proposals would be formally submitted to the National Assembly in the third quarter of 2024. Certain components of the new tax policy, such as the National Tax Policy, are expected to be implemented by the end of 2024, while others requiring constitutional amendments may take until 2026 to become fully operational.

In a similar development, the committee shared its vision for a more equitable tax system  at a press briefing in Lagos, where it proposed a personal income tax rate reduction for Nigerians earning less than N2 million per month, while suggesting a corresponding rate increase for individuals earning more than N5 million monthly.

Analysing the inadequacies of the current tax system, the committee chairman pointed out the failure of the Nigerian government to consider the progressive nature of taxation. He noted that the fact that all individuals are taxed at the same rate, irrespective of their income, makes the system regressive, as it places a disproportionate burden on lower income earners.

In his appeal for a more equitable system, Oyedele referenced the practices of more developed nations, which typically impose higher tax rates on the wealthy, fostering a more equitable distribution of resources and opportunities within their societies.

“We propose that the personal income tax rate should be reduced for anyone earning around N2 million a month or less, but the personal income tax rate should be increased for anyone earning about N5 million a month or less. further. Between N2 million and N5 million, your PIT rate would remain the same.

“If you earn N5 million or more, your tax rate must increase. We are still working out the details with the Governors because they are the most affected by this. Today in Nigeria, if you earn 20 million naira a year, your tax rate is 19%. If you earn one billion naira monthly, your tax rate is the same. So our tax rate is not progressive, ” he suggested.

The presidential committee on taxation, in its quest for a unified, streamlined tax system, also proposed the creation of a centralised revenue agency in Nigeria, known as the Nigerian Revenue Service.

This initiative, according to the committee, aims to replace the current array of over 100 fragmented agencies that operate across the country’s various levels of government.

The committee also proposed a significant reduction in the number of taxes levied on individuals and businesses.

As disclosed by the committee chairman, the final list of taxes will be streamlined to just eight, down from the 60 taxes currently imposed across the country. The proposed eight taxes include: income tax, value added tax (VAT),customs duties, excise taxes, harmonised rate, special rate, stamp duty, and  property tax.