Workers will soon begin to enjoy a series of tax relief as President Goodluck Jonathan prepares to give his assent to the Personal Income Tax (Amendment) Bill 2010.
This law, according to tax experts, has the potentials to increase taxpayers’ disposable income, which, in turn, will increase the level of consumption and capacity utilisation in the economy.
It is also expected that revenue collection potentials of both federal and state governments will also increase to enable them to meet their obligations to the citizens.
The bill seeks to introduce a consolidated relief allowance to ensure uniformity in the assessment of taxable persons and also simplify the process of arriving at the personal income tax payable by individuals.
This replaces the various tax-free allowances and personal relief granted under the principal Act.
The relief in view includes a personal allowance of N5,000 plus 20 per cent of earned income, with earned income defined as gross income in the main Act and basic salary under the PAYE regulations. This is as against N30,000 tax-free allowances per annum even as those earning below this amount still have to pay 0.5 per cent tax on their incomes.
Other reliefs granted workers currently include N100,000 rent subsidy, N15,000 transport allowance, N5,000 meal subsidy, N10,000 utility allowance, N6,000 entertainment allowance and leave grant to the tune of 10 per cent annual basis salary. These old reliefs do not make sense anymore.
Also, the bill proposes a better tax rate for income tax payers across the country. The new law proposes that workers have to pay tax at the rate of 7 per cent on the first N300,000 of their annual salaries, 11 per cent on the next N300,000, 15 per cent on the next N500,000 and 19 per cent on the next N500,000. The following N1.6 million would be taxed at the rate of 21 per cent, on the next N3.2 million and above would attract 24 per cent.
This is a very big improvement on the current regime, where workers are paying 5 per cent tax on their first N30,000 per annum, 10 per cent on the next N30,000 and thereafter the first and second instalments of N50,000 that follow are liable to tax valued at 15 per cent and 20 per cent respectively. From N160,000 and above, the tax liability is 25 per cent.
The reality is that hardly any worker earns below N160,000 per annum, thereby raising the effective tax rate to 25 per cent on the salaries and wages of workers.
Unfortunately, however, the rate for individuals who have no taxable income or where due to the large personal relief or the taxable income is less than N300,000 per annum has been increased from 0.5 per cent to 1 per cent.
The new tax bill also seeks to drag those workers whose names do not appear in any company’s payrolls including casual workers, contract and temporary workers, into the tax net.
Before now, companies usually said that casual workers were not in their payroll but the new law will not accommodate the exemption.
Also, currently some multinationals use various disguises to reduce the taxable income of their expatriates. The new PIT law would introduce more stringent rules for non-taxability of non-residents.
The law limits the recognition of the taxes paid by non-residents only to taxes paid in countries that have double taxation treaties with Nigeria.
The new law also promotes equity and fairness in the system as it favours low- and middle-income earners, while high income earners from N15 million and above per annum will pay higher tax.
Also it seeks to introduce a withholding tax (WHT) refund mechanism, whereby excess WHT deduction suffered at source will either be refunded to the person or set off against future tax liabilities at the option of the taxpayer.
Furthermore, it will introduce the Central Bank of Nigeria (CBN) Monetary Policy Rate (MPR) as the new benchmark for calculating penalties for non-deduction or non-remittance of WHT.
However, the law prescribes stiffer penalties for tax evaders, increasing applicable fines from N500 and N5,000 for individuals and corporate bodies to N50,000 and N500,000 respectively.
The infringements mentioned in the new law clearly give rise to criminal liabilities as specified fines and penalties are to be imposed on conviction of the offenders.
It also made it mandatory for employers to file PAYE tax returns for workers every year to authenticate what they are deducting and remitting.
An interesting provision in the PIT bill awaiting the presidential assent is the fact that the president and vice-president as well as governors and their deputies now have to pay income tax like other Nigerians.
The era when those who spend the tax money do not pay tax will be over.
While making provisions for 5 per cent of the revenue collected to be retained by the states’ Boards of Internal Revenue to defray their costs, the bill provides that the tax authorities must obtain a warrant from a high court judge before exercising their power.