New Minimum Wage Earners to Enjoy Full Tax Exemption Under Proposed Reform
Chairman of the Presidential Advisory Committee on Fiscal Policy and Tax Reform, Mr. Taiwo Oyedele, has assured Nigerians that individuals earning about ₦1.7 million or less annually will pay lower Pay As You Earn (PAYE) tax under the proposed Tax Amendment Bills currently before the National Assembly.
Oyedele emphasized that workers earning the new minimum wage and slightly above it will be fully exempted from tax obligations. This clarification comes amid concerns that the federal government’s proposed tax reforms might increase the tax burden on workers.
Speaking on X (formerly Twitter), Oyedele explained that the changes aim to simplify Nigeria’s tax system, address disparities, and ensure progressive taxation. Over 90% of public and private sector workers will experience lower taxes under the new regime, while high-income earners will pay slightly more, with rates progressively increasing up to 25% for ultra-high-net-worth individuals.
The proposed changes also address what Oyedele described as “fiscal drag,” a result of inflation pushing low-income earners into higher tax brackets over time. For instance, the current system places individuals earning ₦400,000 monthly in the same top tax bracket as those earning ₦20 million per month, which Oyedele noted is regressive rather than progressive.
Under the new framework, reliefs and allowances will be integrated into tax brackets to ensure lower effective rates for most workers. Individuals earning up to ₦1 million annually (approximately ₦83,000 monthly) will benefit from exemptions, including rent relief up to ₦200,000 per annum.
Oyedele highlighted measures to avoid penalizing workers whose incomes slightly exceed exemption thresholds. For example, he explained that a worker earning ₦30,000 monthly will be tax-exempt, while a person earning ₦30,001 will pay a minimal tax of ₦500, ensuring no one is worse off for earning slightly more.
The reform also incorporates statutory deductions such as pensions, National Housing Fund contributions, and premiums for life insurance into the tax structure. By integrating reliefs into tax brackets and rates, the reforms aim to make tax calculations simpler and more accessible to taxpayers with basic education.
Oyedele further clarified that while the second tax band under the new system has a 15% rate, it is an improvement over the current marginal rate of 21%. For individuals earning ₦3 million annually, the effective tax rate will decrease from 12% to 10% under the proposed amendments.
The reforms, Oyedele stated, aim to achieve a balanced outcome of exempting low-income earners, reducing taxes for middle-income earners, and simplifying the tax system for greater transparency and efficiency.
