The Federal Government has clarified the basis for exempting low-income earners from personal income tax under the new tax framework that took effect on January 1.
In a statement issued Thursday, the Director-General of the Budget Office of the Federation, Tanimu Yakubu, said the clarification was necessary to address what he described as “wrong notions, stage-managed arithmetic, selective accounting and misrepresentation of the law” by critics seeking to undermine the policy.
Yakubu explained that a key feature of the revised personal income tax structure is the N800,000 annual tax-free threshold, which he said had been deliberately ignored in recent criticisms. Under the new framework, the first N800,000 of annual income attracts a zero per cent tax rate, unlike the previous system that placed low-income earners in the same bracket as higher earners.
Using a hypothetical example of a worker earning N75,000 monthly, Yakubu said such an employee earns N900,000 annually, meaning only N100,000 falls above the zero-rated threshold.
According to him, even if the excess income is taxed at 15 per cent, the total tax liability would amount to N15,000 annually before deductions. He added that statutory deductions such as pension contributions significantly reduce taxable income and could eliminate tax liability entirely when other allowable deductions, including health insurance, are applied.
Yakubu said: “Under the new regime described in multiple reputable summaries, the first N800, 000 of annual income is taxed at 0 per cent. That is not a footnote. That is the hinge. Now apply it to ‘Joseph’: Monthly income: N75, 000. Annual income: N75,000 × 12 = N900,000.
“Under a system where the first N800, 000 is taxed at 0 per cent, Joseph is not ‘squarely inside’ some punitive bracket. He is N100, 000 above the zero band. Even before deductions, the portion potentially exposed to tax is N100, 000 per year.
“If the next band is taxed at 15 per cent as these summaries indicate, then Joseph’s gross annual PIT exposure is: N100, 000 × 15 per cent = N15,000 per year, N1, 250 per month.
“Now add pension: If Joseph contributes pension at 8 per cent, even using the essay’s own assumption, that is: N900, 000 × 8 per cent = N72, 000 in pension contributions annually, simplified. That reduces the portion above N800, 000 from N100, 000 to N28, 000. Tax becomes: N28, 000 × 15 per cent = N4, 200 per year, N350 per month.
“And if Joseph also has any deductible health insurance contribution, which many formal arrangements do, he can easily fall below N800, 000 taxable income, making his PIT zero. What this means is that the essay’s ‘public U-turn’ story is not proof that ‘the poor will pay tax’.
The DG stressed that deductions should not be mistaken for taxes, noting that pension contributions and health insurance payments directly benefit workers and reduce taxable income.
He added: “A deduction is not a tax, and a contribution you own is not a levy you lose. Such deductions, in fact, reduce taxable income and demonstrate an effort to protect workers’ welfare rather than exploit it.
“It is proof that the narrator’s demonstration did not apply the actual threshold structure that defines liability. That is not logic. That is stage-managed arithmetic.”
Yakubu also criticised the application of global poverty benchmarks in the analysis, explaining that the World Bank’s $4.20-per-day poverty line is based on purchasing power parity rather than nominal exchange rates, warning that converting it directly into naira distorts its intent and turns technical welfare measures into political narratives.
Addressing the argument that widening the tax base automatically implies taxing the poor, Yakubu described the reasoning as flawed. He said expanding the tax base could involve improving compliance among high earners, closing loopholes, capturing wealthy participants in the digital and informal economy, and strengthening employer withholding mechanisms.
He further noted that allegations of corruption and governance failures, while legitimate concerns, do not invalidate the structure of the tax reforms. According to him, such concerns should be addressed through improved transparency, auditing and enforcement rather than misrepresenting policies designed to reduce Nigeria’s dependence on borrowing.
Yakubu said: “The outrage depends on omitting the very thresholds and concepts that make its conclusion collapse. The new tax structure explicitly protects low incomes and that claims to the contrary were driven more by narrative devices than by arithmetic grounded in law.
“Nigeria’s revenue problem is not ‘the poor escaping’. Nigeria’s problem is a historically weak tax-to-GDP ratio and heavy reliance on borrowing; tax reforms have been publicly framed as part of reversing that.
“So ‘widening’ does not necessarily mean ‘drag subsistence wages into the net’. It often means: make the system catch who already should be paying.”
He said portraying the reforms as “Bola’s tax” ignored provisions deliberately designed to shield low-income earners.
Yakubu described an essay by Emmanuel Orjih as “built on powerful but false rhetorics, simply achieved by engaging in selective accounting,” adding that the argument relied more on emotional framing than on the actual structure of the approved tax schedule.
According to Taminu, the core of the misinformation lay in a “category error” that wrongly classified pension and health insurance contributions as taxes.
He explained that pension contributions are deferred earnings deposited in workers’ Retirement Savings Accounts, while health insurance payments are contributions made in exchange for defined coverage, not levies imposed for general government expenditure.
(NATION)
Post A Comment: