Q1 – What is the thinking behind the proposed changes to the current tax table of personal income brackets and rates?
A1 – The current tax table was introduced in 2011. Due to high inflation and lack of review, the structure has resulted in “fiscal drag” where many low income earners have been pushed to the top tax bracket over time. This means that an individual earning just N400k a month is paying the same top marginal income tax rate as a wealthy individual earning say N20m per month. Therefore, the tax table has become regressive rather than progressive as it was originally designed. Also, the current personal income tax regime does not encourage formalisation given that the effective top tax rate on companies is nearly double that of enterprises which also encourages arbitrage in some cases between the two income tax regimes.
Hence, the proposed changes seek to address these issues and simplify the system by incorporating current reliefs and allowances into the bands and rates to achieve an overall lower effective tax rate for the majority of workers.
