New Tax: Lower Income Earners to Pay Less

A new personal income tax law that gives reprieve to lower income earners and imposes higher income tax on higher earning class has come into effect with President Goodluck Jonathan singing the Personal Income Tax Act (PITA) into law.

The bill sent to the National Assembly in 2004, was sent to the President for assent after passing through both chambers of the 6th National Assembly, thus representing   first major amendment to the income tax law since 1979.
A statement issued by Federal Inland Revenue Service (FIRS) confirmed the President’s  approval of the new tax law yesterday which had undergone a total review of some of its  clauses, including  an amendments to Cap.P8 LFN, 2004, 36 sections, First Schedule, Third Schedule, Sixth Schedule and Short Title of the old PITA law.
The new Act provides more disposable income to the lower income earners following the amendment of the income tax table and adjustments in the applicable income tax incremental bands, which brings it in line with current income levels.
The Act also simplified the compliance processes by consolidating the reliefs and allowances stipulated in the Act and lowering the burden on low income earners as well as widening the tax base by bringing in a huge number of potential taxpayers, especially in the informal sector, into the tax net.
The act also removes obsolete, unrealistic and outdated reliefs and allowances associated with the former Act, replacing the previous reliefs and allowances with enhanced consolidated reliefs and allowances.
Principally, section (5), sub-section (1) of the Act states, “There shall be allowed a consolidated relief allowance of N200, 000 subject to a minimum of 1 percent of Gross Income or whichever is higher plus 20 percent of the Gross Income and the balance shall be taxable in accordance with the Income table in the Sixth Schedule to this Act’’.
The Schedule provided tax exemption on National Housing Fund (NHF) contributions, National Health Insurance Scheme, Life Assurance Premium, National Pension Scheme and Gratuities.
Sub-section (3) of the Schedule provided a graduated tax rate of Gross Income or whichever is higher on First N300, 000 at seven percent, Next N300, 000 at 11 percent, the next 500, 000 at 15 percent, next 500, 000 at 19 percent, Next N1.600, 000 at 21 percent and above N3.200, 000 at24 percent.
The new Act supports the use of taxation as a tool for income redistribution and wealth creation by imposing lower tax burden on low income earners and higher tax burden on the higher income earners.
The Act also supports government’s intention to implement a shift in focus from direct to indirect taxation, by lowering the overall income tax burden so that there is more disposable income in the economy, leading to higher value added tax collection and higher economic activity amongst others.
Under the new Act, it is now obligatory for government agencies, professional bodies, and trade associations to provide information to tax authority that would assist them in the performance of their duties.
The Act also provides greater leverage to the Minister of Finance, Tax Authorities and the Accountant General of the Federation in administering the law, including the power to deduct at source from its budgetary allocation, unremitted taxes due from Ministries, Departments and Agencies (MDAs) and transfer such deduction to the relevant state upon request by state.
The new Act professionalises the appointment of chairmen for the State Internal Revenue Service. This is because such appointments are now subject to the confirmation by the State Houses of Assembly  and three members representing a Senatorial District in the state as contained in section (30) (a) of the Act.      
Tax authorities are empowered to enforce payment of taxes due from taxable persons that has been properly served with an assessment notice as specified by the law.
In particular, Section 104, sub-section 1 (a) and (b) states that: “the relevant tax authority may in the prescribed form, for the purpose of enforcing payment of due, distrain the taxpayer by his goods, other chattels, bond or other securities.
“Distrain upon any land, premises or places in respect of which the taxpayer is the owner and subject to the provisions of this section, recover the amount of tax due by sale of anything so distrained.’’
At the International Tax Conference, by the Joint Tax Board, a few months ago, FIRS Chairman, Ifueko Omoigui Okauru, noted that the administration of Personal Income Tax (Amendment) Bill 2011, will introduce and   make the expected impact on tax revenue collection at the state and federal levels and also impact positively on the wages of our workers.

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