ANALYSIS: Revised tax law grants more reliefs to low income earners

The revised Personal Income Tax Act (PITA) contains provisions that grant more reliefs to low income earners as well as allow taxation to be seen as a tool for income redistribution and wealth creation.

The Act, which contains no fewer than 41 clauses, including amendments to CAP.P8 LFN, 2004, with extensive reviews to 36 sections, first, third and sixth schedules as well as short title of the old PITA law, is the first major amendment to the income tax law since 1979.

Key highlights of the new law include adjustments to the income tax table and applicable incremental bands that allows more disposable income to the lower income earners in line with current income levels; simplification of the compliance processes by consolidating stipulated reliefs and allowances; lowering of the burden on low income earners as well as widening the tax base to capture more potential taxpayers, especially in the informal sector, under the tax net.

The Act also removes obsolete, unrealistic and outdated reliefs and allowances associated with the former law and replace them with enhanced consolidated reliefs and allowances.

Section 5(1) of the Act allows a consolidated relief allowance of N200,000 subject to a minimum of one percent of gross Income, or whichever is higher, plus 20 per cent of gross income, taxable in accordance with the Income table in the 6th Schedule, which provides tax exemption on National Housing Fund (NHF) contributions, National Health Insurance Scheme (NHIS), Life Assurance Premium (LAP), National Pension Scheme and Gratuities (NPSG).

Similarly, Section 5 (3) of the Schedule provides for a graduated tax rate of gross income, or whichever is higher, in the order of the first N300,000 at 7 percent; next N300,000 at 11percent; N500,000 at 15percent, next N500,000 at 19 percent, N1.6million at 21 percent and above N3.2million at 24 percent.

The Act supports government’s plan to shift focus from direct to indirect taxation, by lowering the overall income tax burden to allow more disposable income in the economy, to create higher value added tax collection and higher economic activities, amongst others.

The new law, which supports taxation as a tool for income redistribution and wealth creation through the imposition of lower tax burden on low income earners, makes it obligatory for government agencies, professional bodies and trade associations to provide information to tax authorities to assist in the performance of their duties.

The Act confers greater powers on the minister of finance, tax authorities and the accountant general of the federation (AGF) to administer its provisions, particularly to deduct at source from their budgetary allocations, unremitted taxes from ministries, departments and agencies (MDAs) and transfer same to the relevant states upon request.

Tax authorities are also empowered to enforce payment of taxes due to the state from taxable persons that have been properly served with an assessment notice as specified by law.

The effective administration of the Personal Income Tax (Amendment) Bill 2011 is expected to impact positively on the tax revenue collection at all levels of government as well as the wages of workers.

The National Tax Policy approved by the Federal Executive Council (FEC) and ratified by the National Economic Council (State House Abuja – National Economic Council (NEC) will enhance the ability of tax authorities to effectively play their roles of raising government revenue for developmental purposes.

The bill, sent to the National Assembly in 2004, was sent to the President for assent after passing through both chambers of the sixth National Assembly.