Proposed Income Tax Bill: Find Out How Much You Might Pay from Your Salary

The team in charge of looking at how we pay taxes, called the Presidential Committee on Fiscal Policy and Tax Reform (FPTR), has made some new plans for how people should pay taxes. They want to change things, especially for people who make a lot of money.

They have a new idea that will get rid of something called the Consolidated Relief Allowance (CRA) and put a 25% tax on people who earn more than N50 million a year.

The new plan also talks about what kind of money can be taken away from your total earnings so you pay less tax.

Important Parts of The New Plan

• Section 28: This talks about what money you can take off from your earnings before paying tax.
• Section 30: This explains what money you have to pay tax on and when you can take money off before paying tax.
• Section 56: Talks about taxes for businesses that are run by one person.
• Section 58: This shows what tax rates people should pay based on how much they earn.

How Taxes Were Calculated Before

Before, people who got salaries could take out some money from their earnings before paying taxes. One of these was called the Consolidated Relief Allowance (CRA).

• The CRA let you take away 20% of your earnings plus N200,000 before paying taxes.
• For example, if you made N6 million a year, you could take off N1.4 million using this 20% plus N200,000 rule.
• This would mean that you only pay taxes on N4.6 million.
• You could also take away money for things like retirement savings and housing payments, depending on how much you put in.

With the current system called Pay-As-You-Earn (PAYE), someone making N6 million a year pays about N896,000 in taxes.

The current system’s tax rates: 

• 7% on the first N300,000
• 11% on the next N300,000
• 15% on the next N500,000
• 19% on the next N500,000
• 21% on the next N1.6 million
• 24% on the next N3.2 million

New Tax Proposal

In the new plan, the team wants to make things easier by removing the old CRA method.

You can still use the current allowances, with a new option to take away N200,000 or 20% of your rent (whichever is smaller).

For someone earning N6 million a year, under the new plan, they’ll pay N870,000 in tax, which is a bit less than before. Here’s the new way they want to charge tax:

• 0% on the first N800,000
• 15% on the next N2.2 million
• 18% on the next N9 million
• 21% on the next N13 million
• 23% on the next N25 million
• 25% on the next N50 million

If you make N6 million a year, the first N800,000 is tax-free. Tax is charged at different rates as you go above this.

What This Looks Like

Who Pays What? 

People making less than N1,450,000 a month will pay less tax. But those making more might pay more.

• If you earn N70,000 a month, your tax goes down to N500 from N3,326.
• If you earn less than the minimum wage, you won’t pay any tax.
• Someone making N250,000 a month will pay N27,500, a little less than the current N29,100.

More information on taxes for different salaries is shown in this table.

Higher Taxes for Very Rich People

• The FPTR committee chairman, Taiwo Oyedele, said those who earn more than N50 million a year will pay a lot more tax.
• Anyone earning over N3 million a month will pay more than a 20% tax rate, which is more than what people pay now.
• Currently, nobody pays over 20% tax.

Details on taxes for different salaries are in the table below.