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Expert explains implications of increased tax in Finance Act

A partner at Stransact Partners, Yomi Salawu, has said that increasing the personal income tax during the COVID-19 pandemic will not help to alleviate poverty.

He said this while speaking on the implications of the newly signed Finance Act 2020.

“In my opinion, this is not the right time to increase income tax, especially as it relates to income tax of employees in Nigeria.

“Therefore, government may need to quickly enact new legislation with far-reaching impact than the Finance Act 2020 if it truly wants to alleviate the suffering of Nigerians in 2021.”

He said it was gladdening to wake up on January 1, 2021 realising that the Federal Government had signed the Finance Bill 2020 on 31 December 2020.

However, he added, the joy was soon cut short after a detailed review of the contents of the version signed by the President.

“One of the amendments introduced by the Finance Act 2020 has indirectly increased the Personal Income Tax payable by taxpayers, especially employees,” he said.

The Finance Act amended section 33 of the Personal Income Tax Act and this increased the tax payable under the PIT Act by between one per cent and five per cent, he said.

“This means, in addition to pension and national housing fund contributions, employees will see more deductions on their pay slip on the same income earned in 2021 when compared with 2020,” the expert noted.

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He said apart from few other incentives introduced in other tax laws, the Finance Act also exempted persons earning national minimum wage or less from paying taxes altogether.

He said, “In my opinion, exemption of persons earning national minimum wage or less from paying personal income tax is not enough.

“The threshold for minimum wage which has remained unchanged for several years ought to be adjusted upward for this new tax relief to be meaningful.

“It is even better if this tax exemption threshold is not pegged to the minimum wage but fixed at a figure reflective of the minimum cost of surviving in a month for most urban dwellers in Nigeria.

“A threshold of N50,000 for complete tax exemption would have been more impactful, especially considering the impact of COVID-19 on the average tax payer.”

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