IMPACT OF 2011 PERSONAL INCOME TAX LAW ON WORKERS DISPOSABLE INCOME



            President Good luck Jonathan has signed the personal income tax Act (PITA) into law. it’s the first major amendment to the income tax law since 1979.
            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, according to a release from the federal Inland Revenue Service (FIRS).
            No fewer than 41 clauses, including amendments to cap p8 LFN, 2004, 36 sections, first schedule, third schedule, sixth schedule and short title of the old PITA a law were reviewed.

            The new act would provide 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 level.
            The act also simplified the compliance processes by consolidating the relief’s and allowances stipulated in the act and lowering the burden on low income earners as well as widering the tax base by bringing in a huge number of potential tax payers, especially in the informal sect, into the tax net. The act also removes obsolete, unrealistic and out dated relieves and allowances associated with the former act replacing the previous relieves and allowances with enhanced consolidated relieves and allowance.
            Principally, section (5), sub-section (1) of the states, there shall be allowed a consolidate relief allowance of N200,000 subject to a minimum of I percent of gross income or whichever is higher plus 20 percent of 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, next N500, 000 at 15 percent, next 500,000 at 19 percent and above N3.200,000 at 24 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 obligation for government agencies, professional bodies and trade association 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 administrating the law, including the power to deduct at source from its budgetary allocation, unmerited taxes due from ministry, departments and agencies (MDAs) and transfer such deduction to the relevant state upon request by state.
            In a way, the act professionalized the appointment of chairmen for the state internal revenue service. This is because such appointments are now subject to the confirmation by the state House 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-section 1 (a) and (b)state 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 to the provisions of this section, recover the amount of tax due by sales of anything so distained.
            At the international tax, conference, by the joint tax board, a few months ago, FIRS chairman’s, Ifueko Omosigui 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. Omoigui said the launch of the National tax policy and singing into law of PIT-approved by the federal executive council and ratified by the National economic council, will enable Government at all tiers to enhances the ability of tax authorities to effectively pay their roles of raising revenue for government and in turn enable government to properly utilize these revenues for developmental purposes.
            The personal income tax amendment bill, 2011 will unlock the hidden potential of personal income tax as a source of revenue and which if properly implemented, will not only resolve many of the issues which affect tax administration in the states, but enables states to focus energy and resources on areas, which will bring in a higher yield of tax revenue and bring in a large number of taxpayers, who have previously operated outside the tax system or have been ignored or neglected by the tax authorities.
            PITA will also introduce a more equitable system of personal income tax administration, whereby the tax burden is typically lesser at lower income levels and heavier at higher income levels and improve and simplify tax compliance for all taxpayers.
            On Tuesday at the signing of the bill Omoigui noted that its relieving that the journey which started sevens that its relieving that the journey which started seven years ago, had coursed through three presidents, 4th, 5th, 6th and 7th National Assembly and four ministers had eventuated in the signing of the law.
            She saluted President Jonathan for signing the PITA bill into law, the national Assembly for their committed in reviewing the bill over and over again and for passing it into law, the joint Tax Board, the national economic management council, all professional bodies,. All government agencies and individuals for their contributions to the passage of the bill.
            Personal income tax has direct impact on the workers disposable income, complying with tax legislation while minimizing your tax burden require detailed knowledge of the field with our help, you can optimize your personal wealth.

HOW PITA CAN HELP YOU
            We offer a full range of personal income tax related services to help you comply with and make the most out of your tax obligation. It includes,
(1)       Belgian and international personal tax planning tax-effective            remuneration structuring for international employees (salary          splits, international employment companies etc)
(2)     Tax-effective structuring and optimization of remuneration     packages (e.g. tax efficient individual investment in Belgian real     estate, capital gains and losses, use of personal management companies and related planning possibilities, tax optimization incase of redundancy etc).
(3)       Personal tax compliance service-personal income tax returns representation before the Belgian tax authorities.
(4)       Tax effective remuneration and benefits structuring including           pensions company, car policies, stock- related compensation      and tax deductible expense policies.


CONCLUSION
In the impact of 2011 personal income tax law on workers disposable income is that taxes and benefits leads to income being shared more equally between households. After all taxes and benefits are taken into account, the ratio between the average incomes of the top and bottom fifth households (E 61, 400 and E15, 200 respectively) is reduced to four-to-one
            Cash benefits and direct taxes have impact of redistributing income from richer household to those with lower income, thereby reducing income inequality. In contrast, indirect taxes, such as VAT and duties on fuel and alcohol take a higher proportion of income from lower income workers and therefore increase income inequality.
            On averages, workers inn the two income quintiles paid more in taxes than they received in benefits while workers in bottom three quantities received more in benefits than they paid in tax,
            There was a real terms decrease in disposable income between 2010/2011, with the largest fall being for the middle fifth of households.
            The proportion of disposable income paid in indirect taxes increased across the income distribution in 2010/2011. Compared with the previous year. This is largely explained by the increases to the standard rate of VAT in 2010 and 2011.                                            
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