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.