Just this week, The Director, National Orientation Agency (NOA), Ondo State was invited to a public lecture tagged: Nigeria's New Tax Laws & Public Outcry, organized by Ekimogun Youths Connect (EYC).
Mr James Adekunle, who got retired a day after the lecture, did justice by simplifying the tax reforms.
Q. Many Nigerians have been in panic mode for some months now, with information flying on social media that personal bank accounts would be frozen unless owners provide their Tax Identification Number (TIN).
Do individuals need a TIN to keep or open a bank account?
A. NIN and BVN are enough to open and keep bank accounts so there is no cause for panic at all about tax reforms and bank accounts.
Q. Another information spreading on social media is that people should use the description/note column to state the reason they're sending money to avoid personal money or gift money being taxed.
I want to ask, will transfers and deposits into personal bank accounts be taxed, and how will the Tax authority differentiate the money sent for healthcare, education etc and sale transactions?
A. It is not the money in your bank account that is going to be taxed and not the daily transactions that will be taxed
Tax is going to be based on taxable income, that is, it is after you have removed all your inputs or expenditures. For those in business, you are going to remove your costs of running the business and what is left as income will be taxed.
Q. Will churches and mosques begin to pay tax now?
A. Students, pensioners are exempted and people earning less than 800 thousand naira. Churches, mosques and places of worship are exempted.
Q. If I took a loan from a lender, be as a bank, cooperative society or others, will I pay tax on the money?
A. On loan from cooperatives, banks and other lenders, your money will not be taxed, it is the company or business that lends you money that will be taxed on the income generated from the money they loan out.
Q. How will the tax authority know the money I earn from others?
A. It is important to keep records of our finances. If it is possible as a trader, you can have a book where you write your transactions: income and expenditure.
It is good to keep a good record of your transactions, the narration on the transaction is important.
For this new tax law, technology will be deployed. That is the reason the government is discouraging the spending of raw cash and putting a ceiling on the amount you can withdraw weekly.
So when a transaction is done electronically, it becomes easy to track and apply tax
Also, you should be able to differentiate between what is taxable and what is not. If money enters your account, it is not an earned income, maybe it's a loan or a gift, nobody will tax it.
Q. What if I get overtaxed, what can I do?
A. From now on, Nigerians will begin to enjoy tax refunds. If at the end of the tax period, it is discovered that you have been overtaxed, the excess will be refunded to you. Therefore, it is important to keep notes so you can compare if the tax man comes, and if there are excesses, they will be refunded.
The good news is that, there is what we call an arbitrator, who is to rectify issues between you and the tax man and their services are largely free. It is one of these things we call alternative dispute resolution intervention.
As I said, it is easy for anyone to calculate his or her own tax. What you should do is keep a record of all your income and expenditures. At the end of the year, you will be able to know the amount of income you get.
Q. What are the new progressive tax bands?
A. 800 thousand naira is the minimum threshold for personal income tax, after that, the 2.2 million threshold and it is going to be taxed at a 15% rate. The next threshold is 9 million, and the taxation rate is 18%. The next is 25 million and the taxation rate is 23%. The next is 50 million, and the taxation rate is 25%.
Q. How do I know my taxable income?
A. To calculate it is not difficult. To simplify it or make it easy to calculate your tax, I would ask that you go to fiscalreforms.ng, where the tax calculator is.
Q. Do individuals have to pay tax on remittances or family support money coming from abroad?
A. The people in the diaspora who send money for family support, to their parents and loved ones, nobody is going to tax that because they made the money abroad and it has already been taxed. Only the money you earned abroad while in Nigeria will be taxed.
Q. If I send 10 million naira to a person on a sick bed, how will the government know the recipient did not earn it but for healthcare support?
A. Add a narration to such a fund sent to help someone on a sick bed, nobody will tax that
Q. We have many Nigerians who are poor and can not keep financial records, don't you think this is a big issue?
A. The issue of illiteracy, as it stands, I know there are lots of illiterates around us, and the tax authority is also aware of this fact. The government knows that the majority of the petty traders may not be able to keep records, and not only that, how many of them will be able to earn 800 thousand naira annually after removing their deductible. So that is the reason we say this tax regime is advantageous to the low-income earners because the bulk of them are exempted.
But for people who are into big business and can make more than 100 million naira, such a person must be educated. Meanwhile, if you're in business and your annual income is less than 100 million annually, you are exempt from tax.
For someone who is able to earn more than 100 million, it's either that the person is literate or capable of employing someone literate to handle part of the business even if it's going to be for record keeping only.
Q. Is this tax thing a blessing or a curse to a common man?
A. It's a blessing because a common man is not likely to pay tax. They are the lower class who earn less than one million naira yearly.
For the middle class, if you remove all the deductibles at the end of the day, what your tax would be will be far less than what it used to be before.
I have calculated mine, and I compared it with what I used to pay before, and I see a clear difference there.
The present tax is structured in such a way that it is favourable to the low-income earners because it is progressive, that is, as the income increases, the rate of taxation also increases. Therefore, at the end of the day, it is the rich who will pay more tax than the poor, and the poor will pay far less.
It is a clear departure from the past. In the past, the taxation was regressive, that is, the poor people were taxed more, out of their meagre income because as your income increases, the rate of taxation decreases, so it is the rich people who enjoyed the old tax structure.
Therefore, the rate of taxation of the poor is lower. In fact, this tax regime is targeted at the rich, not the poor, and that is the reason a whole lot of the poor will not pay tax at all
Q. What has changed in the revenue-sharing formula between federal, state, and local governments?
A. The bulk of the tax is now going to the state and the local government, and that is the reason it will be so good for citizens to hold their state and the local government accountable.
Also, that is the reason it is allowed for the state to domesticate the new tax law in each state. The states are expected to come out with their own tax formats to be in line with those of the federal government.
Fortunately, a good number of the states have embraced it so it's time to demand transparency and accountability from your state and the local government.
There are a good number of local government areas that do not even have a website where they can put their financial records in the public glare, such local governments must be encouraged to open a website and ensure they put their financial records there so people can easily check and also know how they are spending the tax money.
Q. How will capital gains and investment income be taxed, especially when investors continue to reinvest their proceeds from sales without withdrawing them to their bank accounts?
A. No tax if the share sale is not more than 150 million naira, and the profit is not up to 10 million naira, how many Nigerians can make such heavy transactions, it's the rich, so the tax reforms are not something to be afraid of as a common man.
Q. Under these new tax reforms, digital assets like crypto, NFTs, and online income from influencers, remote workers are now taxable.
What are the mechanisms that have been put in place to accurately calculate and deduct these taxes?
A. The mechanisms put in play to calculate and deduct taxes are with the tax authority. You have a role to play, file your returns before the tax man comes to you.
For this new tax law, technology will be deployed. That is the reason the government is discouraging the spending of raw cash and putting a ceiling on the amount you can withdraw weekly.
So when a transaction is done electronically, it becomes easy to track and apply tax
Q. Does Income Tax go entirely to the state government where I live or my state of origin?
A. Tax is about where you stay, do business, and earn your income.
Q. If I have a company and a shop, do I still pay trader taxes + tax under the new law?
Similarly, most small business owners pay double taxes to their local government, union, etc. What is the stance of the New Tax Laws on this?
A. These tax reforms are structured to curb multiple taxation. We want to stop the situation whereby the federal government, the state government, and the local government will collect taxes on the same person, now everything is harmonised to one common taxation.
Q. What happens if eligible individuals or businesses fail to file or pay their taxes under the new system?
A. As individuals and business owners, it is expected of all of us to file our tax returns. It is better we do it, and not want the tax man to run after us. That is the reason we said we should keep records of our finances.
Tax offices are all around us at the local government level, state level and of course online so we can make use of all of these platforms to file our returns.
One thing that was common before now is that a lot of people were evading tax because taxation was done manually then, and the rich prefer to bribe their way rather than to pay their tax, so the government keeps losing money.
In this regime, everyone who is supposed to pay tax will be compelled to pay.
There will be very little or no room for tax default, and of course, the tax authority can take action, and some of those actions can mean a court.
Q. Will money transferred to bank accounts of organisations like cooperative societies, churches, and nonprofit organisations like Ekimogun Youths Connect be taxed?
A. Those running unions should keep records of their members, and such records should be made open to the union executives. It is now the executives who will act as arbitrators, they will go between the individuals and the tax office.
Q. The government has increased VAT again, isn't this too much of our money?
A. 7.5% VAT is not on the transaction but your charges for a service you use their service
Conclusion
This reform is in line with the economic emancipation of our country, and has been commended by world leaders. If not for some of these reforms President Tinubu has started, the dollar to naira rate and petroleum price wouldn't have come low.
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