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In an effort to reform Nigeria’s tax system, the Federal Government is set to implement a 50 percent tax relief for companies that raise salaries or provide transportation allowances to low-income workers. This initiative aims to incentivize businesses to support their employees financially and contribute to the overall economic welfare of the country.
The proposed law, titled “A Bill for an Act to Repeal Certain Acts on Taxation and Consolidate the Legal Frameworks relating to Taxation and Enact the Nigeria Tax Act to Provide for Taxation of Income, Transactions, and Instruments, and Related Matters,” is dated October 4, 2024, and was obtained from the National Assembly.
A review of the bill on Friday indicated its focus on introducing income tax exemptions to incentivize salary adjustments for employees this will help to invest in their workforce, enhancing overall economic stability and growth.
Under a specific section of the bill, companies will be allowed an additional 50 percent deduction in their applicable years of assessment for expenses incurred in the 2023 and 2024 calendar years.
The eligible expenses consist of wage hikes, transportation subsidies, and transport allowances awarded to workers earning a gross monthly salary of N100,000 or less, designed to alleviate the financial burden on lower-wage employees.
Nonetheless, the provision stipulates that any supplementary salary increments for employees earning more than N100,000 monthly will not qualify for tax deductions, ensuring that the incentives are reserved for those in lower wage brackets.
Also, firms that hire new employees resulting in a net increase in their workforce between 2023 and 2024 will qualify for the deduction, provided the new employees remain employed for at least three years and are not involuntarily disengaged.
A section of the bill read, “A company shall be entitled to an additional deduction of 50 per cent in the relevant years of assessment in respect of costs incurred in 2023 and 2024 calendar years on the following –
“(a) wage awards, salary increases, transportation allowance or transport subsidy granted to a low-income worker, which bring the gross monthly remuneration of the worker up to an amount not exceeding N100,000.00; provided that any additional award or salary increase to an employee earning above N100,000.00 as monthly salary shall not qualify for the additional deduction under this subsection; and
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“(b) salaries of any new employee constituting a net increase in the average number of new employees hired in 2023 and 2024 calendar years over and above the average net employment in the 3 preceding years, provided that such new employees are not involuntarily disengaged within a period of 3 years post-employment.”
Also, the Federal Government plans to introduce an Economic Development Incentive Certificate as a tax incentive for companies investing in capital projects.
As outlined in the bill, firms seeking the certificate must submit their applications through the Nigerian Investment Promotion Commission, accompanied by a non-refundable fee of 0.1 per cent of the capital expenditure, capped at N5m.
The NIPC will review and recommend the applications to the Minister for approval, after which the Minister may forward the recommendation to the President.
