Lagos, FG Head For Showdown Over Tax Slash

The Lagos State and Federal governments are heading for a showdown over plans by the Federal Government to slash the Personal Income Tax.

The state government said if the plan is carried out it will cut the Internally Generated Revenue, IGR, of the state by 50 percent.

The Federal Government had already sent a bill to the National Assembly seeking to amend the Personal Income Tax Act in a bid to reduce tax being paid by workers in the country as Pay As You Earn, PAYE.

Under the proposed amendment, anyone earning below N200, 000 per annum would be exempted from paying tax, while the rate of tax would also drop drastically.

Briefing newsmen on Thursday, the Special Adviser to the Governor on Taxation and Revenue, Mr. Ade Ipaye said the National Assembly hosted a public hearing on the bill last month, saying that the amendment was to rectify some perceived anomalies in the Act, like low rates of personal allowances and the outdated penalties.

“The Federal Government took the opportunity to attempt an implementation of the National Tax Policy by reducing the rates of personal income tax and increasing radically the threshold for tax payment.

“Personal allowance would now be N200, 000 plus 20 percent of earned income while the first N300, 000 would be taxed at 7%. The top rate applicable to persons earning N3.2 million and above would be 24% (currently, the top rate is 25% applicable to persons earning N160, 000 and above,” he stated.

According to Ipaye, if the proposed new amendment was effected, it would make it difficult for states to pay salary, especially at this period when Lagos hadimplemented the N18,000 minimum wage.

He said the intention of the amendment was to reduce personal income tax while increasing value added tax, adding that the immediate effect of this adjustment would have been an immediate reduction in the state’s IGR by 50% or more without any visible plan or projection about how the reduction would be made up.

“This, we were unable to agree to and we have made our views known to the National Assembly. We believe that while it might be easy to reduce any tax rate, it is never easy to increase.

“It will therefore be disastrous to effect a reduction of personal income tax when there is absolutely no proposal before the National Assembly as to how to increase indirect taxes or how to make up for the loss in other ways.

“We also believe that the decision is not founded on any empirical basis as Nigeria already has one of the lowest income tax rates and the lowest tax to Gross Domestic Product, GDP ratios,” he stated.

He lamented a situation in which the Federal Government currently took as much as 52.68 percent of centrally collected revenues in the federation account, leaving the states and Local Governments with 26.72 percent and 20.60 percent respectively.

“This creates a glaring and unacceptable imbalance in the financial resources of the three tiers of government which was quite inappropriate at a time when most state governments were finding it difficult to invest in capital development or maintenance of facilities and services as they already use most or all their allocations from the federation account to pay the remunerations of civil service employees.

“It is also inappropriate at a time there is an increasing incidence of labour dispute and prolonged stoppage of essential services occasioned by collective agreements signed by the Federal Government with doctors and lecturers and other groups of employees,” he said.

He added that “it is inappropriate at a time the National Assembly has raised the minimum wage bill of all employers of labour and definitely put the payment of salaries out of the reach of most state governments.”

Ipaye disclosed that the Lagos Internally Revenue Service recovered N20.6 billion bad tax during its audit exercise of 18,148 companies in Lagos in 2010.

— Kazeem Ugbodaga