The Federal Government is set to implement a 50 percent tax relief for businesses that raise salaries or provide transportation allowances to low-income employees.
This initiative is part of a new legislative bill aimed at overhauling Nigeria’s tax system.
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The proposed legislation, entitled “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,” was dated October 4, 2024, and has been reviewed from the National Assembly.
Upon examination of the bill on Friday, it was noted that the objective is to introduce specific income tax exemptions to encourage salary increases.
The bill specifies that companies will be permitted to claim an additional 50 percent deduction in their applicable years of assessment for expenses incurred during the 2023 and 2024 calendar years.
Eligible expenses under this provision encompass salary increments, transportation subsidies, or transport allowances provided to employees with gross monthly earnings of N100,000 or less.
However, it is important to note that any further salary increases given to employees earning above N100,000 per month will not qualify for the tax deduction.
Additionally, companies that recruit new staff, leading to a net increase in their workforce between 2023 and 2024, will be eligible for the deduction.
This is contingent upon the new hires remaining employed for a minimum of three years and not being terminated involuntarily.
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
“(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.”
Furthermore, the Federal Government intends to establish an Economic Development Incentive Certificate as a tax benefit for companies investing in capital projects.
According to the bill, businesses interested in obtaining the certificate must submit their applications through the Nigerian Investment Promotion Commission (NIPC), along with a non-refundable fee of 0.1 percent of their capital expenditure, with a maximum limit of N5 million.
The NIPC will evaluate and recommend the applications to the Minister for approval. Subsequently, the Minister may present the recommendation to the President for final approval.
