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Claim: X user said Nigerians pay the lowest tax in the world.
Verdict: False. While Nigeria has one of the lowest tax rates globally, this does not necessarily mean its citizens pay the least taxes.
Bill Gates, popular philanthropist and co-chair of the Bill and Melinda Gates Foundation, recently visited Nigeria to speak at Nutrivision 2024, a Pan-African youth dialogue on nutrition. Mr Gates said that tax collection in Nigeria is “pretty low,” adding that this presents a significant challenge in adequately financing critical sectors
”Over time, there are plans for Nigeria to fund the government more than it does today. The actual tax collection in Nigeria is actually pretty low,” Gates said.
His remark has continued to elicit mixed reactions among Nigerians. While some advised Mr Gates to remain silent on the issue of low tax collection, citing the alleged embezzlement of public funds by government officials in Nigeria, others agreed with the philanthropist’s views.
One of those who backed the billionaire’s opinion was an X user, @AdloveGlobal, who claimed Nigerians pay the lowest tax in the world.
“Nigerians pay the lowest tax in the whole world,” the user tweeted in response to Mr Gates’ comment published by Channels TV.
Mr Gates has been the subject of intense debate in Nigeria, with many conspiracy theories surrounding his involvement in the economy of African countries.
Considering the topicality of the claim and its potential impact, DUBAWA decided to scrutinise it and ascertain its veracity.
The tax rate in Nigeria explained
There are different levels of taxation ranging from personal income tax to value-added tax (consumption tax) and capital gains tax among others. For proper contextualisation of this report, the various categories of taxes will be explained below:
Personal income tax
Action Aid describes Personal Income Tax (PIT) as a direct tax levied on personal income including wages, salaries, director’s fees, dividends, royalties, and rental income.
Lawpadi explained that the rate of income tax payable is dependent on the amount of ‘taxable income’ that the person (individual, business, community, family) is liable to pay.
It explained that taxable income is ‘some or all items of income’ minus allowable expenses and deductions.
Personal Income tax in Nigeria is deducted in two ways: Pay As You Earn (PAYE) and Self-assessment tax. The PAYE is usually deducted from an employee’s income while the latter applies to self-employed people.
Personal Income Tax is collected by The federal government and the Internal Revenue Service in the states are in charge of collecting personal tax.
However, the Federal Inland Revenue Service collects taxes from residents of the Federal Capital Territory, as well as from highly mobile federal workers, such as staff of the Ministry of Foreign Affairs, other Nigerians, and foreigners living abroad but earning income in Nigeria (non-residents), among others.
The rate for PAYE in Nigeria is as follows:
- 1st ₦300,000 – 7%
- Next ₦300, 000 — 11%
- Next ₦500, 000 — 15%
- Next ₦500, 000 — 19%
- Next ₦1,600,000 — 21%
- Above ₦3,200,000 — 24%
Meanwhile, workers with an income of ₦30,000 (₦ 70,000 effective from 1 May 2024) or less are not required to file tax returns.
According to data from trading economics, Nigeria’s personal income tax is not the lowest compared to other countries. For instance, Kuwait, the United Arab Emirate, and Oman do not impose any personal income tax on employees. Saudi Arabia, the Bahamas, and some other countries do not also impose taxes on personal income; however, there are certain exceptions, as seen here and here.
Compared to Nigeria’s 24% at the maximum, countries with lower tax rates include Romania, which has a personal income tax rate of 10%.
Income tax in Belarus is pegged at 13%, however, there are certain variations as seen here. Hungary has a 15% tax rate for personal income and individuals can enjoy some tax-exempt benefits listed here. Personal Income Tax in Ukraine is also pegged at 18% +1.5% military tax which applies to all incomes. It also applies to passive incomes such as capital gains, interest, and royalties.
It is worth noting, however, that there are countries with higher personal income tax (PIT) rates than Nigeria. That said, Nigeria’s PIT rate is among the lowest globally but not the least.
Consumption tax
This refers to taxes charged on the things a person buys. It includes sales tax, use tax, excise tax, and value-added taxes (VATs).
Value-added tax is charged on goods and services, levied at each stage of a supply chain. It is borne by everyone in the supply chain: manufacturer, wholesaler, dealer, retailer, and customer.
It is distinct from sales tax, which is majorly charged to the final user by the retailer.
Note that some countries of the world name these levies interchangeably, some refer to theirs as Good and Service charge, General Consumption tax, etc.
However, information from PwC reveals that several countries have lower consumption tax rates than Nigeria. For instance, Oman and the United Arab Emirates have a 5% rate, while Jersey Island also has 5%. In Timor-Leste, the sales tax on imported goods is 2.5%, and in Myanmar, although there is no VAT, an indirect tax (commercial tax) is applied at a general rate of 5%.
Corporate Tax
This is the tax collected from companies. It is levied on the profits of a corporation. Investopedia explains it to be a ‘tax paid on a company’s taxable income, which includes revenue minus expenses’.
Under the Nigerian Companies Income Tax (CIT) Act, every company incorporated under the Companies and Allied Matters Act (CAMA) is required to file Company Income Tax returns annually, irrespective of the profit or loss position.
The CIT rate is 30% for large companies (companies with gross turnover greater than ₦100 million assessed on a preceding year basis (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment). The CIT rate is 20% for companies that earn between ₦25 million and ₦100 million. A company that earns less than N25 million naira is exempted from this tax.
However, Petroleum Profit Tax (PPT) is charged on the income of companies engaged in upstream petroleum operations in lieu of the Corporate Income Tax. A breakdown is provided below:
- 50% for petroleum operations under production sharing contracts (PSC) with the Nigerian National Petroleum Corporation (NNPC).
- 65.75% for non-PSC operations, including joint ventures (JVs), in the first five years during which the company has not fully amortised all pre-production capitalised expenditure.
- 85% for non-PSC operations after the first five years.
- 30% for upstream gas profits.
Meanwhile, in some other countries of the world, the CIT is lower than that of Nigeria like the United Arab Emirate where the Corporate Tax is pegged at 9% for taxable income above AED 375,000; 0% for taxable income below AED 375,000 and a “different tax rate (not yet specified) for large multinationals that meet specific criteria set concerning ‘Pillar two’ of the OECD”.
In the United States, the current Corporate Income Tax rate on resident corporations has been pegged at 21%, effective from December 2017.
The CIT rate in Poland and Mauritius are 19% and 15% respectively though there are certain exceptions as seen here and here.
While there are various arguments about the functionality of the tax system in Nigeria, a report issued in July 2024 found that about 89% of the informal sector pays some form of taxes to their local councils and bodies.
“Put together, businesses in the informal market contribute over half of Nigeria’s GDP. This is evident in their revenues with the bulk of them (72.3%) hitting monthly revenues of over N1,000,000 monthly,” the report by MoniePoint partly reads.
Meanwhile, in May 2024, the federal government noted that it was working on a system that would provide tax relief to 95 per cent of the informal sector.
Conclusion
While Mr Gates’ statement about Nigeria’s tax collection system may be accurate, especially when considering the tax-to-GDP ratio, the claim by the X user that Nigerians are the least tax-paying citizens is false and misleading.
