June 22, (THEWILL) — When fiscal policy and social welfare intersect, the intention is almost always to protect the most vulnerable segments of the workforce. It was in this spirit of economic empathy that the federal government introduced sweeping changes in the contemporary tax landscape, seeking to shield low-income earners from the biting realities of inflation and a rising cost of living.
A prime example of this protective strategy is anchored in Section 162 of the Nigeria Tax Act, 2025 (NTA). The provision is explicitly clear: any individual whose gross earnings fall at or below the national minimum wage is entirely exempt from employment tax. On the surface, this feels like a monumental victory for the average Nigerian worker.
However, a closer look at the actual mathematics behind the law reveals a fascinating, head-scratching anomaly.
To understand why this well-intentioned exemption misses the point, one must look at how the graduated tax rates in the Fourth Schedule of the Nigeria Tax Act are actually structured. Under the current framework, the first N800,000 of an individual’s annual personal income is already taxed at a flat rate of 0 per cent.
Consider the operational baseline under the National Minimum Wage Amendment Act signed into law by President Bola Tinubu in July 2024, which officially set the minimum floor at N70,000 per month. For a worker earning exactly this baseline, their total gross income for an entire year’s amounts to N840,000.
If we strip away the Section 162 exemption completely and subject this entire sum to standard taxation, the first N800,000 is automatically cleared out by that 0 per cent baseline band. This leaves a tiny exposure of just N40,000. This remaining sliver falls neatly into the second tax band rate of 15 per cent, resulting in a total annual tax liability of exactly N6,000. Broken down into monthly terms, the maximum tax this worker would have paid is a mere N500.
This mathematical reality forces a compelling question for policy analysts and lawmakers alike: what is the practical utility of writing a dedicated statutory exemption to save a worker N500 a month? In an economy where a basic loaf of bread costs significantly more than N500, an administrative exemption of this size functions more as a symbolic gesture than a meaningful financial relief mechanism.
However, it is highly commendable that the drafters of the Nigeria Tax Act did not lock this exemption into a rigid, static figure. By tying the tax relief directly to the words “extant minimum wage prescribed by the National Minimum Wage Act,” the law features an incredibly smart, self-adjusting mechanism.
It means that as the minimum wage climbs, the tax shield automatically scales upward alongside it, bypassing the need for tedious legislative amendments to the tax act every time salaries adjust.
This dynamic linkage is particularly relevant right now. With the ink barely dry on previous agreements, the Federal Government and organised labour unions are back at the tripartite negotiating table, locked in intense deliberations over a new national minimum wage structure to counter persistent inflationary pressures.
As these negotiations progress, lawmakers must realize that the current baseline numbers have inadvertently turned a vital welfare provision into a mathematical quirk. If the core objective of the legislation is to provide genuine, impactful economic relief to those at the bottom of the ladder, the structural design needs to match the macroeconomic reality.
The final landing is clear: While the fluid legislative link to the minimum wage act is an excellent structural design, the specialised tax exemption threshold itself must ultimately be pushed significantly higher than the bare minimum wage line.
By lifting that specific relief ceiling to cushion not just baseline earners but the immediate tiers of low-income workers above them, the government can transform a negligible N500 anomaly into a robust, life-changing fiscal shield for millions of families across the nation.
•The author, Tomi Akinwale is a chartered accountant, tax consultant, and professional advisor.
