The Kwara State Government has recently implemented the new minimum wage, including the consequential adjustment component jointly agreed to during negotiations with the labour unions and the private sector.
With sustainability at its core, this step demonstrates the State’s commitment to improving employee welfare and enhancing financial stability for its workforce.
In accordance with legal obligations, the gross income of workers is subject to statutory deductions, including Personal Income Tax, pension contributions, National Health Insurance Scheme (NHIS), National Housing Fund (NHF), and insurance, where applicable.
Personal Income Tax: A Statutory Obligation
Section 3 of the Personal Income Tax Act (PITA) 2011 (as amended) mandates that Personal Income Tax is a compulsory, first-line charge on gross income. The PITA is a law made by the National Assembly with general application in all the States of the Federation, including Kwara State.
The obligation to make appropriate deduction of the PAYE is placed by S.82 of PITA on the employer (i.e various Heads of Ministries, Departments and Agencies in the State). Failure by the employer to make the correct deduction, or to account therefore, attracts a penalty of 10 percent per annum of the amount, plus interest at the prevailing commercial rate. This shall be recoverable as a debt due to the relevant tax authority.
The Act further details that Personal Income Tax is calculated through the Pay-As-You-Earn (PAYE) scheme, a statutory obligation that every employer is expected to comply with. Relevant officers in the State Ministries, Departments, and Agencies (SMDAs) are to ensure that the correct tax rate, as dictated by the Act, is implemented in calculating the deductions.
By the Sixth Schedule to PITA, the graduated tax rates with consolidated allowance of N200,000 + 20 percent of Gross Income are subject to a minimum tax of 1 per cent of Gross Income, (or) whichever is higher. The Schedule further provides;
First N300,000 @ 7 Percent
Next 300,000 @ 11 percent
Next N500, 000 @ 15 percent
Next N500,000 @ 19 percent
Next N1, 600,000 @ 21 percent
Above N3, 200,000 @ 24 percent
The above Tax Calculator (formula) as outlined in the Sixth Schedule of PITA applies uniformly across all States of the Federation and was not designed or imposed by the Kwara State Government.
Historically, the non-compliance with these statutory provisions in the State has had various consequences, including impacts on employees. The inconsistency in tax deductions by MDAs has led to under-remittance of PAYE, affecting both the state’s revenue for developmental projects and employees’ personal obligations.
Addressing PAYE Compliance Issues and Their Impact
The issue of non-compliance by MDAs dates back over a decade. Upon discovery, the current administration initiated corrective steps, including seminars, PAYE workshops, and advocacy efforts, aimed at achieving compliance. In some cases, non-payment of full salaries by previous administrations was cited as a factor contributing to under-remittance.
Despite these corrective initiatives, full compliance has remained a challenge, leading to financial impacts on civil servants who, for instance, encounter issues obtaining their Tax Clearance Certificate (TCC) due to discrepancies in their PAYE remittance.
As a result of these long-standing compliance issues, the state has accumulated a PAYE liability exceeding N4 billion from 2010 to 2023, largely due to the use of an incorrect tax table. This has positioned Kwara 18th in the 2023 PAYE ranking, despite the state’s strong performance in other IGR areas.
Achieving compliance with PITA standards is critical for financial responsibility and enhanced revenue generation.
Commitment to Compliance with the Correct Tax Table
In implementing the new minimum wage, the state has ensured alignment with the correct tax table as stipulated by PITA. This adjustment will prevent further discrepancies, ensure deductions align with statutory requirements, and alleviate the challenges faced by employees in meeting TCC requirements.
The Kwara State Government remains dedicated to both employee welfare and fiscal responsibility, fostering effective tax administration for sustainable development.
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