Breaking the burden: understanding regressive taxation and the call for equity in Nigeria’s tax system
Taxation plays a crucial role in financing government operations and public services in Nigeria. Over the years, the structure of taxation has evolved to include various forms, ranging from direct taxes, such as Personal Income Tax, to indirect ones, like Value Added Tax (VAT). However, understanding how these taxes impact different income groups helps promote fairness, especially when considering principles such as equity and ability to pay. This conversation becomes even more relevant as Nigeria seeks to grow its economy and improve revenue generation.
The Regressive Tax System: How It Affects Different Income Levels
A regressive tax system is one in which lower-income earners contribute a larger portion of their income compared to higher-income earners. In Nigeria, indirect taxes such as VAT—currently at 7.5%—are charged uniformly on goods and services. While this promotes ease of collection, it also means everyone pays the same amount regardless of income level.
For example, both a person earning ₦50,000 and another earning ₦1,000,000 pay ₦750 VAT on goods worth ₦10,000. The flat-rate design means that, although equal in amount, the tax represents a larger share of the lower-income earner’s resources. This highlights how such taxes may affect segments of the population differently.
The Principle of Equity: Ensuring Fair Contribution Across Income Levels
The principle of equity in taxation suggests that individuals and businesses should contribute taxes according to their ability to pay. In practice, this means that those who earn more or generate higher profits could contribute a proportionately larger share to public revenue. Read More