Nigeria: The Fiscal Environment & The Nigerian Worker: Is A New Approach Required?

Last Updated: 12 January 2016
Article by Yomi Olugbenro
Most Read Contributor in Nigeria, October 2018

To ensure that the government and the Nigerian worker become mutually relevant to each other in the "change era", the Nigerian worker must have opportunities for gainful employment and security of continued employment and be assured of wages compatible with decent and respectable living whether minimum or otherwise.

According to the National Tax Policy, taxpayers are the single most important group of stakeholders in the tax system. A critical segment of this stakeholder group is the Nigerian working class comprising all individuals in formal employment in the public and private sectors of the economy.

The fiscal environment of the Nigerian worker imposes an obligation on his employer to compute, deduct and remit the tax due on his income to the appropriate State Internal Revenue Service or the Federal Inland Revenue Service as the case may be. This tax is the Pay-As-You-Earn (PAYE) tax.

Apart from the PAYE tax, there are other statutory deductions/contributions which the relevant legislation/regulations mandate the employer to deduct before arriving at the amount that would be liable to PAYE tax in the hands of the employee.

A review of these other statutory deductions/contributions would reveal government's significant intent to seek the ultimate welfare of the Nigerian worker in terms of continued skill and manpower development in the course of employment as well as their well-being whether in or out of employment. For instance:

  • Contributions to the Industrial Training Fund (ITF) under the Industrial Training Fund (amendment) Act of 2011 are geared towards encouraging and promoting skills acquisition in commerce and industry in a bid to create a pool of trained manpower necessary to meet the needs of the economy in this respect. Thus, every employer having five or more employees or having less than five employees but with a minimum turnover of ₦50million and above per annum shall in respect of each calendar year contribute to the Fund 1% of the amount of its total annual payroll. This amount is due within 3 months from year-end.
  • Contributions to the National Housing Fund (NHF) under the NHF Act are aimed at assisting workers achieve realistic home ownership targets. This is because contributors to NHF are supposed to qualify to obtain mortgage loan (maximum amount of ₦15 million) which is repayable over a maximum period of 30 years at the rate of 6% interest per annum (which is much lower than commercial rates). Every employee in (both private and public sectors) is expected to contribute 2.5% of his monthly basic salary, which would be paid into a designated fund at the Federal Mortgage Bank. This contribution is a deduction from employees' salaries and not a direct cost to the employer.
  • Contributions to Employee Compensation Fund (ECF) under the Employee Compensation Act 2011 are aimed at compensating the employees and their dependents in the event of death, disease, disability or injuries, suffered by such employees in the course of employment. The contribution takes the stress of compensation off the employer by providing an open and fair system of guaranteed and adequate compensation for employees/dependants in the event of any of the aforementioned instances.

Whether employed or unemployed, the Nigerian worker conforms to the same general pattern of human motivations as identified by Abraham Maslow. According to him, the physiological needs (food, clothing and shelter) are the physical requirements for human survival and as such must be met first. It is instructive that the Fundamental Objectives and Directive Principles of State Policy in Chapter II of the 1999 Constitution of the Federal Republic of Nigeria stipulates amongst others that," The State shall direct its policy towards ensuring – that suitable and adequate shelter, suitable and adequate food, reasonable national minimum living wage, old age care and pensions, and unemployment, sick benefits and welfare of the disabled are provided for all citizens".

The following aspirations have thus always been significant to the Nigerian worker:

  • how his capacity to be more productive would be considerably enlarged to the very utmost of which his natural talents are capable if fully developed
  • how he would be better fed, better housed, better clad, better provided with the comforts of life
  • how his mental, psychological and physical potentials would be developed and the economic and political affairs of the country would be so planned and organised as to enable him to acquire and enjoy many of the good things of this life and not in heaven
  • The Nigerian worker of the 21st century seeks a socio-economic and fiscal environment which enables him to satisfy his physiological needs. For instance, he wants to be able to provide or obtain reasonable answers to such questions as:
  • what quality of life is he expected to enjoy pre or post having a family?
  • how long will he have to work to buy his first car?
  • how long will he have to work to be able to afford a decent shelter?
  • how long will he have to work to move from a rented apartment to an apartment of his own?

These are legitimate aspirations which should influence a re-evaluation of the socio-economic and fiscal environment of the Nigerian worker. For example, the 1999 Constitution envisages a "national minimum living wage". Not just any form of wage, but a "minimum living wage". In the entire discourse on the national minimum wage, the word "living" has dropped off. Even if retained, what exactly is a "living wage"? How should this be defined within Nigeria's economic realities? For instance, a living wage is a wage that is high enough to maintain a normal standard of living. This raises another debatable point on what qualifies as "normal standard of living".

It must be noted that the stimulus for corruption may not be unconnected with the possibility that the relevant socio-economic and fiscal environment applicable to the Nigerian worker does not guarantee his capacity to meet some of the foregoing aspirations legitimately. This is not an attempt to make excuse for the abominable corrupt practices prevailing within the Nigerian system but to highlight the systemic pressure that may have exerted its push and pull effect.

To ensure that the government and the Nigerian worker become mutually relevant to each other in the "change era", the Nigerian worker must have opportunities for gainful employment and security of continued employment and be assured of wages compatible with decent and respectable living whether minimum or otherwise. Statutory contributions that have failed the Nigerian worker because their objectives have not been realised should be scrapped. Available reliefs to the Nigerian worker should be expanded to put more disposable income in his hands if the government is unable to increase his earned income year on year to reflect his peculiar socio-economic realities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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