The proposed replacement of the long-standing Consolidated Relief Allowance (CRA) with a Rent Relief Allowance, in the Nigeria Tax Bill, warrants deeper analysis and broader stakeholder engagement. While the intention may be to tailor tax reliefs to major personal expenses such as housing, the transition from a consolidated relief approach to a single-purpose approach raises critical concerns about fairness and inclusiveness. Here are some considerations.
- Exclusion of Landlords from Income Tax Relief
Instead of the Consolidated Relief Allowance, it is proposed that tax payers should be entitled to a Rent Relief Allowance of ₦200,000 or 20% of annual rent paid (whichever is lower), as per section 30(2)(a)(vi) of the Nigeria Tax Bill. The implication of the proposed regime under the Nigerian Tax Bill is the exclusion of property owners and landlords, from enjoying any income tax reliefs. Whereas under the current CRA regime, all taxpayers received relief calculated as the higher of ₦200,000 or 1% of gross income, plus 20% of gross income, regardless of whether they rented or owned their homes. The proposed shift now means that only those who pay rent are eligible for any relief at all. This means that landlords who stay in their own homes are no longer entitled to income tax relief. Additionally, employees who stay with a relative or in their parent’s house (i.e dependent adults), a common social reality in nigeria, may not get any income tax relief since they do not pay rent. It is submitted that in a country where many individuals, especially retirees or self-built homeowners, do not pay rent, this change introduces an uneven burden on similarly situated taxpayers.
- Moving from Broad-Based Relief Regime to a Single-Purpose Relief
Before the CRA was introduced in 2011, Nigeria operated a broad-based personal relief system with various line items, including (a) Personal Allowance: ₦5,000 plus 20% of earned income; (b) Children Allowance: ₦2,500 per child (up to four) ( c) Dependent Relative Allowance: ₦2,000 per dependent. This broadbased relief system, was eventually replaced by the CRA to simplify administration and to provide a more equitable and transparent framework. It is submitted that the diversity of these line items is precisely what gave the CRA its “consolidated” nature, being a composite reflection of typical living costs and family responsibilities and structure in Nigeria. It is submitted that to now base all income reliefs solely on rent paid, is to collapse a once broad and inclusive relief framework into a narrow, single-purpose allowance. It is further submitted that the current proposal is not reflective of the typical living costs, conditions and familial structure in Nigeria.
- Static Relief in a Volatile Economy: The Case for Indexation
Another point of concern with the proposed Rent Relief Allowance in the Nigeria Tax Bill is the static figure of ₦200,000 as the relief cap. When the CRA was introduced in 2011, ₦200,000 held significantly more value. Today, due to inflation and Naira devaluation, its real-world impact has diminished considerably. A fixed allowance in a highly inflationary environment like Nigeria’s risks becoming obsolete within a short period. It is submitted that any reform that seeks to replace the CRA should be indexed to inflation to retain relevance and fairness over time.
- An Inflation-Responsive Mechanism
In addition retaining a broad-based relief framework in the Nigeria Tax Bill, it is recommended that the current proposals be revised to incorporate an inflation-responsive mechanism that adjusts personal income tax in line with inflationary trends. Specifically, where annual inflation exceeds a defined threshold, the tax system should automatically provide corresponding relief to mitigate the increased financial burden on individuals. When inflation exceeds this threshold, a formulaic adjustment could be triggered to reduce the effective tax rate, thereby preserving taxpayers’ real income. For example, a calibrated formula could stipulate that for every 1 percentage point increase in inflation above 20%, the personal income tax rate is reduced by 0.2 percentage points, or as constrained by fiscal capacity. This approach ensures a dynamic and responsive tax policy that aligns with macroeconomic conditions and protects the real income of tax payers.
Rethinking the Clause for a Balanced Future
Tax reform is essential, but equity and sustainability are also critical. While the Rent Relief Allowance under the Nigeria Tax Bill attempts to tailor tax relief to one of the most common expenses, like housing, it does so at the cost of excluding other major life burdens and disenfranchising property owners and tax-payers living with family members. We therefore urge lawmakers and the drafters of the Nigeria Tax Bill to revisit the Rent Relief provision, consider retaining a broader “consolidated” approach, or at minimum, introduce supplementary reliefs for taxpayers whose financial obligations fall outside rent. It is also imperative to build in an inflation-responsive mechanism to future-proof the tax system and ensure that it remains fair, inclusive, and effective for all Nigerians.
