Comparative Analysis of Tax Burdens of Salaried and Self-Employed Taxpayers Under Personal Income Tax Laws in Nigeria (Published)
Amendments in personal income tax laws are part of tax reform programmes of governments for regulating economic and social policies, and such statutory changes affect the welfare and spending profiles of individuals. This paper examined the comparative effects of changes in Personal Income Tax Act (PITA) 2004 and Personal Income Tax Amendment Act (PITAM) 2011 on tax burdens of salaried and self-employed taxpayers in Nigeria. Widespread speculations on whether the changes made in the two tax laws have differential effects on salaried and self-employed taxpayers and widen income gaps among taxpayers on different income levels were the major concerns of this study. The ex-post facto research design was adopted in this study. The sample size used is made up of all the 259 income levels/points available on the Unified Salary Structure for all staff in Federal Universities in Nigeria, and 60 self-employed taxpayers purposively selected based on established criteria. Data on the gross income and domestic circumstances for four groups of taxpayers were collected from each of the teaching staff, non-teaching staff and self-employed taxpayers. Descriptive and t-test statistics were used in analysing the data. Results indicated no significant difference between the tax burdens of salaried and self-employed taxpayers under PITA 2004 but significant differences were found to exist under PITAM 2011; hence the new Act altered existing equality in tax burdens in favour of salaried taxpayers. Results further revealed that the effects of changes in PITAM 2011 on tax burden differed significantly among the four groups of income earners while the general decrease in tax burden across all the groups favoured the low income earners more than the high income earners. The study therefore concluded that changes in PITA have significant effects on the tax burdens of taxpayers with a strong potential of narrowing the income gap between the rich and the poor. The study recommends the introduction of Entrepreneurship Relief Allowance in favour of self-employed taxpayers to adjust the observed inequality in tax borne between salaried and self-employed taxpayers. The paper also recommends further reductions in tax rates and the widening of the tax band to enhance voluntary compliance and government collectible revenue in Nigeria.
Keywords: Income Inequity, Tax Burden, Tax Law Changes, Voluntary Compliance.