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©2024 Edo State Government
©2024 Edo State Government
Proportional tax, also known as a flat tax, is a system of taxation where the marginal tax rate remains constant regardless of the taxpayer’s income level. In other words, everyone pays the same percentage of their income in taxes, regardless of whether they earn a little or a lot.
– Petroleum Profit Tax: In Nigeria, the Petroleum Profit Tax is levied at a flat rate of 85% on the profits of companies engaged in petroleum operations.
– Capital Gains Tax: Capital Gains Tax is imposed at a flat rate of 10% on the profit made from the sale of capital assets such as land, shares, and machinery.
Progressive tax is a system where the tax rate increases as the taxable amount increases. This means that higher-income individuals pay a higher percentage of their income in taxes compared to lower-income individuals.
– Personal Income Tax: Personal Income Tax in Nigeria is progressive, with tax rates ranging from 7% to 24% for different income brackets. As income increases, so does the tax rate.
– Corporate Income Tax: Corporate Income Tax rates in Nigeria are progressive, with small companies taxed at 20% and large companies at 30%.
Regressive tax is a system where the tax rate decreases as the taxable amount increases. This means that lower-income individuals pay a higher percentage of their income in taxes compared to higher-income individuals.
– Value Added Tax (VAT): VAT is a regressive tax because everyone pays the same rate regardless of income. In Nigeria, the standard rate for VAT is 7.5%.
– Poll Tax: Poll Tax is a fixed tax levied on each individual, regardless of their income level. It is considered regressive because it places a greater burden on low-income individuals.
– Proportional Tax: While proportional tax is simple and easy to administer, it can be considered unfair as lower-income individuals end up paying a higher percentage of their income in taxes compared to higher-income individuals.
– Progressive Tax: Progressive tax is often seen as more equitable as it takes a larger share of income from those who can afford to pay more. However, it can also discourage productivity and investment.
– Regressive Tax: Regressive tax is criticized for placing a heavier burden on low-income individuals, potentially exacerbating income inequality.
In Edo State, the tax system includes a combination of proportional, progressive, and regressive taxes. The Personal Income Tax, which follows a progressive tax system, is one of the key sources of revenue for the state. Other taxes, such as VAT and Business Premises Levy, follow a regressive tax system.
Understanding the different tax systems is important for taxpayers as it helps them understand how their income is taxed and the impact it has on their overall tax liability. In Edo State, the tax system is designed to balance the need for revenue generation with the principles of fairness and equity.
