The Lagos State Internal Revenue Service (LIRS) announced a major tax overhaul on October 15, 2024. Under Nigeria's new national tax regime, only 1.6% of Lagos taxpayers will see higher bills. About 98% of workers will pay less tax or no tax at all. LIRS Executive Chairman Ayodele Subair presented the data at a business forum in Victoria Island. The changes took effect immediately for the 2024 fiscal year.

How the New Tax Brackets Work

Nigeria's Finance Act 2023 introduced revised personal income tax brackets. The Federal Inland Revenue Service (FIRS) implemented these nationwide. Lagos State, which collects taxes independently through LIRS, has now aligned its system. The lowest earners—those making below ₦300,000 annually—pay zero tax. The previous threshold was ₦180,000. Middle-income workers face reduced rates across three new brackets. The top bracket now starts at ₦6 million per year, up from ₦3.2 million. Only individuals earning above ₦12 million annually fall into the highest 24% rate. LIRS estimates this group represents just 1.6% of Lagos's 4.2 million registered taxpayers.

Why It Matters

Lagos contributes over 30% of Nigeria's GDP. Its tax policies influence national economic trends. The reform directly boosts disposable income for most residents. A 2023 National Bureau of Statistics survey showed 82% of Lagos workers earn below ₦500,000 monthly. These workers will now keep more of their pay. Increased spending power could stimulate local businesses. Retailers like Shoprite and Jumia may see higher sales. The policy also aims to improve tax compliance. Nigeria's tax-to-GDP ratio was 10.9% in 2022, per FIRS data. That figure lags behind South Africa's 27.3% and Kenya's 16.3%. Simplifying the system encourages more people to pay willingly.

Implementation and Costs

LIRS will update its online portal by November 30, 2024. Employers must adjust payroll systems accordingly. The agency waived penalties for late filings during the transition. Businesses need no new permits, but must submit revised PAYE returns. LIRS allocated ₦850 million (approximately $1.1 million) for public awareness campaigns. These include radio ads, SMS alerts, and workshops. The state expects a short-term revenue dip of 8-10%. Officials project recovery within two years through broader compliance. Lagos collected ₦1.02 trillion in taxes in 2023. The 2024 target remains ₦1.25 trillion despite the cuts.

What Businesses Should Watch

Companies should review salary structures now. The changes affect employee net pay and morale. HR departments must communicate updates clearly. Firms like PwC Nigeria and KPMG Nigeria offer advisory services on the transition. Businesses also face revised withholding tax rates on contracts. The new regime caps rates at 5% for individuals and 10% for corporations. This applies to services from vendors like construction companies or IT consultants. Monitoring cash flow is crucial. Consumer spending may rise in sectors like food, transport, and entertainment. Lagos-based banks such as Access Bank and GTBank could see increased deposit activity. The state plans quarterly reviews to assess economic impact.

Broader Economic Context

Nigeria's federal government aims to harmonize tax policies across states. The Finance Act 2023 provides the framework. Each state must adopt the federal brackets but can set specific enforcement rules. Lagos moves first, with others like Rivers and Kano expected to follow by early 2025. The reform coincides with other measures. These include a ₦5 billion grant for small businesses through the Lagos State Employment Trust Fund. Inflation remains a challenge at 28.9% as of August 2024, per NBS data. Tax relief may help offset rising costs for households. The policy also supports Nigeria's goal to lift 100 million people out of poverty by 2030. Lagos, with its 20 million residents, is a key testing ground.

Next Steps for Taxpayers

LIRS urges all workers to verify their status online. The portal at lirs.gov.ng shows updated tax liabilities. Employers must file monthly returns by the 10th of each month. The agency will conduct random audits from January 2025. Penalties for non-compliance include fines up to ₦500,000. Taxpayers can seek help at LIRS offices in Ikeja, Alausa, and Lagos Island. The agency added 50 staff to handle inquiries. For businesses, the message is clear. Adapt quickly to the new rules. Use the extra liquidity wisely. Watch for further state-level incentives. Lagos plans to announce corporate tax adjustments in 2025. These could benefit sectors like manufacturing and tech.