What are They Advantages of Suspending the PAYE Scheme Under Personal Income Tax in Nigeria.

Suspending the PAYE Scheme Under Personal Income Tax in Nigeria: A Critical Analysis

This is a discussion that came amongst friends in a Phd Taxation class, the question was considering that Nigeria has abolished fuel subsidy regime, how will it be if PAYE is suspended to cushion the harsh consequences of this decision. This discussion is an international tax policy matter, suspending Nigeria’s PAYE scheme would be one of the most consequential fiscal decisions in the country’s recent history. Here I attempt to rigorously attempt to bring a balanced assessment to this matter. I will  analyze the potential advantages and disadvantages of such a decision on the Nigerian Taxpayer.

Let’s dive in.

POTENTIAL PROS

1. Relief for the Formal Sector Workforce

In this current high-inflation, post-subsidy-removal economic environment, suspending PAYE — even temporarily — would put more disposable income in the hands of salaried workers. This could stimulate consumer spending and partially offset the cost-of-living crisis ravaging Nigeria’s middle class.

2. Reduced Administrative Burden on Employers (Especially SMEs)

Nigerian SMEs, which constitute over 96% of businesses, often struggle with the compliance obligations of running payroll PAYE deductions, remitting to the relevant State Internal Revenue Service (SIRS), and filing returns. Suspension could reduce operational friction and lower compliance costs for small employers.

3. Incentive for Formal Employment

One of the perverse effects of PAYE is that it can make formal employment relatively less attractive compared to the informal sector. A suspension could narrow this gap, nudging businesses to hire formally and incentivizing workers to seek formal sector roles — potentially expanding the tax base long-term.

4. Easing the “Double Taxation” Perception

Many Nigerian workers already pay indirect taxes (VAT at 7.5%, levies, etc.) and feel that PAYE represents an unfair additional burden given the poor return on taxes in terms of public services. A suspension could address this sentiment and improve voluntary tax compliance culture in the medium term.

5. Alignment with Economic Stimulus Objectives

During periods of fiscal stress (e.g., post-COVID, post-fuel subsidy removal), temporary PAYE suspension functions like a targeted fiscal stimulus — one that does not require additional government borrowing, unlike direct cash transfers.

6. Potential to Expose Systemic Inefficiencies

A suspension could force a structural review of how withheld PAYE taxes are actually remitted and accounted for. In Nigeria, employer remittance non-compliance and diversion of PAYE funds are well-documented problems. A suspension could trigger a reset and redesign of the system.

What Next

In the next post we will take a deep dive into the disadvantages of suspending the PAYE scheme in Nigeria.