The new national minimum wage: A double whammy scenario?

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Following agitations from the Nigeria Labor Congress (NLC) amid the alarming rise in the cost of living, as well as unprecedented levels of poverty in the country, the National Assembly finally approved N30,000 as the new national minimum wage recommended by the tripartite committee that was set up to review the minimum wage.

Nevertheless, considering the weak fiscal structure and dynamics of most states (shallow revenue base, over-dependence on FAAC inflows, and also considering the fact that some states have been struggling to pay their workers at the current wage rate), the biggest question in the minds of many is How will a 66.7% hike in minimum wage be funded?”

Sources: United Capital Research

There have been rumours that the FG plans to finance the bill by increasing tax rates [Value Added Tax (VAT), Company Income Tax (CIT) and Petroleum Profit Tax (PPT)]. In our opinion, this additional tax burden, coupled with already heightened administrative expenses would undoubtedly tighten profit margins for businesses. Furthermore, the increased minimum wage could predicate possible layoffs of workers because of the higher labour cost.

Overall, we are of the opinion that the FG should implement pro-market policies to cushion the likely negative effect of the bill on the ease of doing business in Nigeria.