THE TAX REFORM ACT, 2025: MAJOR REFORMS AND HOW THEY AFFECT LOW-INCOME HOUSEHOLDS
BY
NATHANIEL JEREMIAH AND EMMANUEL LEO
INTRODUCTION
The Tax Reform Act, 2025 is one of the most significant changes to the tax system in recent decades. It was introduced at a time when many citizens were frustrated with rising costs of living, stagnant wages, and a tax structure that seemed to favor the wealthy. For low-income households, tax reform is not a technical debate but a question of survival. It determines how far a paycheck stretches, whether rent can be paid, and whether families can afford food and school fees. This article examines the major provisions of the Act and how they affect low-income families.
BACKGROUND TO THE REFORM
Before the Act, the tax system was considered outdated and unfair. Income tax thresholds had not been adjusted for years, which meant that workers earning just above the minimum wage still paid tax. Value Added Tax (VAT) was charged at the same rate on both essentials and luxury goods, placing a heavier burden on the poor who spend most of their income on food and basic needs.
Public frustration grew as the system was seen as regressive. Civil society groups and policymakers argued for change, calling for a tax regime that supported fairness and protected the vulnerable. The Tax Reform Act, 2025 was presented as a response to these concerns and aimed to make taxation more progressive.
Major Provisions of the Tax Reform Act, 2025
Several reforms in the Act have a direct impact on households.
Income Tax Brackets
The tax-free threshold was raised, exempting low-income earners from paying income tax. Middle-income brackets were widened to reduce pressure on working families, while the top bracket was adjusted upward so that wealthier individuals contributed more.
Tax Credits and Subsidies
A Family Support Credit was introduced to assist households with children. Existing credits such as those for education and earned income were expanded, adding to the disposable income of low-income families.
VAT Adjustments
The old uniform VAT system was replaced with a tiered approach. Essential goods like staple food, school supplies, and medicines were zero-rated or taxed at a lower rate. Luxury items were taxed at higher rates, making VAT less regressive.
Payroll and Property Taxes
Payroll taxes for low-wage workers were lowered, which increased their take-home pay. Exemptions were also introduced for lower-value homes, easing the burden on families struggling with housing costs. Small businesses that employed low-wage workers were given incentives, encouraging job creation.
These reforms collectively shifted the balance toward a fairer system.
IMPACT ON LOW-INCOME HOUSEHOLDS
The reforms have brought noticeable relief for many families. A single parent working just above minimum wage now pays less in income tax and benefits from the Family Support Credit, leaving more money for childcare and food.
Case Example
Consider a family of four where both parents earn a combined income of 25,000 per year. Before the Act, they paid around 2,500 in income tax and spent nearly 3,000 annually on VAT for essentials such as food and school supplies. After the reforms, they are exempt from income tax, qualify for the Family Support Credit, and pay less VAT on basics. The result is savings of about 3,500 a year, money that can now go toward rent, education, or healthcare. For families at the margin, this is a significant difference.
Rural households, which spend most of their income on basics, are already seeing relief through reduced VAT on groceries, fuel, and school supplies. Families in urban areas benefit from payroll cuts and property tax exemptions, which help with high housing costs.
Previously, some families spent up to 20 percent of their disposable income on VAT. By reducing or removing tax on essentials, the Act has lowered this burden and freed income for education and healthcare.
Challenges remain. The shift to digital tax compliance may disadvantage families in rural areas with poor internet access. In addition, rising costs in some service sectors, such as telecommunications, risk undermining the benefits of VAT relief. While most low-income families are better off, the success of the reforms depends on careful implementation.
CRITICISMS AND CONCERNS
The Act has been welcomed but not without criticism. Some economists argue that cutting taxes on essentials could reduce government revenue and limit funding for education and healthcare. Others warn that many families are not fully aware of the new credits and exemptions, which reduces the effectiveness of the policy.
There are also concerns that wealthier individuals could exploit loopholes to avoid paying their fair share. Without strong oversight and enforcement, the Act may not achieve the fairness it promises.
CONCLUSION AND POLICY SUGGESTIONS
The Tax Reform Act, 2025 is a bold attempt to build a fairer tax system. By raising income tax thresholds, expanding credits, and lowering VAT on essential goods, it has provided meaningful relief to low-income households.
However, reforms on paper must translate into real benefits in daily life. Public awareness campaigns are needed so that families know what they are entitled to claim. Investments in digital infrastructure are also essential to ensure rural households are not excluded. Finally, strong enforcement is required to prevent tax avoidance by the wealthy.
If these steps are taken, the Act can be remembered as a turning point in the pursuit of a tax system that supports both revenue collection and genuine social progress.
Enlightening
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