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LIRS issues a series of public notices in a bid to improve tax compliance

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The Lagos State Internal Revenue Service (LIRS), in a bid to improve tax compliance
and widen the tax net, recently released a series of Public Notices (Notices)
interpreting certain provisions of the Personal Income Tax Act (PITA).
Analyzed below are some of the Notices.

I. PAY AS YOU EARN ON EMPLOYEE OUTSOURCING ARRANGEMENTS
This Notice seeks to give clarifications on the obligation of parties under employees
outsourcing arrangement vis à vis Sections 81 and 82 of the PITA which provide the
legal basis for the PAYE tax scheme by mandating employers to make income tax
deductions from emoluments paid to employees and remit same to appropriate tax
authority.
Under a typical outsourcing arrangement, the obligation to deduct tax and remit to the
tax authority lies with the outsourcing firm. However, the Notice emphasizes, pursuant
to Paragraph 2(3) of the Operation of Pay As You Earn Regulations (PAYE
Regulations), that where a person other than the employer manages the staff day to
day, that company or enterprise would be required to provide information of the staff
and also deduct the applicable PAYE.
The effect of this Notice is that the exposure for improper deductions or failure to
deduct is not limited to the outsourcing company. The service recipient also maintains
an obligation to ensure that PAYE is deducted from employee emoluments, where the
service recipient is in charge of the daily management and control of the employees
outsourced. So, where the service recipient manages the staff day to day or, for
example, is responsible for the promotion, discipline and termination of employment,
the tax authority may hold the service recipient accountable for their taxes.

This Notice is consistent with the provisions of applicable laws as well as case law on
the issue. Therefore, where a company has an arrangement with an outsourcing
company, such company should ensure that the arrangement is structured in such a
way that the obligation of the actual employer is not transferred to an unwilling service
recipient.

II. TAX RELIEF ON VOLUNTARY PENSIONS CONTRIBUTIONS
LIRS and the Joint Tax Board (JTB) also recently issued Notices regarding tax relief on
Voluntary Pension Contributions (VPC). The LIRS and JTB are concerned that
employees take advantage of the provisions of the Pension Reform Act, 2014 (PRA) to
make additional voluntary contributions, which are tax deductible, from monthly
salary and withdraw same at a later date without complying with the provisions of the
law.
The JTB stressed that making uncapped deductions under the auspice of voluntary
contribution is unlawful under the Labour Act as the total deductions from a worker’s
wages for a month should not exceed one-third of such wages. The JTB stated further
that such transactions would be treated by tax authorities as artificial transactions
under Section 17 of PITA and that any payment made by the Pensions Funds
Administrators (PFAs) to individuals under this arrangement will be considered to fall
outside the tax exemptions granted in the PRA.
The Notice emphasized that payments made by PFAs to individuals who do not fall
under Section 16 of the PRA will not be treated as tax exempt. Section 16 of the PRA
provides that an employee is generally not entitled to make any withdrawal from his
RSA before attaining the age of 50 years except such employee disengages or is
disengaged from employment:

 on the advice of a suitably qualified physician or a properly constituted medical
board certifying that the employee is no longer mentally or physically capable of
carrying out the functions of his office;
 due to total or permanent disability either of the mind or body;
 before the age of 50 years in accordance with the terms and conditions of his
employment; or
 is unable to secure another employment within four months of such
disengagement.

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III. TAXATION OF EMPLOYEE LOAN
The LIRS, in this Notice, relied on Section 3(1)(b) of the Personal Income Tax Act
(PITA) as the legal basis for taxation of benefits arising from employee loan.
The Notice seeks to compel employers to compute tax on the difference (if any)
between the rate on any employee loan given by the employer and an adjusted
Monetary Policy Rate (MPR), which was stated to be MPR minus 3%. The LIRS sees
such loan difference (if any) as a benefit enjoyed by the employee by virtue of his/her
employment.
The Notice further sets out the compliance requirements for the taxation of benefits
arising from employee loans as follows:
Deduction of PAYE: The employer is required to compute tax on the difference
between the rate on such employee loan and the adjusted MPR and remit to the
relevant authority.
Reporting Obligation: Every employer is required to file, alongside their annual
returns, a schedule showing the information on its employee loan and the payment
terms.
Applicability: This provision will also apply to directors and employees of a
company and will continue to apply even after the relationship with the company
has been terminated as long as the loan remains unpaid. The principle will also be
applied to significant shareholders.

IV. WHAT CONSTITUTES REASONABLE REMOVAL EXPENSE FOR
THE PURPOSE OF TAX EXEMPTION
The legal basis for this Notice is Section 4(3) of PITA which exempts “reasonable
removal expenses” from Personal Income Tax. However, PITA does not define what
constitutes “reasonable removal expense”.
The Notice defines “reasonable removal expenses” as any expense which an employee
incurs to move to a new employment location and the payments made to or on behalf
of an employee taking up employment with a new employer such as relocation
allowance.
The Notice further sets out the compliance requirements for the tax deduction of the
expense as follows:
 the reimbursement to the employee or payment directly by the employer must be
in respect of removal/relocation expenses actually incurred;
 the expenses must be a reasonable amount;
 the payment of the expenses must be properly documented; and
 relocation must be necessary in the circumstance
The Notice provides that in order to obtain certainty for such removal expenses and
temporary subsistence allowances, corporate and business enterprises may submit
their staff policy and guidelines as well as their per diem rates for pre-approval by the
LIRS.
The interpretation of Section 4(3) of PITA by the LIRS limiting reasonable removal expenses to only actual removal/relocation expenses incurred by the employee is rather more restrictive than the Act provided. It is also worthy of note that Section 4(5) of the PITA provides that “any reference to anything provided for an employee in the section shall be construed to include anything provided for the spouse, family, servant, dependant or guest of that employee by the employer unless the reference is expressly to something
provided for the employee himself”. This provision clearly expands the scope of the definition of reasonable removal expenses and the Notice did not take cognizance
of this.

CONCLUSION
The recent LIRS’ notices attempt to clarify certain grey areas of the law and provide
novel interpretations to some provisions. It is however important to note that Notices
cannot derogate from the extant provisions of the law.

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Christopher B. Pemu has a degree in Political Science from the University of Lagos. He joined Nairametrics in 2014 as News Editor and later as Managing Editor. He currently serves as the General Manager of Nairametrics. He takes pleasure in traveling, enjoys world politics and in sport, he loves watching football and tennis.

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Financial Services

Era of backlog of unsettled claims is over – NAICOM boss

NAICOM has stated that it will monitor and sanction insurance companies who fail to settle claims as at when due.

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NAICOM

The National Insurance Commission (NAICOM) is out to seriously sanction any insurance companies with huge unsettled claims.

This disclosure was made by the Commissioner for Insurance, Mr. Sunday Thomas, at the on-going 2020 Insurance Directors’ Conference, jointly organized by NAICOM and the College of Insurance & Financial Management (CIFM), held at the Oriental Hotel in Lagos.

Mr. Thomas reiterated the need for the operators, post-pandemic, to appropriately strengthen their human and financial capital for effective participation in big-ticket risks to take advantage of the obvious gains of the domestication policy in the Nigeria Content Development Act 2010.

In his words, Mr. Thomas stated, “More businesses especially in the oil and gas and the Aviation sectors are now being reinsured abroad. Of more concern is the declining participation of life companies in the annuity business, which is the emerging business for our industry.

“These are the areas where the industry can impose itself on the economy through the control of funds for national development. The industry must invest handsomely in technology, one of our key drivers for developing the market.

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“The Institutions should be prepared to digitalize their processes, procedures, and systems, in order to make their operations seamless and real-time. The Commission is investing heavily in automating its processes and expects nothing less from the insurance institutions. An industry Information Technology Guideline has been issued for the operators and the Commission requires your support and cooperation for effective compliance.”

(READ MORE: FG seeking FDI to develop Special Economic Zones – Trade Minister)

Why this matters

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Prompt settlement of claims should be a top priority for the insurance operators in achieving an excellent and responsive customer service experience. Settlement of claims has been a serious nightmare for quite a number of customers, resulting to the abysmally low insurance culture in Nigeria.

Customers are more likely to patronize the insurance companies that are prompt in claims settlement and by extension improve the industry penetration in the market.

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Financial Services

Total credit to the economy rose to N19.54trillion – CBN Governor

The CBN revealed during the MPC meeting that the total credit to the economy rose to N19.54tn as of the end of November 13.

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CRR debits, P-AADS, #EndSARS: CBN says funds in frozen accounts may be linked to terrorist activities, Covid-19: Court closures impacted revenue generation for courts - Emefiele, P&ID dispute: UK Court orders $200 million guarantee to FG, Leaked letter by Poultry Farmers Association triggered CBN emergency approval to import maize, nImplications of CBN's latest devaluation and FX unification, current account deficit, IMF, COVID-19, CBN OMO ban could give stocks a much-needed boost , CBN’s N132.56 billion T-bills auction records oversubscription by 327% , Nigeria pays $1.09 billion to service external debt in 9 months , Implications of the new CBN stance on treasury bill sale to individuals, Digital technology and blockchain altering conventional banking models - Emefiele  , Increasing food prices might erase chances of CBN cutting interest rate   , Customer complaint against excess/unauthorized charges hits 1, 612 - CBN , CBN moves to reduce cassava derivatives import worth $600 million  , Invest in infrastructural development - CBN Governor admonishes investors , Credit to government declines, as Credit to private sector hits N25.8 trillion, CBN sets N10 billion minimum capital for Mortgage firms, CBN sets N10 billion minimum capital for Mortgage firms , Why you should be worried about the latest drop in external reserves, CBN, Alert: CBN issues N847.4 billion treasury bills for Q1 2020 , PMI: Nigeria’s manufacturing sector gains momentum in November, CBN warns high foreign credits could collapse Nigeria’s economy, predicts high poverty, MPC Member, BVN, Fitch, Foreign excchange (Forex), Overnight rates crash after CBN’s N1.4 trillion deduction, Nigeria’s foreign reserves hit $36.57 billion; Emefiele keeps his word on defending the naira, CBN to support maize farmers, projects 12.5 million metric tons in 18 months, BREAKING: CBN Upscales Greenwich Trust Limited, grants it's operational license for merchant banking, AGSMEIS: CBN expand beneficiaries to 14,638., CBN expands access to mortgage financing

The CBN Governor, Godwin Emefiele, has disclosed during the Monetary Policy Committee meeting that the total credit to the economy rose to N19.54tn as of the end of November 13.

According to him, the aggregate domestic credit grew by 7.6% in October 2020 compared with 7.35% Month-on-Month in September.

In his words, “Total gross credit by the banking industry stood at N19.54tn as at 13th November 2020 compared with N19.33tn at end-August 2020, an increase of N290.13bn. When compared with N15.56tn at the commencement of the LDR policy in May 2019, total gross credit increased by N3.97tn.”

According to Emefiele, the composition of the loans are N738bn to Manufacturing, General commerce N874bn, Agric and forestry N301bn, Construction N291bn, ICT (N231bn), etc.

In the month of October 2020, he stated that 86.23% of the total loans granted to over one million customers by banks were at interest rates considerably below 20% per annum.

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(READ MORE: N200 billion Unclaimed Dividend: Securities dealers reject FG’s plan to manage fund)

Bottom line

The MPC was quite optimistic and favorably disposed about the future impact of the disbursements from agri-business/Small and Medium Enterprise Investment Scheme of the sum of N92.90bn to 24,702 beneficiaries; Anchor Borrowers Program – N164.91bn disbursed to 954,279 beneficiaries; and COVID-19 Targeted Credit Facility to household and SMEs, with the sum of N149.21bn to 316,869 beneficiaries.

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Economy & Politics

Bus fare paid by Nigerian commuters increased by 68.8% in October 2020

The average fare paid by Nigerian commuters for a bus journey intra-city spiked by 68.82% from N190.86 recorded in October 2019 to N322.22 in October 2020

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Mile 2 Road

The average fare paid by Nigerian commuters for bus journey within the city spiked by 68.82% year-on-year from N190.86 recorded in October 2019 to N322.22 in October 2020. This was contained in the transport fare watch report, released by the National Bureau of Statistics (NBS).

The Transport fare watch report for the month of October 2020 covered the following categories namely: bus journey within the city per drop constant route; bus journey intercity, state route, charge per person; air fare charge for specified routes single journey; journey by motorcycle (Okada) per drop; and waterway passenger transport.

According to the report, the average fare paid by Nigerians for a bus journey within a city also increased by 4.03% when compared to N309.73 recorded in September 2020. Meanwhile, States with the highest bus journey fare within the city were Zamfara (N585.34), Bauchi (N504.78), and Cross River (N431.04); while States with the lowest bus journey fare within the city were Abia (N192.11), Kebbi (N205.47), and Borno (N208.15).

Highlights

  • Average fare paid by commuters for bus journey intercity increased by 9.25% to N2,209.84 as against N2,022.7 recorded in September 2020, while it increased by 35% compared to N1,636.86 recorded in the corresponding month of 2019.
  • States with the highest bus journey fare intercity were Abuja FCT (N4,376.09), Lagos (N3,073.41), and Sokoto (N3,055.12); while States with the lowest bus journey fare intercity were Bayelsa (N1,473.67), Enugu (N1,560.00), and Bauchi (N1,560.49).
  • Average fare paid by commuters for journey by motorcycle per drop increased by 3.88% month-on-month and by 115.50% year-on-year to stand at N265.41 in October 2020 from N255.51 and N123.16 respectively.
  • States with the highest journey fare for motorcycle per drop were Niger (N1,476.40), Kogi (N372.45), and Rivers (N352.47); while states with the lowest journey fare for motorcycle per drop were Adamawa (N78.49), Katsina (N106.20), and Kebbi (N135.75).
  • In terms of air travel, the average fare paid by passengers for specified routes single journey decreased by -1.70% when compared to N36,884.59 recorded in September 2020. It however increased by 18.42% (year-on-year) to stand at N36,256.08 as against N30,615.43 recorded in October 2019.
  • States with the highest air fare were Anambra (N38,500.00), Cross River (N38,460.00), Jigawa (N38,250.00); while States with the lowest air fare were Akwa Ibom (N32,750.00), Sokoto (N33,250.00), and Gombe (N34,800.00).

What you should know

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Nairametrics reported in October that the average fare paid by commuters for a journey by motorcycle per drop, more than doubled in September 2020 when compared to the corresponding month in 2019, increasing by 111.11% to stand at N255.51 in the month.

Bottom line

The persistent increase in the prices of transport fares across the country is a resultant effect of the Covid-19 pandemic, which necessitated drivers and transporters to reduce the number of commuters they carry at a time.

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This is in line with the health measures implemented by the Federal government to help curb the spread of the corona virus in the country.

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