Connect with us
nairametrics
UBA ads

Business News

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

Published

on

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.

UBA ADS

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.

GTBank 728 x 90

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.

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.

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Business News

Why households that engage in subsistence agriculture are poor – Yemi Kale

“We established the poverty line at N137,430 and any individual or family that spends below this on food in a year will be classified below the poverty line.”

Published

on

Rauf Aregbesola annual colloquium

Subsistence agriculture alone may never be able to sustain any household in Nigeria. This is according to Nigeria’s Statistician-General and CEO of the National Bureau of Statistics (NBS), Dr Yemi Kale, who spoke during the Rauf Aregbesola annual colloquium earlier today. The event had the theme Government Unusual: Innovative Economic Solutions to Unlock Mass Prosperity.

Using insights from the 2019 National Living Standards Survey, Dr Kale explained that households that are solely engaged in subsistence agriculture appear to have the highest levels of poverty. This set of families are followed by households with more than twenty members.

UBA ADS

“This doesn’t mean agriculture is a bad thing. It simply means the way we do agriculture in Nigeria has to be improved so that it does not become synonymous with poverty or we have to find other sources of income for farmers to supplement their standard of living,” he said.

Speaking further, Dr Kale explained that the living standards survey, which was conducted in collaboration with the World Bank, started in late 2018 and ended in 2019. The survey utilized data from all states in Nigeria except Borno whose data was not considered credible enough given the security situation in the state. Kale said:

“We established the poverty line at N137,430 and any individual or family that spends below this on food in a year will be classified below the poverty line.”

GTBank 728 x 90

Given this yardstick, the survey established that at least 22.9 million Nigerians are living in poverty, with the bulk of this number coming from the rural areas and states with low indices on education, social welfare initiatives, employment, and income equality.

Formalising the informal sector

The informal sector comprises people who earn enough to keep above the poverty line on a daily basis, but not enough to sustain them in the event of a lockdown, as was seen recently in some states during the April COVID-19 lockdown. This is a problem that can only be solved if the informal sector becomes formalised, Kale said. In other words, formalizing this sector will help more daily wage earners stay above the poverty line. He made reference to the recent lockdown which incapacitated lots of daily wage earners in states such as Lagos.

Nigeria’s poor versus other African countries

Making a comparison, Yale also noted that Nigeria’s poor are poorer than their counterparts in South Africa despite the fact that the nominal size of Nigeria’s economy is much larger.

He attributed this to findings which showed that Nigerians spend three times more on foods and consumables than all other items put together, as against countries like South Africa and Egypt where less is spent on food items.

“Nigerian remains Africa’s largest economy, but per capita income is rather low for a country of this size, and the level of poverty presents a major development challenge” he noted.

app

Reducing unemployment – the fastest way out

According to Kale, the fastest way out of poverty is to reduce unemployment, as people will naturally have more to spend on their needs when they are employed. To support his point, Kalu cited five Nigerian states with the least poor people in comparison to the other states Lagos, Delta, Ogun, Osun, and Oyo. Each of these states has fewer unemployment levels compared to the states with higher poverty rates such as Sokoto, Taraba, Jigawa, Ebonyi, and Adamawa states.

Patricia

Other indicators which show similar trends across the states are education, and ease of doing business. The poverty rates are almost always higher where education is poor.

Increasing local production

Also making a presentation during the colloquium, Dr Joe Abah called for a review of the 1978 land use act which he said is limiting in its provisions. He also stressed that Nigeria needs to improve access to capital, raw materials, lands, and technological innovations so that production capacity can increase significantly.

“All of the richer countries simply produce more, and they produce more things that people want to buy and want to consume. It could be products or services. the higher your production capacity, the richer you are. if you cannot produce, you cannot develop your education or your health sector.”

According to Abah, the cost of governance cannot be reduced without adopting some of the suggestions of the Oronsaye report, and restructuring the system for productivity. He said that “there is also a need to link budget and funding to productivity so that public sectors begin to understand that the more funding they require, the more they are expected to produce as well.”

He also suggested that states should start focusing on their competitive advantage and use same to improve general productivity in their state.

app

Other panelists at the colloquium include Mallam Nasir El-Rufai, Governor, Kaduna State, Sen. Abubakar Bagudu, Governor, Kebbi State, Mrs. Hajara Adeola, CEO, Lotus Capital Limited, Mr. Bismarck Rewane, CEO, Financial Derivatives Limited, Dr. Joe Abah, Country Director, DAI, Dr. Yemi Cardoso, Chairman, Citibank Nigeria, with Boason Omofaye as the moderator.

You may watch the colloquium by clicking here.

Continue Reading

Economy & Politics

Output cut: Nigeria leads in OPEC non-compliance with 50 unsold cargoes of crude

Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

Published

on

Petroleum Industry Bill to be passed by mid-2020, says Sylva, FG discovers crude oil in north, says there’s more , OPEC, non-OPEC countries to meet as Saudi, Russia price war affects Nigeria’s budget, FG considers fuel price reduction, OPEC deal: Nigeria to generate additional $2.8 billion revenue as FG reacts

As opinions continue to differ on whether OPEC will extend its current oil output cut beyond June, available information has shown that not all members of the oil cartel complied fully with their agreed quotas for the month of May. This is despite the fact that the oil output by OPEC member countries reached its lowest in almost 20 years.

Available data from oilprice.com showed that OPEC members cut their output by 5.91 million barrels per day from the April level, producing 24.77 million barrels per day. This figure also showed a 4.48 million barrel per day of the agreed output cut, thereby representing a 74% compliance level.

UBA ADS

Nigeria and Iraq were reported not to have kept to their commitment to the huge production cut deal that had promised to reduce output by 9.7 million barrels of crude oil per day.

Iraq was able to achieve just 38% compliance of its agreed output cut for the month of May, while Nigeria, which achieved a much lower compliance of the agreed output cut, recorded 19% compliance of what was agreed. Saudi Arabia showed the highest compliance, recording 96% of the agreed output cut.

Some have attributed the noncompliance of some members of OPEC to the agreed output cut, to the contractual obligations and commitment to buyers, given the short timeframe between when the agreement for the output cut was made and its implementation.

GTBank 728 x 90

Meanwhile oil exports from Angola and Congo remained steady at high prices on Friday, while Nigerian oil fared lower amid huge inventory of unsold cargoes.

Nigeria continues to face some difficulty in the oil market, primarily due to sluggish demand from Europe; it has around 50 unsold cargoes of crude oil yet to be sold for the months of June and July.

Meanwhile, India has become one of the few buyers for the Nigerian oil. Indian oil firms bought about 5-6 million barrels of Nigerian crude oil last week and has bought about 2 million barrels as at Thursday this week.

Continue Reading

Business News

President Muhammadu Buhari reshuffles NNPC’s board of directors

Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

Published

on

President Muhammadu Buhari to address Nigerians on Monday, receives update and recommendations from PTF

President Muhammadu Buhari has approved the reconstitution of the board of the Nigerian National Petroleum Corporation (NNPC) after the expiration of the tenure of the current board.

The newly constituted board members are expected to serve for a tenure of three years, effective immediately. They will take over from the last board, whose 3-year tenure officially ended in 2019. Information about this development is contained in a State House press release that was published on the official twitter handle of the Nigerian Presidency on Saturday morning.

UBA ADS

READ MORE: Construction of ICT Parks nudges Nigeria into digital transformation

READ ALSO: CBN and NIPOST open pilot microfinance branches

GTBank 728 x 90

The newly constituted NNPC board is made up of six members from each of the geo-political zones in the country. The members include the following individuals:

  • Mallam Mohammed Lawal, representing the North West
  • Dr Tajudeen Umar from North East
  • Adamu Mahmood  Attah from North Central
  • Senator Magnus Abe from the South-South
  • Dr Stephen Dike from the South East, and
  • Chief Pius Akinyelure from the South West geo-political

READ MORE: Boko Haram: A protracted battle yet to be won?  

Of the six members, three are returning members on the board – Chief Pius Akinyelure, Mallam Mohammed Lawal, and Dr Tajudeen Umar from North East.

Note that the constitution of the new board is considered a welcome development, as it balances the representation of the six geo-political zones on the board. The previous constitution of the board was faulted for not being “balanced”.

READ ALSO: Full text of President Muhammadu Buhari’s 58th Independence day broadcast

app

Note that the former board included the late Chief of Staff to the President, Abba Kyari as a member. Stakeholders have since expected the President to reconstitute a new board to take over.

Patricia

Get the Nairametrics News App

Continue Reading