Taxes & Tariffs | |
Taxes & Tariffs | |
1812 VIEWS | |
![]() |
Thursday, July 11, 2019 / 04:00PM / Deloitte / Header Image Credit: Advocates
The Tax Appeal Tribunal (‘TAT’ or ‘the Tribunal’),
sitting in Lagos on 19 June 2019, delivered a judgment in favour of Nexen
Petroleum Nigeria Limited (‘Nexen’ or ‘Appellant’) in a case with Lagos
Internal Revenue Service (‘LIRS’ or ‘Respondent’). The key issue for
determination, amongst others, was whether the Appellant is obliged to deduct
and remit pay-as-you-earn (PAYE) taxes on the voluntary pension contribution
(VPC) withdrawals made by its employees before the timeline stipulated in the
Pension Reform Act, 2014 (PRA). In delivering its judgment, TAT held that LIRS’
attempt to recover PAYE taxes from employers on income other than employment
income earned is null and void. Background/facts of the case Nexen received a
Notice of Refusal to Amend (NORA) from LIRS in response to its objections filed
against assessment notices raised on the company. LIRS had conducted an audit
exercise on the tax records of Nexen for 2013 and 2014 tax years and
consequently demanded additional tax liability from the Appellant, which
ultimately steered the filing of a Notice of Appeal at TAT.
The fundamental issues for determination before the Tribunal are as follows:
The
decision
In delivering its judgment, TAT analysed each fact
of the case and ruled accordingly; citing relevant sections of the law and
evaluating various decided cases. A high-level overview of the decision is set
out below:
(a) TAT considered
the employer’s obligation to deduct and remit accurate PAYE taxes to the
relevant tax authorities under section 81(1) of PITA. TAT noted that VPC is
based on the provisions of section 4(3) of PRA, which allow employees to make
voluntary contributions to their retirement savings account (RSA), while
section 10 provides that all pension contributions shall form part of
tax-deductible expenses. PRA does not limit the exemption to the mandatory
contributions. Thus, it is on this premise that Nexen also treated VPC as
tax-deductible contribution.
(b) To the extent
that Nexen has ordinarily complied and acted within these provisions and
further proved to LIRS by showing evidence of compliance, no further obligation
was required from it.
(c) The provision of
PITA on PAYE scheme clearly stipulates that an employer is an agent of
government for the purpose of withholding PAYE taxes (in respect of funds due
from the employer to the employee) from employees. Therefore, where an agent
performs its duties, as in the case of Nexen, it is discharged from further
responsibility of any future action of the employees.
(d) TAT also rejected LIRS’ use of discretion in
adopting deemed income as the gross emoluments of the expatriates due to a
perceived reduction over the years without considering supporting documents
provided by Nexen. This is on the basis that the discretion by LIRS was not
exercised in a judicial and judicious manner. In addition, LIRS’ action
violates the principle of taxation.
(e) Lastly, the PRA
does not specify that employer has obligation to request evidence of
nonwithdrawal from VPC for a period not less than 5 years. Nonetheless, the Act
provides in section 10(4) that any income made on the VPC shall be subject to
tax at the point of withdrawal, if withdrawn before the expiration of 5 years
from the date of contribution. The import of this provision is to ensure that
early withdrawals become taxable in the hands of the employee and does not in
any way infer that the responsibility to deduct and remit these taxes, rests
with the employer. The issue of confidentiality required from Pension Fund
Custodians and the Pension Fund Administrators restricts the knowledge of such
withdrawals from the employer.
Our
analysis
Simply put, this case seeks to address two major issues, which are:
For easy reference, we have highlighted each issue
and our analysis immediately thereafter:
(a) The role of
employers as agents of government: The Tribunal rightly highlighted that the
role of employers is limited to deduction and remittance of PAYE on emoluments
paid to employees and such role is merely an administrative duty/task. Thus,
the employer has no further responsibility to act as an agent of government for
any future actions of its employees with respect to their VPCs.
(b) Obligation of employee contributor: The Tribunal commented that the PRA exempts any income earned on any VPC from tax where withdrawal is not made before expiration of five (5) years of voluntary contribution. The interpretation of the Tribunal’s ruling that the exemption stated in section 10(4) of the PRA applies to employees appears flawed on the following bases:
Conclusion
The decision of the TAT in the above case has
clearly shown that the obligation of an employer, with regard to deduction and
remittance of applicable taxes on the employees’ income, does not cover
subsequent events. Therefore, the employer, as an agent of collection on behalf
of the government, does not have any further obligation with respect to other
income of the employee outside employment income.
In a few
cases, we have seen the tax authorities insist that the employer has the
obligation of getting evidence of subsequent withdrawals by its employees from
their RSA accounts and should report such to the tax authority. By the fact of
this case, it is clear that the obligation of an employer does not extend to
this point.
Related
News
1. Tax Appeal Tribunal Rules That Excess Dividend Is
Liable To Tax At 30%
2. Nigeria: A Nation Pauperised by Tax Evasion
3. LIRS to Introduce Unique Biometrics-Based Identifier
for Taxpayers
4. How ‘Better Tax’ Walks the Talk for Workable Tax
Reforms
5. Communiqué of The Chartered Institute of Taxation of
Nigeria 2019 Annual Conference
6. FIRS Recommends A 63-Day Timeline For Completion Of
Tax Audit Exercises
7. Focus On Compliance in Boosting Tax Collection