Hello Tweeps, today is Episode 2 of our weekly tweet chat session on Nigeria tax issues. I call it “tweetax” session – #TaxWiseNG. It’s a weekly affair, 5pm Nigeria time, every Wednesday.
The barrage of responses, questions and comments that followed the introductory session is both impressive & overwhelming. I’m still wondering if the enthusiasm shown is out of love or hatred for tax. “Any which way”, you can’t ignore tax.
Back in the days, when answering accounting questions in school, we were told to “ignore tax”. With today’s realities, you may ignore tax at your own risk! O.Y.O. Limited! On Your Own. If I knew well then, I should have ignored the accounting bit and focused on tax.
Many questions poured in after the introductory session last week. Many direct messages (DMs) were received as some prefer the confidentiality of private consultation. I like private consultations because it may lead to public debit notes! I managed to respond to as many questions as time could permit. Tweet at me if I left out your question.
Topics of interest were suggested, in addition to those discussed on the forum during the tweetax session. Not surprising, more than half of suggested topics bothered on personal taxation, including taxation of expatriates. Taxation of e-business and Value Added Tax are joint second on the list of suggested topics of interest.
So today, in response to your request, we’ll discuss taxation of individuals. Individual cover both Nigerians and foreigners. Taxation of Individuals – #TaxWiseNG Episode 2 – starts now!
Someone asked – how are individuals taxed in Nigeria? I took a deep breath and responded “just the way the law says they should!” Tax is a matter of law! There can’t be charge to tax without legal back-up. Tax authority don’t raises assessment or demand tax payments without legal authority.
Personal Income Tax Act, Cap P8, LFN 2007 (PITA) as amended to date is the enabling law for taxation of individuals in Nigeria. PITA was originally enacted in 1993 via Decree 104. It used to be cited as Personal Income Tax Decree No 104 of 1993. Before Decree 104, a uniform tax law – Income Tax Management Act (ITMA) 1961 – was applicable for all income tax matters.
Since enactment of PITA, few amendments have been effected thereafter. The last amendment to PITA was in 2011. The amendment in 2011 was widely publicized because of its far reaching impacts. Many taxpayers are familiar with Personal Income Tax (Amendment) Act 2011, aka PITAM 2011.
Let’s leave aside all the frenzy and “efizy” of legal munbo jumbo (due respect to Hon @PObahiagbon). If we must refer to the law, we’ll simply just say PITA. That should suffice for the simple minded like me.
Based on PITA, tax is imposed on the income of all individuals who are considered to be tax resident in Nigeria. Individual considered as tax resident are taxed on their worldwide income. This means all income are taxable, irrespective of where they’re from, unless such income is specifically exempted.
The law uses an interesting phrase to explain the concept of worldwide income. All income from sources within and outside the country are taxable. You may need Prof Wole Soyinka to help you explain if there are other sources of income not covered by that phrase. Well, you may also seek the help of @PObahiagbon if you’re “perfervidly fanatical” in your admiration of Honorable PO!
Be sure to make your question clear: where else could my income have come if not “from a source inside or outside Nigeria”? If you say from heaven, that should still fall under Nigeria or outside Nigeria. Or would you say heaven is nowhere?
In fact, individuals, families & communities are liable to tax. Trustees of estates too. For as long as they have taxable income. People in your village may have tax imposed on them by relevant authority based on the estimated income of all the villagers.
Truth be told, it’s a known fact that taxing the informal sector is a whole lot more hectic than the formal sector. That’s why those in (formal) paid employment are much easier to tax. The law makes the employer unpaid agent of government for the collection of taxes due on employee income.
For employment income, PITA provides the conditions for deeming income taxable in Nigeria. You’ll be liable to tax in Nigeria if your employer is a Nigerian company or a non-resident company (NRC) with fixed base in Nigeria.
Fixed base is a fundamental concept in tax– not as simple as it sounds. Ask a taxman – what is PE? He’ll take a deep breath, followed by hmnn! Fixed base may be likened to the concept of permanent establishment (“PE”) in double taxation. Mark my words – “may be likened” – not necessarily the same. That’s as close as it gets. Put simply, fixed base or PE could mean a place of business – an office, factory, warehouse, mining site- where business is carried on. Let’s leave it at that simplified definition for now. Just say a specific geographic point with some degree of permanence.
If you’re employed by a Nigeria company or NRC that have some form of physical presence in Nigeria, you’ll pay income tax. Employment benefit is also deemed to be derived from Nigeria if the duties of employment are wholly or partly exercised in Nigeria. There are only 3 exemptions to this general rule of employment being exercises in Nigeria. The 3 conditions must be jointly met.
One, if you are employed by a non-resident company and your remuneration is not charged to any fixed base in Nigeria. This first exemption ties into the earlier explanation on being employed by a Nigeria company or fixed base of an NRC. Two, you are in Nigeria for cumulative period(s) below 183 days in any 12 months period. Please note, day count include period of annual leave and temporary absence. Three, you have evidence of paying tax on the income in another country that has double tax treaty with Nigeria. If you meet all the 3 conditions, jointly, you can wave Nigeria tax authority bye-bye and go without tax. There are other conditions that could make employment income liable to tax in Nigeria, but let’s leave it there for now.
Foreigners working in Nigeria often ask questions around the rule of taxability to tax in Nigeria. Some assume (wrongly) that all that’s required is to spend less than 183 days in the country. That’s not true! If a foreigner is employed by a Nigerian company (or fixed base of a NRC), then such expatriate will pay tax even if in Nigeria for 1 day.
Typically, foreigners require work permit to take up employment in Nigeria. The length of stay and nature of work will generally influence the type of visa to be obtained. There’s Temporary Work Permit (TWP) and Subject to Regularisation (STR) visa. TWP is usually for experts invited to provide specialized skilled services for a short period of time.
STR is for expatriates taking up employment in Nigeria. STR visa will require the employer to have an approved quota position. Upon entry into country, expats with STR will have to “regularize” their stay and subsequently be granted a CERPAC.
CERPAC is the acronym for Combined Expatriate Residence Permit and Aliens Card. Call it “Green Card”. Yes, Nigeria also have Green Card! I know some of you prefer another type of Card, from another country that I won’t mention. Good luck to you!
Holding an STR which implies Nigeria employment which requires CERPAC means no question should be asked on length of stay. TWP may require going through the conditions to confirm if the duties of employment will be deemed to be exercised in Nigeria. That is, to ascertain if the employment income will be deemed to be derived from/in and taxable in Nigeria.
Foreigners holding tourist and business visa are ordinarily not entitled to work in Nigeria. With tourist and business visa, there is a standard caveat – no recourse to work or public funds. In the event that holder of tourist or business visa help themselves with some work, taxman will thankfully collect tax due. Tax due will be collected without prejudice to penalty/punishment that may be due for violating immigration laws.
Each States of the federation, including FCT, have their respective States Internal Revenue Services (SIRS). While the law is the same across the country, administration and collection of personal income taxes rests with each SIRS. Individuals are liable to pay tax to the respective SIRS where they’re deemed resident.
The relevant authority is determined by residence. The term residence is a critical concept when determining the relevant tax authority that is entitled to assess and collect taxes. A person’s place of residence is defined as a place available for his domestic use in Nigeria on a relevant day. The relevant tax authority is the SIRS in which the taxpayer has a permanent place of residence. If an employee resides in Ogun State but works in Lagos State, the relevant SIRS will be in Ogun State. There are provisions in the law dealing with itinerant workers and tie breaker rule where there’s overlap.
In view of current economic realities, many SIRS will become a lot more aggressive and proactive in enforcing compliance. It is no longer business as usual with paying taxes. Compliance is lots cheaper than evasion. To make estimation of personal income tax easy for all, @DeloiteNigeria developed a mobile tax app.
Nigeria Income Tax Calculator or Tax Net/Pay Calculator is available for free download on Play Store for all android users. Feel free to download the FREE tax app on play store, share your experience and send in your feedback. The tax app doesn’t replace need for professional advice but a great way to become tax aware and tax wise.
This is the time to stay closer to your tax advisor. Seek professional advice to become tax compliant and get tax wise. If you got questions or require professional advice, be sure to get back. What you get by tweetax may make you tax wise but doesn’t replace need for professional advice.
Don’t forget to retweet, favourite, share and send in your questions and feedback. Be sure to check yomiolugbenro.com to read the fully story again at your leisure. It will also be posted on facebook. Do check it out on www.facebook.com/YomiOlugbenro and on LinkedIn.
Until next time, remain tax wise and be sure to seek specific professional guidance when necessary. Thank you for sharing 60 minutes with me. I rise!
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