Appraising the Public Notices issued by the Lagos State Internal Revenue Service and the Joint Tax Board

The LIRS and JTB allege in their Public Notices incidences of pre-arranged contribution of large portions of employees’ emoluments as VPC into their RSAs simply as a means of avoiding the payment of adequate personal income tax, to be subsequently withdrawn few years later (sometimes before the minimum five years of statutory tax holiday) in lump sum. Whilst the JTB in its Public Notice directly accuses PFAs of marketing the alleged pre-arranged uncapped VPCs by employees and allowing unrestricted withdrawal of same in breach of Section 16 of the PRA, the LIRS declared that it will begin periodic audit of PFA-approved withdrawals of VPCs by individuals, so as to subject such to taxes where they are proven to be in violation of the Section 16.

In specifics, the LIRS states in its Public Notice, that;

• Any payments made by PFAs to individuals that do not meet the relevant conditions specified in Section 16 of the PRA will be considered to fall outside the tax exemption granted in Section 10(3) thereof;

• The LIRS will periodically audit withdrawals of voluntary pension contributions authorized by the respective PFAs and will be relying on the provisions of Section 17 of PITA;

• The LIRS will enforce the law with respect to recovery of any tax due which will include: applying interest and penalties on any resulting tax due on the employer under the PAYE scheme in line with Paragraph 8 of the Fourth Schedule of PITA;

• The LIRS is willing to defend its position with each taxpayer or employer through the available judicial process;

• A reporting obligation, on an annual basis, is placed on individuals claiming tax relief on VPC to submit alongside their income tax return, a copy of their RSA statements for the relevant tax year and any other period requested by the LIRS.

Similarly, the JTB Public Notice, in addition to deeming payments made by PFAs on account of VPCs in breach of Section 16 of the PRA  as artificial transactions, seeks to restrict the amount that an employee may contribute as VPC to just one-third of the employee’s salary, based on the provisions of Section 5(7) of the Labour Act.

Under Section 16 of the PRA, an employee who is below the age of 50 is generally not entitled to make withdrawal from his RSA except;

•  After having attained the age of 50 years or where he is permitted in accordance with the terms and conditions of his employment to do so before attaining that age;

• Where he retires, disengages or is disengaged from employment on the advice of a suitably qualified physician or a properly constituted medical board certifying that he is no longer mentally or physically capable of carrying out the functions of his office;

• If he suffers from total or permanent disability either of the mind or body; and

• Where he is out of one employment and is unable to secure another employment within four (4) months.