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

Section 5(7) of the Labour Act limits the total amount of deductions an employer may make from a worker’s wages in a month, for any approved purposes, including pension contribution, to one third of the wages of the worker for that month.

Section 17(1) of the PITA allows a tax authority to disregard or make such adjustments to the income of a tax payer which counteracts the effects of any disposition or transaction where it is of opinion that such disposition is not in fact given effect to, or that such transaction which reduces or would reduce the amount of any tax payable is artificial or fictitious.

Issues arising from the Public Notices

The main issues agitating the mind following the Public Notices are simply that of propriety and enforceability. The positions taken by the tax authorities in the Public Notices could face a number of legal hurdles and indeed open the floodgates of unending litigation, if the Public Notices are implemented as indicated.

First, we observe that VPCs as well as employer’s and employee’s statutory contributions under the CPS are covered by the general exemption of pension contributions from taxes provided in Section 10(1) of the PRA. This tax exempt status also extends to all interests, dividends, profits, investment and other income accruable to pension funds and assets (inclusive of VPCs as well as employer’s and employee’s statutory contributions) except income earned on VPCs where withdrawal is made from the VPC by an employee within 5 years from the date of the voluntary contribution. In this respect a distinction is made between the VPC itself (as a form of pension contribution) and the income accruing therefrom. Therefore, where the withdrawal is made from the VPC after 5 years from the date of the voluntary contribution albeit in contravention of section 16 of the PRA, it seems there would be no legal and valid basis for subjecting either the amount of the VPC withdrawal or the value of the income earned on same to any form of tax. Also, where such withdrawal is made before the expiration of 5 years from the date of the voluntary contribution, it does not appear that the provisions of section 10 of the PRA permits imposition of tax on such withdrawal. According to section 10(4), only income earned on such VPC can be subjected to tax.