A paper presentation by Mr. Bicci Alli, FCA FCTI. Deputy Director P.I.T. Lagos State Internal...

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A paper presentation byMr. Bicci Alli, FCA FCTI .Deputy Director P.I.T.Lagos State Internal Revenue Service8th March, 2012.Julius Berger HallUniversity of LagosAkokaLagos.

RESIDENCY RULES FOR RESIDENTS OF BORDER COMMUNITIES

Implication for tax Authority, Employers and Employees.

A Presentation By Mr. Bicci Alli FCA FCTI

Section 1: DUTY OF TAX PAYMENT ON INDIVIDUALS

Persons on whom tax is to be imposedSection 2: RELEVANT TAX AUTHORITY AND THE RESIDENCY RULE

In which State does an Individual pays his taxes

Section 3: BORDER COMMUNITIES IN NIGERIA AND RESIDENCY RULE Historical Antecedents- Western Region and the

then Lagos TerritoryPeople in self employmentIndividuals in Employment, Duties of the employer

and PAYE Operations

Section 4: IMPLICATION OF THE RESIDENCY LAW The Tax AuthoritiesThe EmployerThe Employee

OUTLINE

Conclusion

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The duty of tax payment on individuals in Nigeria is imposed by the provisions of the Constitution of the Federal Republic of Nigeria 1999 and the Personal Income Tax Act 2004.

The Constitution in Section 24(f) provides that: “It shall be the duty of every citizen to declare his income honestly to appropriate and lawful agencies and pay his tax promptly”.

The Personal Income Tax Act in Section 1 provides: There is hereby Imposed a tax on the income 1.of individuals, communities and families 2.arising or due to a trustee or estate.Which shall be determine and subject to the provisions of this Act

Section 1: DUTY OF TAXPAYMENT ON INDIVIDUALS

Persons on whom tax is to be imposed


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PITA Section 2 provides thatTax of an amount to be determined from the Table set out in the Sixth Schedule( in this Act referred to as ‘ income tax’) shall be payable for each year of the assessment on the total income of- Every individual other than corporate persons covered under the paragraph(b)of this sub-section or corporation sole or body of individuals deemed to be resident for that year in the relevant State under the provisions of this Act and the following other persons, that is- Persons employed in the Nigerian Army, the Nigerian Navy, the Nigerian Air Force, the Nigerian Police Force other than in a civilian capacity Officers of the Nigerian Foreign Service;Every resident of the Federal Capital Territory, Abuja and A person resident outside Nigeria who derives income or profit from Nigeria.

Section 1: DUTY OF TAXPAYMENT ON INDIVIDUALS



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This is a concept established by law, Section 2 of the Personal Income Tax Act 2004 provides that “In case of an Individual, other than an itinerant worker and persons covered under paragraph (b) of subsection(1) of this section, tax for any year of assessment may be imposed only by the state in which the individual is deemed to be resident for that year under the provisions of the first schedule to this Act and in the case of persons referred to in subsection (1)(b) of this section, tax shall be imposed by the Federal Board of Inland Revenue.’

Furthermore, the first schedule to the Act defines the place of residence in relation to an individual, “means a place available for his domestic use in Nigeria on a relevant day, and does not include any hotel, rest house, or other place at which he is temporarily lodging unless no permanent place is available for his use on that day”

From the above , the relevant Tax Authority as it exists in Nigeria is the Internal Revenue Service in each State of the Federation and the Federal Inland Revenue service as it relates to taxes collected by the Federal Government. In linking the residency rule and the Relevant Tax Authority, a taxpayer is liable to pay his taxes to the Tax Authority of the State in which he is resident.

Section 2: RELEVANT TAX

AUTHORITY AND THE RESIDENCY

RULE In which

State does an Individual pays his

taxes


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Section 3: BORDER COMMUNITIES IN NIGERIA AND RESIDENCY

RULE Historical Antecedents- Western

Region and the then Lagos TerritoryPeople in self employment

Individuals in Employment, Duties of the employer and PAYE Operations


7A Presentation By Mr. Bicci Alli FCA FCTI

Historical Antecedents-

Western Region and the then

Lagos Territory

Before the creation of Lagos State in 1967, Jibowu on Ikorodu Road and Alakara on Agege Motor Road marked the border between Lagos and the then Western Region while in Ajegunle also marked the border between Lagos Territory and Western Region in the Badagry Axis. As a result of cheaper accommodation in the outskirt settlement of Mushin, Agege, Shomolu, Palm groove, Ajegunle etc, many people resided in the then Western Region where these settlements were located, however Lagos Territory provided them with means of Employment and sources of income. There was regular confrontation between the residents of these area and aggressive Western Region Tax Officials. These individuals whose regular source of income was in Lagos usually run across the border any time the Western Region Tax Official came calling.


Some Boundary (Tax/ Residency) Dispute Areas in

NigeriaThe same situation now exists between:

Ogun State/Lagos State:

Sango-Ota Alagbado, Ojodu,Akute, Ibafo, Mowe,Olambe, Ijoko,Ifo, Ogijo and Agbara

FCT/Nasarawa State: Maraba

FCT/Niger State: Suleja

Bayelsa/ Rivers State: People Commuting from Port Harcourt and Yenogoa


People in self employment

This group of individuals run their own businesses. PITA imposes on them the duty to file their annual Returns of Income and Claims for Reliefs and Allowances with the State Internal Revenue Service where they are ordinarily resident.

However some of these individuals reside in a state other than the state where their businesses are located/ carried out. Invariably, they use the infrastructural facilities of the state of trade (e.g Lagos) but are expected to pay taxes in their State of residence (e.g Ogun).

In fact some of them are just Sleeping Residents – They come into Lagos every working day of the week, and return to their homes at night. For proximity reasons and togetherness their children might attend school in Lagos, their spouse might even have businesses in Lagos, they may also have other commitments in Lagos causing them to spend most of their time in Lagos and drawing on all the resources of Lagos. Regardless of this scenario they are expected pay their taxes in Ogun.


Individuals in Employment, Duties of the

Employer and PAYE Operations

In line with the provisions of PITA, Section 108 interprets employment to “include any appointment or office whether public or otherwise for which remuneration is payable and Employee and Employer shall be construed accordingly”. Employment remuneration is regarded in PITA as Personal Emoluments which is defined by section 2(8) as “Wages or Salaries and includes allowances, Benefits in kind, gratuities, superannuation, or pension schemes and any other income derived solely by reason of employment as other rank”.

The Personal Income Tax Act also makes provisions for the duties of an employer as it regards the remuneration of his employee, the law states in Section 81(1)

“ Income tax chargeable on an employee by an assessment whether or not the assessment has been made, shall, if the relevant tax authority so directs, be recoverable from any emolument paid, or from any payment made on account of the emolument, by the employer to the employee”


Individuals in Employment, Duties of the

Employer and PAYE Operations

Operation of Pay As You Earn (PAYE) Regulations (S.L.18 of 2002. 1993. No. 104) requires an employer to register with the relevant tax authority for the purposes of deducting income tax from his employees with or without formal notification or direction from the Relevant Tax Authority. The guideline also spelt out the duties of the employer with respect to deduction of taxes, keeping records of deductions obtaining certificates of deduction of taxes, remittance of taxes, returns amongst others. The import of the above provisions is that the employers of labour are statutory agents of the Relevant Tax Authority with respect to deductions and remittances of taxes from their employees’ income.

Empirical evidence shows that in practice Employers choose the relevant tax authority at their convenience. According to late Prof. C.S. Ola in his book “Income Tax Law and Practice in Nigeria” the residency rule as it relates to employee may be determined by

Domicility: This refers to the place of abode of the tax payer which may coincide with the jurisdiction of the tax authority where the tax payer pays his tax

Pay point : Regardless of where the tax payer is based tax is deducted at pay point and remitted to the nearest tax authority

The Headquarters or Head Office: The Relevant Tax Authority can be determined for tax payment purposes based on the headquarters or head office of the employer- Armed Forces and Foreign Affairs Ministry.


Section 4: IMPLICATION OF THE RESIDENCY LAW

• The Tax Authorities• The Employer• The Employee


The Tax Authorities

The Tax Authority must have a robust taxpayer database which profiles the residents of the state, jurisdiction that they work in and their income.

Identify the employers of individuals who are resident within the tax jurisdiction.

The Tax Authority may have to create offices in as many jurisdictions as possible outside their own states

Deploy needed manpower and logistics to close monitor remittances from different states where the residents are employed.

Domicile rule i.e. The 1st of January .

Some employers may insist that all their employees use the address of revenue authority where their businesses are located


The Employer

The employer has to take it upon himself to identify relevant tax authority for each employee

The employer becomes a collecting agent for as many tax authorities as determined by the residency of his employees

The employer has to submit to as many tax authorities for the process of Tax Audit

The employer may have to forward tax returns to more than one tax authority.

The cost of administration in this regard becomes very high Domicile rule i.e. The 1st of January .


The Employee

They enjoy and draw on infrastructural facilities from the jurisdiction where they do not pay taxes

The employees might be compelled to pick addresses convenient for the employer

Employment opportunities may be restricted to individuals residing in the tax jurisdiction where the employer is located

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All income earning individuals in Nigeria are statutorily required to pay taxes on their income to the state where they are ordinarily resident.

However, in the recent past due to economic and infrastructural development the border lines between states have become blurred for purposes of taxation.

There are individuals who reside in one tax jurisdiction but derive income from another and this has created numerous challenges to the tax authorities, employers and employees.

Conclusion


A paper presentation by Mr. Bicci Alli, FCA FCTI. Deputy Director P.I.T. Lagos State Internal...

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