Public Notices issued by the Lagos State IRS and the Joint Tax Board

         In what appears like coordinated efforts against perceived abuse of the voluntary pension contribution (“VPC”) option, under the contributory pension scheme (“CPS”) established by the Pension Reform Act, 2014 (“PRA”), the Lagos State Internal Revenue Service (“LIRS”) and the Joint Tax Board (“JTB”) recently issued separate Public Notices – “Public Notice on Tax Relief on Voluntary Pension Contributions” dated August 21, 2017 and “Public Notice on Abuse of Voluntary Pension Contribution Scheme” dated August 24, 2017 respectively.

Whilst both LIRS and JTB (collectively referred to in this piece as the “tax authorities”) placed reliance on Section 16 of the PRA and Section 17 of the Personal Income Tax Act (“PITA”) (Cap P8, Laws of the Federation of Nigeria, 2004, as amended), as the legal basis for issuing their respective Public Notices,; the JTB also relied on Section 5(7) of the Labour Act (Cap L1, Laws of the Federation of Nigeria, 2004) for its action. Both tax authorities in their respective Public Notices lay claim to inherent powers derived from the stated sections of the PITA and Labour Act, to deem as invalid and as “artificial transactions”, withdrawals made in breach of the conditions spelt out in Section 16 of the PRA; to the effect that such withdrawals “will be considered to fall outside the tax exemptions granted in Section 10(3) of the PRA”.

The Public Notices vis-à-vis Statutory Provisions

The taxability of the compulsory pension contributions and of the income earned on voluntary pension contributions is determined by the provisions of Section 10 of the PRA. Section 10(1) includes  contributions to the Scheme under the PRA as part of tax deductible expenses in the computation of tax payable by an employer or employee under the relevant income Tax Law and this is irrespective  of the provisions of any other Law. Section 10(2) exempts all interests, dividends, profits, investment and other income accruable to pension funds and assets under the PRA from tax. Section 10(3) extends the tax exemption to any amount payable as a retirement benefit under the PRA. Further, Section 10(4) renders any income earned on any voluntary contribution made under Section 4(3) of the PRA subject to tax at the point of withdrawal where the withdrawal is made before the end of 5 years from the date the voluntary contribution was made.

Employees are permitted under Section 4(3) of the PRA to contribute additional portions of their earnings as VPC to their retirement savings accounts (“RSAs”) maintained with any Pension Fund Administrator (“PFA”) of their choice. This is distinct from and clearly independent of the statutory contributions of a minimum of 10% of an employee’s monthly emoluments by the employer and the minimum of 8% of the same income stream by the employee under the CPS.

Why Taxpayers Should Take Advantage Of The Amnesty Programme

Ordinarily, under the extant laws governing tax and taxation in Nigeria, tax evasion constitutes a crime punishable, upon conviction, by imprisonment of a term up to five (5) years while the taxpayer will, in addition, be required to pay the tax due along with the accrued interest (typically at 21%) and also subjected to the associated penalties (a fine of usually 10% of the assessed tax due and in some cases forfeiture of the related assets to Government). However, figures released by the Joint Tax Board (“JTB”) in May 2017 revealed that, the total number of taxpayers stands at 14 million out of an estimated 69.9 million economically active persons in Nigeria. This statistics has been advanced by many analysts as the reason behind the country’s abysmally low tax-to-GDP ratio of 6%, which compares unfavorably with other countries of the world (i.e. Ghana, 15.9%; India, 16%; South Africa, 27%; and countries of the OECD with an average of 34%).


The objectives sought to be achieved through the VAIDS include:

  • Provision of a time-limited Tax Amnesty to taxpayers who are in default of their tax obligations to enable them regularise their tax positions without payment of statutorily prescribed penalties or fear of criminal prosecution for tax offences;
  • Enhancement of the FGN’s projection for a higher tax-to-GDP ratio for the country;
  • Attainment of better rates of tax awareness and compliance among Nigerian citizens and residents;
  • Improvement on non-oil earnings for the FGN and internally generated revenue (“IGR”) for state governments; and
  • Provision of a viable alternative to borrowing for the financing of infrastructure. 

Recent Landmark Regulations Affecting The Banking And Finance Sectors

The Central Bank of Nigeria (the “CBN”) pursuant to a circular dated January 4, 2018 (referenced BPS/DIR/GEN/CIR/05/001) 2 and addressed to all deposit money banks, mobile money operators, switches and other payment system service providers, stated that all operators in the National Payments System (the “Market Players”) would be sanctioned with a penalty of N10,000 (Ten Thousand Naira) per day, for as long as any of the following Infractions subsist:

  • Failure to apply for the renewal of an operating license three (3) months before the expiration date of such license; and
  • Failure to regularise and respond to observations/exceptions noted by the CBN in the course of processing an application for the renewal of an operating license within three (3) weeks.

It should be noted that this circular was issued further to a CBN circular dated July 29, 2015 (and referenced BPS/DIR/GEN/CIR/02/007), wherein the CBN listed various infractions and corresponding sanctions in its bid to ensure the efficient operation of clearing and settlement systems. 3 It is also particularly useful to note that the provisions of this circular will become effective from April 1, 2018.

The penalties introduced by this circular are welcome since same will help ensure that Market Players take steps to renew their operating licenses before same expire.

Tax Incentive Management & Transparency Bill

The Tax Incentive Management and Transparency Bill, 2017 (SB. 331) has scaled through second reading and was subsequently referred to the Committee on Finance.

The Bill seeks to enhance transparency in the management and accounting of tax incentives to block revenue leakages in the system and check corruption.

Litigation & Dispute Resolution

The Nigerian Legal System is modelled after the English legal system, by virtue of colonisation and the reception of English law through the process of legal transplant. English Common Law and legal tradition influenced the development of the Nigerian legal system.

As the grundnorm, the Constitution of the Federal Republic of Nigeria 1999 (as amended) is the bedrock of the Nigerian Legal system. It provides the ultimate principles and rules upon which other statutes and laws obtain their validity and legitimacy. Other sources of Nigerian laws are Acts of the National Assembly, received English Laws, subsidiary legislations, customary laws, judicial precedents and international law.

The Labour Act (Amd.) Bill

The Labour Act (Amendment) Bill, 2016 (HB. 434) and Labour Act (Amendment) Bill, 2016 (HB 339) went through second reading at the House of Representatives. The bills were subsequently referred to the House Committee on Labour, Employment and Productivity for further legislative work.

These bills seek to amend the Labour Act, 2004 to make provisions for the compulsory registration of all foreign employers of labour in Nigeria and to strengthen and review the fines and punishment stipulated for offences under the Act.

New Oil Producing States

The House of Representatives recently considered a motion to declare Kogi, Enugu and Anambra States as oil producing states on the basis of oil and gas deposits found in commercial quantities within the said states.

The House thereafter urged the Federal Government to hold bids for oil prospecting and mining on the discoveries; and also declare Anambra, Enugu and Kogi States as oil producing states. If implemented, Anambra, Enugu and Kogi States will become oil producing states.