Review of Personal Income Tax(Amendment) Act 2011.
The Personal Income Tax(Amendent) Act 2011 amended Personal Income Tax Cap. P8 Laws of the Federation of Nigeria, 2004.
The amendment became effective June 14, 2011 from the day it was signed into Law by President Goodluck Jonathan. Sadly, the gazette was only made public January 2012 with the possibility that taxes computed or paid on the extant Act made require some readjustment or refunds for periods prior to January 2012 since they amendment became effective June 14, 2012.
The likelihood of tax credits cannot be ruled out as refund are not easy to obtain in the Nigerian tax environment eventhough laws permits same.
We now present the key highlights that that would have the impact on business from the effective date.
Relief and Exemptions
Section 33(1): Consolidated Relief Allowance of the higher N200,000 plus 20% of gross income and 1% of gross income. The balance shall be taxable after all relief and exemptions have been deducted accordance with the Income Table in the Sixth Schedule.
Further the following deductions are tax exempt:
a) National Housing Fund Contribution
b) National Health Insurance Scheme
c) Life Assurance Premium
d) National Pension Scheme
New Tax Table(Effective June 14, 2011)
First N300,000 taxed at 7%
Next N300,000 taxed at 11%
Next N500,000 taxed at 15%
Next N500,000 taxed at 19%
Next N1,600,000 taxed at 21%
Above N3,200,000 taxed at 24%
Section 33(2) defines gross emoluments as wages, salaries, allowances(including benefits in kind, gratuities, supernnuation and any other incomes derived solely from employment.
Section 36(6) empowers the Minister to assess income tax on a tax payers under a presumtive tax regime based on order stated in gazette for that purpose. This suggest a continuation of the Best of Judgment Assessment regime where the tax payer makes its practically impossible for the revenue service to do a proper ascertainment of income and assess tax accordingly.
Section 52 prescibe a penalty of N50,000 for Individuals and N500,000 for Corporate Entities where the taxable person fails or refuses to keep books of account which in the opinion of the relevant tax authority are adequate for the purpose of the tax assessments.
Compulsory Tax Deductions
Section 74(1) makes it compulsory for tax payers to deduct tax on rent(10%), interest(10%), director fees(10%) and Dividend(10%) and remit same to the tax authorities within 30days the amount was deducted or the time the duty to deduct arose. Failure to do this is punished with a penalty of 10% of tax not deducted or remitted in addition to the amount of tax or remitted plus interest at the prevailing monetary policy rate of the Central Bank of Nigeria.
Interest for Late Tax Payment
Section 77 Interest penalties on latepayment of taxes will now be on an annual basis from due date till it is settled.
Pay as you Earn
Section 81(2) require every employer to file a return with the relevant tax authority of all emolument paid to its employees, not later than 31 January of every year in respect of all employees in its employment in the preceeding year.
Section 81(3) prescibes a penalty on conviction of N500,000 in the case of a corporate entity and N50,000 in the case of an individual where Section81(2) is breached.
Power to Distrain
Section 104(1) require the relevant tax authority to obtain a court order to distrain a defaulting tax payer.
Tax Clearance Certificate
Section 85 require Ministries, Department or an agency of the Government or a Commercial Bank to verify the genuiness of Tax Clearance Certificate presnted to it by a tax payer from the relevant issuing tax authorities. Futher, they should require Tax Clearance when there is change of ownership of vehicles, application for plot of land or any other transaction as may be determined from time to time.
The new law expect tax payers to be more compliant more than ever before. In addition, there is likely to a reduction in income taxes to the relavant tax authorities due to the increase in the tax relief and exemption particularly for low income earners that constitute the bulk of tax payers. We however see tax authorities making up this shorfall with pursuit of penalties for contravention of relevant sections of the law.
Managing Partner, Matog Consulting