Personal Income Tax Returns & Expatriates: Basis for Additional Requirement for Filing – By Bashir Ramoni, FCTI

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Introduction

According to Sections 37 and 54 of Personal Income Tax Act, Cap P4, LFN, 2004 as amended herein referred to as “the Act”, the State Government as the relevant tax authority is empowered to collect the personal income tax from every employee resident within its geographical territory. This includes foreigners otherwise known as “expatriates” who work, reside and earn income within the State. Pursuant to this legal order, the Lagos State Internal revenue Service (LIRS) has also been in the lead to enforce the provision of the law.

In furtherance of compliance with the Act, every employee is obligated to file tax returns in a prescribed form (Form A) within 90 days of the commencement of every year i.e. on or before the 31st of March of every year as contained in Section 41 of the Act. This tax returns enables the government ascertains the taxable income of every income earner for the purpose of determining the tax liability of the tax payer. Amongst the relevant information to be provided in the Form A are:

  1. particulars of employee
  2. the source of income
  3. amount of income
  4. allowance (Pension scheme, health scheme, life insurance scheme)
  5. relief (statutory relief,
  6. rent (where applicable)
  7. particulars of dependants (if any)
  8. particulars of children (if any)
  9. deduction (expenses such as transport, feeding and subscriptions incurred for earning the income)
  10. benefit in kind (BIK where applicable)
  11. taxable income

Recently, the LIRS has by a public notice issued called for additional information or further returns consequently modifying the information and documentation required by expatriate employees for the purpose of income tax in filing their tax returns as follows:

  1. Contract of employment;
  2. Residential premises’ rental agreement; and
  3. Schedule of benefits in kind received from his employers.

Importance of the modification

The modification has a far reaching implication which every employer must comply being an exercise of the statutory powers of the tax authority. First, it enable the tax authority identify the residence of the expatriate so as to avoid conflict of authority between two coordinate relevant tax authorities that share or have common borderline. Evidence abounds that many employees indeed work and earn income in Lagos State but actually residents in the neighbouring Ogun State. It affords the tax authority the benefit of ascertaining the actual amount payable as rent so as to determine the withholding tax accruable in the hands; additionally, it enable the tax authority trace the tenure of the employment of the expatriates. Above all, it provides an avenue to collate foreigners’ data within the State. It is another measure designed to close unlawful ejections in the name of tax evasion and unlawful material non-disclosure.

Constitutionality of the Modification

The legal question that may attract a responsive tax expert and conscious tax payer is the constitutionality or otherwise of the modification and or request for additional information / documentation for filing tax returns under the Personal Income Tax. In dealing with this question, the principal legislation on income tax has to be considered. By Section 46 of the Act, relevant tax authority is empowered to call for “further returns” but this can only be done by way of a notice to the person concerned. For emphasis, the provision of the Section 46 is reproduced hereunder:

The relevant authority may give notice in writing to a person when and as often as it thinks necessary requiring him to deliver within a reasonable time limited by such notice fuller or further returns respecting any matter as to which a return is required or pre- scribed by this Act. 

It is therefore our respectful view that the notice issued by the LIRS requesting for a fuller or further documentation as additional requirement for filing returns is permissible by law. The power of the relevant taxing authority is further reinforced in Section 47 of the act whereof it states thus:

For the purpose of obtaining full information in respect of the income or gain of a person, the relevant tax authority may give notice to the person requiring him, within the time limited by the notice, to – 

(a)  complete and deliver to the relevant tax authority, any return specified in the notice; 

(b) attend personally before an officer of the relevant tax authority for examination with respect to any matter relating to such income gains; 

(c)  produce or cause to be produced for examination at the place and time stated in the notice which time may be from day-to-day for such period as the relevant tax authority may consider necessary, for the purpose of the examination of any book, document, account and return which the relevant tax authority may deem necessary; or 

(d)  give orally or in writing any other information including a name and address specified in the notice: 

Of course, for argument sake, it may be argued that the word “expatriate” is not mentioned in the relevant sections of the Act but this argument is flawed considering the generic and broad clear word used i.e. “person” which covers all manners of tax payers or employees. Without prejudice to any peculiar legal issue or circumstance that may arise from this modification, we are of the view that the requirement for additional documentation such as contract of employment, residential premises’ rental agreement; and schedule of benefits in kind received by the expatriate employees is in tune with the spirit of the Act. The employers of labour who by law are collecting agent for the tax authority should take note of the modification and should not hesitate to seek guidance where necessary.

 

 

 

 

 

 

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