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Tax Incentives for Start-Ups and Venture Capitalists in Nigeria|

by Legalnaija | Oct 14, 2017 | Uncategorized

Developing countries tend
to use both targeted and general incentives to attract investors. Such
incentives may be included in tax laws, financial regulations, investment laws,
government directives and the likes. The mere fact that tax incentives do not
require upfront use of government funds makes them a preferable option for
developing countries, unlike developed countries that are generally more open
to grants or subsidized loans.

In line with the above,
Nigeria passed the Venture Capital (Incentives) Act Cap V2, LFN 2004 (“The
Act”) which was enacted for the sole purpose of granting additional
tax incentives to venture capital and start-ups generally. However, the
structure/mode of operation of a start-up is a major determinant of which and
what benefits are applicable to such entities (kindly seek professional
advice for clarity).

The incentives in the Act
are as follows;

1. Pioneer
Status: This exempts an organization from paying company
income tax for a period of 3 years. The privilege can be extended for an
additional 2 years, making a possible total of 5 (five) years of tax exemption.

2. Withholding
Tax: The
Act gives a 50% reduction in withholding tax over a period of 5 (five) years,
on dividend payable to an investor in a Venture Project Company(“VPC”).

3. Capital
Gains Incentives: This is a reduction in the amount payable
as tax on the profit made when disposing an asset that has increased in value.

The act provide as follows:

Disposal of capital within five years
of investment, 100 per cent
Disposal of capital between six and
ten of investment, 75 per cent
Disposal of capital between eleven and
fifteen years of investment, 25%

4. Capital
Allowance: It is a tax deduction companies or
start-ups can claim for the wear and tear of fixed assets used in trade or business.
They are as follows:

30% deduction for the 1st year
30% deduction for the 2nd year
20% deduction for the 3rd year
10% deduction for the fourth year
10% deduction for the 5th year

5. Export
Incentives: Start-ups that qualify (in accordance
with the provisions of the Act) will be able to access export incentives such
as financial assistance from the Export Development Fund as well as benefit
from the export expansion grant and the export adjustment scheme fund.

Eligibility
Requirement for Incentives under the Act

1.
Venture Project Company under the Act:
A VPC is defined as one established for the following purposes (a) The
acceleration of industrialization by nurturing innovative ideas, projects and
techniques to fruition (b) The commercialization of research findings with high
potentials for far-reaching forward or backward linkages (c) The promotion of
self-reliance through the establishment of resource-based and strategic
industries through the provision of risk guarantee and insurance (d) The encouragement
of indigenous process and technologies (e) The promotion of the growth of small
and medium scale enterprises with emphasis on local raw materials development
and utilization (f) such other objectives as may from time to time, be
specified by the FIRS. A VCC must also be established for the foregoing
purposes to be eligible for the incentives provided for under the Act.

2.
Share Capital Threshold: The
Venture Capitalist must acquire not less than 25% of the total capital required
for the project.

3.
FIRS Certification: The
Federal Inland Revenue Service is the agency responsible for administering the
incentives under the Act and generally has the power to determine whether a
company is capable of fulfilling one or more of the incentives. Companies who
intend to take advantage of the incentives under the Act must obtain the
accreditation of the Federal Inland Revenue Service.

Conclusion

In as much as the intent
of the Act might be commendable, there is a large room for improvement on what
presently obtains. One of the various steps that should be taken includes
expanding the scope of VPC and a general review to capture present business
realities.

Olanrewaju
Olumide

Partner
at Bamidele Aturu & Co

Ease of doing business is about to disrupt these 11 bottlenecks | Ibiyode Ibikunle

by Legalnaija | Oct 14, 2017 | Uncategorized

The Presidential Enabling
Business Environment Council (PEBEC) through its secretariat has released the
national action plan in its continuous bid to facilitate ease of doing business
in Nigeria.

The national action plan
is supposed to last for a period of 60 days from the 3^rd of
October to 31^st of December 2017 and it is to cut across 11
major areas in the economy.

Also of note with the plan
is that as it affects various sectors, they are specific to different regions
in the country.

The innovations contained
in the plan are as follows,

Incorporation: Incorporation
is expected to be easier with one of the processes removed and about 72
hours removed from the procedure.

Construction: It
is expected that obtaining construction permits get easier with the time
frame for obtaining governor’s consent set at a maximum of 30 days.

Property Registration: The
introduction of e-consent by the governor is included with clearly defined
fee schedules made available to public. Also statistical information on
land disputes is to be available online.

Getting Electricity: There
is to be further reduced time to get connected to the grid by deploying
online systems and a revised procedure for connection and strict adherence
to the timeline

Access to Credit Facilities: There
is an increase in number of financial institutions on the collateral
registry with about at least 300 microfinance banks joining the National
Collateral Registry and increased usage of credit scoring services by
banks and other financial institutions.

Tax Remittance: The
plan is expected to simplify the process and reduce the time for paying
taxes with all large and medium size enterprises to be registered on
e-filing system.

International Trade: The
plan is expected to cover cross border trading by joint examination of
import cargo in Lagos (led by Nigerian Custom Services) and prevent
multiple inspections. Also, there will be strict compliance with 48-hour
scheduling process by pre-shipment inspection agents. Also, export
documentation and import documentation has been reduced to 7 and 8
respectively.

Enforcement of Contracts: The
plan is to address the time spent in court relating to commercial
transactions.

Public Procurement: The
plan is to address the process of procurement by government for SMEs.
Also, the Bureau of Public Procurement will ensure compliance of relevant
government agencies to laid down procedures and timelines.

Immigration: The
plan addresses the experience of travelers entering and leaving Nigeria.
The plan would ensure reduction of time spent at the airports.
Streamlining of the processes for entering the country is also expected to
be worked on with a Single Passenger Clearance system at airports to
reduce average clearance time by 50%. Processing and approval of Temporary
Work Permit (TWP) within 48 hours is also expected. There is also going to
be the introduction of Automated Expatriate Quota (EQ) application process
at the Federal Ministry of Interior to ease entry of expatriates.

Local Trade: The
plan also encompasses trade practices within the locality. Plans will
include the simplification of the process of registering food and drugs at
NAFDAC, removal of illegal road blocks, clear backlog of outstanding marks
at the trademark registry among other things.

– Nairametrics

Committed Leadership in Lagos State | Senator Ashafa

by Legalnaija | Oct 13, 2017 | Uncategorized

The Senator representing
Lagos East has described His Excellency, Governor Akinwunmi Ambode of Lagos
State as a visionary, committed and courageous leader.

The Senator made the
comment while addressing the press at the ongoing Lagos State
Executive/Legislative Parley 2017 themed “Mega City to Smart City.”
Ashafa stated that “Let me seize this opportunity to commend His
Excellency Governor Ambode and the entire team of Lagos State Government under
his leadership for the awesome work of further transforming Lagos State. The
socioeconomic and infrastructure development going on around the state can only
be a testament of one thing: Visionary, committed and courageous
Leadership.”

The Senator also
identified Lagos State as being in the forefront of development across the
country stating that “No doubt Lagos State has been in the forefront of
development across the Country and this is so not necessarily because
we have so much resources, but because the resources coming into Lagos have
been well managed by the Governor of Lagos State and his team.”

He
stated further that “Sincerely, it is
events like these where we come together to brainstorm over the future of our
dear state and the direction in which it should go that set Lagos State apart
as the Center of Excellence.It is my hope that we would in the next few days be
able to discuss frankly and with clarity on the theme of this years parley:
Mega City to Smart City.

“Ashafa
concluded by calling on Lagosians to continue supporting the government of
Governor Akinwunmi Ambode while also restating the commitment of the
Senators and Members of the National Assembly from Lagos State to always
give their best in defending the
interest of Lagos State as they also
continue to contribute their quota in
the grassroots and various constituencies
to ensure the actualization of the vision of His Excellency, Governor Ambode
for Lagos State.

How is Technology redefining Legal Profession and Law Office Management?

by Legalnaija | Oct 13, 2017 | Uncategorized

Part 1

Technology has significantly impacted most
industries and fields in the world and the legal profession is not an exception
especially in the area of law office management. The legal profession like
other professional services is dynamic and it has shown this by adapting to the
socio-economic realities around the world through the integration of technology
into legal practice.

This article examined the beneficial
relationship between law and technology, its impact on law office management
and current trends in the global legal industry.

Many factors have influenced the economic
development of the world at different stages, the third and fourth industrial
revolution (characterized by the use of information technology to automate
production and fusion of technologies that has blurred the line between the
physical, digital and biological spheres respectively) have increased the
possibilities of billions of people being connected by mobile devices and other
means, this has engendered various inventions like internet, social media,
artificial intelligence, the internet of things, autonomous vehicles,
nanotechnology, quantum computing, etc. Similarly, new professions and skills
like Computer science, Certified Software Management, Networking, Software
Development, Systems Analysis, etc. have been birthed while old ones like Law,
Medicine, Engineering, Banking, etc. have adopted technology.

Legal Practice and technology

Some few years ago, lawyers were accused of
being arsy-varsy in adopting technology, critiques even suggested that lawyers
were Luddites and it was because the trade of law thrived on obsolete and
unnecessary professional practices like being ever reliant on sharp practices
and ‘medieval’ methods of document and case management, delitescent billing system
and mundane business operation. Fortunately for the profession, technology does
not discriminate, there is room for anybody, anywhere in the world to catch up
and adopt it as long as the requisite infrastructure are in place, asides this,
use of technology in the professional services industry became invaluable,
Management Consultants, Medical practitioners, Accountants, etc. rely on
technology to deliver better services to their clients and of course, reap the
benefits relatively. Therefore, as technology was customized to improve service
delivery in some of the above mentioned industry segments, developers started
designing hardware tools and software applications specifically for improving
the efficiencies within the legal practice.

On one hand, technology has redefined Legal
education globally, research is the tool of legal practice, and one cannot
ignore the fact that the advent of technology has enhanced this throughout the
world, law students now have unrestricted access to contents regardless of their
physical location. Hence, many Nigerian universities (and even the Nigerian law
school) have incorporated Information and Computer Technology (ICT) into their
curriculum, similarly, lectures are now delivered using hardware tools
(computer, projectors, etc.) and software applications (Ms Office), law
faculties in the country now have libraries with Computers, internet and paid
subscription to research databases like Lexis/Nexis, Law Pavilion, etc. At the
Post-graduate level, universities around the world now offer technology related
courses for legal practitioners, for instance, Stanford Law School and Harvard
Law School offer Law, Science and Technology at the master’s level (LL.M).

According to a recent report by Robert Half
Legal, they made the following key findings about the impact of technology on
legal practice;

1. Law firms are making a greater
investment in IT

2. Web-based tools are improving client
communication and delivery of legal services

3. Law firms’ office footprint is shrinking

4. Technology is levelling the playing
field

5. Corporate legal departments are using
technology tools to manage higher workloads

6. Technology has dramatically changed the
realm of discovery

Even the Nigerian justice system has given
room for technology by allowing the admissibility of “Computer Generated
Evidence” in evidence during civil proceedings and criminal trial pursuant
to Section 84, Evidence Act, 2011.

Law Office Management

Simply put, law office management (also
known as law practice management) is the management of law practice. This is
the study of the organisation and methods employed in the law office and the
relationship between members of staff of that office on one hand and their
relationship with members of the public with whom they are in contact. It is
also concerned with the development of human and other resources in a law
office. Efficient office management of a lawyer comprises a number of vital
functions, including time management, organizing the paperwork and workspace,
managing cases of multiple clients simultaneously, and being in control of all
activities and responsibilities. It includes management of people (clients,
staff, and vendors), workplace facilities and equipment, internal processes and
policies, and financial matters such as collection, budgeting, financial
controls, payroll and client trust accounts.

No doubt, legal knowledge is important,
however, law office management can determine the success or failure of a legal
practitioner. Components of the law office management include; location of the
law office, size and features of the law office, employment and human
resources, equipment and furniture requirements, storage of documents, library,
office communications, power supply, rest rooms, meeting halls and visitor
rooms, working facilities, Periodicals and Journals, etc.

The next part of this article will bother
on importance of law office management, impact of technology on Law Office
Management and highlight the skills needed by a 21st Century lawyer.

To be continued…

Temidayo Dauda

and

Damilola Oyebayo

Source

Divorced But Married: The Disturbing Trend Of Fake Divorces | Jamiu Akolade Esq

by Legalnaija | Oct 10, 2017 | Uncategorized

The breakdown of a marriage is undoubtedly
a painful and life-changing event. But what could be more painful than finding
out that you are still married even though you are supposed to have been
divorced years ago?

I was instructed recently by Mrs. A to
claim maintenance for the child of her marriage to Mr. A who she had been
‘divorced’ from over three years before. According to her, Mr. A has been
inconsistent with the maintenance payments. My first response was to ask for a
copy of the order of court dissolving the marriage to have an idea of the
arrangements made by the judge for the welfare of the child post-dissolution.
What I saw next shocked me to the marrow.

I saw a supposed order for ‘nullification’
of marriage which purportedly dissolved the marriage summarily without a trial
and nullified the marriage from the day of celebration. For added measure, the
marriage was supposedly dissolved on the ground of ‘incompatibility’ between
the parties to the marriage which by the way lasted only two months. I was
convinced that the order was suspicious and required further investigation. A
few visits to the High Court registry confirmed my worst fear: This was a fake
order. It was not granted by any court but by one of the growing army of fake
divorce mercenaries What I found is a criminal racket that permeates the
marriage and High Court registries orchestrated by State officials and urchins
preying on the victims some of whom are willing and others unsuspecting,
looking for quick fixes to their marital woes and others needing it for more
criminal purposes – for emigration and other unspeakable frauds. Suffice to say
that we are taking action against the participants in this criminal enterprise
in the case of Mrs. A.

This got me thinking: how many people are
going around believing they are divorced when they are actually still married.
Mrs. A completely believed she was divorced and was in a relationship which
could have led to marriage (she would inadvertently have committed bigamy and
her ‘new’ husband would have been committing adultery with a married woman)
before this bombshell. She would not believe me until I produced the letter
from the court registry disclaiming the order. I then realized that citizens
need more education about how the marriage dissolution process works and
decided to pen down a few pointers to how the process works.

1.
A
statutory marriage conducted at the marriage registry or in an authorized place
of religious worship for which a marriage certificate is issued can only be
dissolved by a judge after hearing the parties on the factors which led to the
breakdown of the marriage. If you are given a ‘divorce order’ without having to
appear in court, that my friend is a fake divorce.

2.
Proceedings
for dissolution of a marriage is not complete until arrangements are made for
the welfare of the children of the marriage if any and other financial
provisions such as maintenance for the party entitled to it, settlement of
property, e.t.c.

3.
The
court is mandated to attempt reconciliation of the parties. This will happen at
different stages of the process. Before your lawyer files the suit, he is
expected to file a certificate confirming that he has advised his client on the
possibilities of reconciliation. During the proceedings, there is a compulsory
conference (meeting) which parties must have to explore settlement. After the
trial, there is also a three – month window within which the parties may
reconcile before the dissolution becomes absolute. Certainly, dissolution of a
marriage is not a tea party.

4.
Dissolution
of a marriage is not conducted at the marriage registry or the court registry.
It is done before a High Court Judge in the case of a statutory marriage or
before the judges of a Customary Court for customary law marriages. In the case
of Mrs. A, she fell into the hands of a fraudulent person at the registry who
she called for advice and was told the marriage could be ‘nullified’ at the
registry since the marriage was still within a year of celebration!

5.
Many people fall into this trap of fake
divorces due to privacy concerns. They are more than willing to adopt any
measure that does not involve them appearing in court to ‘wash their dirty
linens in public’. While a court appearance may be unavoidable, it is important
to know the best approach to achieving a dissolution without the sordid details
of the marriage. Parties can exploit the no-fault option of seeking dissolution
on the ground of living apart for 2-3 years before presenting the petition for
dissolution if their case falls under this head. In this way, nobody needs to
prove the fault of the other party and the court would dissolve the marriage without
an inquiry into this.

If you suspect you may have fallen into
this trap of fake divorces, my advice to you is to visit the High Court
registry to verify the order you have been given. If you find out that you are
‘divorced but still married’ then you will need to go through the process
outlined above all over again. I share your pain.

Jamiu Akolade Esq

T: @akoladejay

E: akoladejamo@yahoo.com

Lagos Nigeria.

Source

Can the police be used as debt recovery agents in contractual matters between parties?

by Legalnaija | Oct 10, 2017 | Uncategorized

Recently I was involved in a criminal
matter between two parties in Court. I appeared for the Defendant and my brief
was predicated on a contract that had gone sour and the Complainant getting the
Defendant arrested for “defrauding” him as he had elegantly put his case. It is
important to note that parties had entered into a contract, evidenced by a
contractual document that was tendered in court, and the IPO (Investigating
Police Officer) stated in open court during cross examination, that he
inspected the contractual document and unilaterally decided that the Defendant
had run afoul of the contractual terms.

The attitude of the Court in situations
like this is quite clear as espoused by Per Mbaba JCA in OCEANIC
SECURITIES INT. LTD VS. BALOGUN & ORS (2012) LPELR-9218(CA)

“It
has been stated many times that the police has no business in enforcement of
debt settlements or recovering of civil debts for banks or anybody. Only
recently, in the unreported decision of this Court in the case of IBIYEYE &
ANOR VS GOLD & ORS, APPEAL NO_ CA/IL/M.95/2010, delivered on 7/12/2011, I
had cause to scream thus, in my contributory judgment. “I have to add that the
resort to the police by parties for recovery of debts outstanding under
contractual relationship, has been repeatedly deprecated by the Court. The
police have also been condemned and rebuked, several parties, and for using its
coercive powers to breach citizens right and or/promote illegalities and
oppression. Unfortunately, dispute, all the decided cases on this issue, the
problem persists and the unholy alliance between aggrieved
contractors/creditors with the police remains at the root of many fundamental
right breaches in our Courts”

The police have no business using their
coercive powers to deal in matters of contractual nature between parties. In
fact, it was held in another matter before the Court of AppealANOGWIE &
ORS VS. ODOM & ORS (20160 LPELR-40214 (CA), where My Lords were more
forceful with their judgment that

“…the
invitation of the police to intervene in a matter that is purely civil in
nature CANNOT BE JUSTIFIED UNDER ANY CIRCUMSTANCES. The duties of the Police as
provided under Section 4 of the POLICE ACT, Cap 359 LFN 1990 does not include
the settlement of civil disputes or the collection of debts or the ENFORCEMENT
OF CIVIL AGREEMENTS BETWEEN PARTIES . See the case of MCLARENCE VS. JENNINGS
(2003) 3 NWLR (Pt. 808) 470. The mere fact that the police are invited into
just about every matter under the sun is no justification to get the police involved
in the resolution of civil disputes. The police has recently held itself out as
a responsible law enforcement organization and should be seen to live up to its
billings in quickly turning down matters not statutorily assigned to it so as
to avoid embarrassments of matters of this nature happening. There are usually
dire consequences at every turn of event in the event of things of this nature
happening. The position is and has always been that the private individual who
uses the police to settle a private score, would himself be liable for the
wrongful act of the police. See the case of NKPA VS. NKUME (2001) 6 NWLR (pt.
710) 543 and a host of other decided cases on the subject”

The Police derive their powers from section
4 of the Police Act, Cap 359 LFN 1990. This section states the Jurisdiction of
the police and being used as debt recovery agents, being involved in purely
civil matters or being used to resolve civil disputes has no basis in law
as by so doing, the police would have acted ultra vires. It is disheartening to
note many people; even Lawyers still use the police to hound people for purely
civil transactions that might have gone sour. As stated by My Lords in OCEANIC
SECURITIES INT. LTD VS. BALOGUN & ORS (Supra), this act leads to
many fundamental human rights breaches against individuals. Many times, the
police, using their coercive and physical presence force victims into making
undertakings promising to pay the debt at an agreed date. They threaten with
imprisonment and they harass the victims into agreeing to these undertakings
which have no basis in law.

The Courts have taken a very radical
approach to this problem as they have stated in numerous cases that the victims
can institute an action against the errant officer and the private individual
who used the police to settle a private score as he too would be liable for the
wrongful act of the police.

So in answer to the topic question, the
police cannot and should not be used as debt recovery agents nor should they be
used in purely civil matters as the act is ultra vires.

Abiola Lawal Esq.

F.B.A Nabena & Co

Source: Linkedin

My interest in International Economic Law | Damilola Dawodu

by Legalnaija | Oct 10, 2017 | Uncategorized

International economic law is a field of international
law that involves the regulation and conduct of states, international
organizations, and private firms operating in the international economic arena.
It is a study of international forces that influence the domestic conditions of
an economy and shape the economic relationship between countries. In other
words, it studies the economic interdependence between countries and its
effects on economy.

It is concerned with the governance of
international economic relations between states as they affect individuals in a
state, including in particular their relations inter se across national boundaries.
A traditional drive for this normative framework has been the facilitation of
the optimal allocation and use of national and international resources for the
development of all the people of the world.

Different Parts of International Economic
Law

As such, international economic law encompasses
a broad range of disciplines which includes, among other things:

· international
trade law

· international
financial law

· public
international law and private international law

· domestic law
applicable to international business transactions.

The scope of international economics is
wide as it includes various concepts, such as:

· globalization;

· gains from trade;

· pattern of trade;

· balance of
payments; and

· FDI.

Apart from this, international economics
describes

· Production;

· Trade; and

· investment between
states

Additionally, international economic law
includes the following fields:

· Regional Economic
Integration, such as the European Union, ASEAN and other regional trade
organizations.

· International law
and development

· International
commercial arbitration

· International
intellectual property law

· International
business regulation

Importance
of International Economic Law

International economics has emerged as one
of the most essential concepts for countries. Over the years, the field of
international economics has developed drastically with various theoretical, empirical,
and descriptive contributions.

Generally, the economic activities between
nations differ from activities within nations. For example, the factors of
production are less mobile between countries due to various restrictions imposed
by governments.

The impact of various government
restrictions on production, trade, consumption, and distribution of income are
covered in the study of internal economics. Thus, it is important to study the
international economics as a special field of economics.

The economic sector affects everything in a
country, the education, health and every other sector in the country. Economic
policy covers the system for setting levels of taxation, government budgets,
the money supply, interest rates, the Labour market, national ownership and
many other areas.

I have keen interests in influencing and
transforming the economic systems of my country and the globe at large. I have
tried to define problems with our economic system and I realized that economic
system may not thrive if the international economic relations among states
are not

properly governed and managed by making and
executing of good policies as they affect individuals in a state.

I aspire to work with the federal
government and with international organizations
like the World Bank, International Monetary Fund, or any other
organisation that handles issues as regards the
economy.

References

1.
https://www.slideshare.net/mobile/Kingnabalu/lecture-3-sources-of-international-law,
24 July 2017, 2.45pm

2. Qureshi A.H.
International Economic Law, London, Sweet and Maxwell, 2007, p. 35

3. Principles of
International Economic Law and the Right
to Economic Development Vis-À-Vis The

Guiding Principles of Sustainable
Development

4. As an individual,
why I am interested in International Economic Law

4https://www.law.cornell.edu/wex/international_economic_law
11th September 2017, 3.45pm

5. hp://www.economicsdiscussion.net/internaonal-economics/internaonal-economics-its-concept-parts/4205
18th September 2017, 11.18 a.m.

Damilola Dawodu
Lawyer | Writer| Speaker| Blogger

Photo Credit – iielaw.org

Through The Lens hosted by Olisa Agbakoba Legal

by Legalnaija | Oct 10, 2017 | Uncategorized

On the 5th of October, 2017, Olisa Agbakoba Legal hosted “Through The Lens’, a business round table event on Entertainment, Fashion and Sports Law. It was an exciting and enlightening event having participants such as Kola Kuddus, Adekoye Sowemimo (Head of Sports at Temple Management); Ego Maduekwe,(Creative director at Alter Ego), Adamu Samson (Founder, COPA Lagos) and Tega, Head of Partnerships, Mavins Records.

Prisoners’ Rights Advocacy Initiative holds session to encourage Prisoners to join Ikoyi Prison School

by Legalnaija | Oct 9, 2017 | Uncategorized

The Prisoners’ Rights Advocacy Initiative on 09/10/2017 had 226 inmates in attendance at its motivational session geared towards encouraging inmates to enroll in the Ikoyi
prison school this academic session. There were 4 successful ex-inmates,
led by Harrison Gwamnishu(2017 Mandela Washington Fellow), on ground to
motivate the inmates.

They spoke about the value of education and
how they were able to turn around their misfortune of incarceration into
fortune. We are hopeful that a good number of inmates would be motivated
to register in the school this session.

We provided refreshment for those in
attendance.

To support our programmes, kindly
make your donations to:

A/c Name: Prisoners’
Rights Advocacy Initiative

A/c number:
0124553447

Bank: GTBANK
Contact: aadetolakazeem@prai.org.ng

– Ahmed Adetola Kazeem

Explained: Why LIRS wants to tax loans you got from your employers

by Legalnaija | Oct 9, 2017 | Uncategorized

The Lagos State Internal Revenue Service
(LIRS) recently issued a public notice (the Notice) with respect to taxation
of interest benefits accruing to employees on loans granted by employers.

Why tax it?

The Notice aims at addressing arrangements
where loans are granted to employees at no interest or interest rates lower
than market rates. LIRS posited that such arrangements give rise to
a benefit which is taxable in the hands of employees.

Consequently, employers are
required to deduct tax on such interest benefits accruing to employees and
remit same to LIRS under the pay-as-you-earn (PAYE) scheme.

How it will be calculated

The benefit is calculated as the difference
between actual interest rate and adjusted monetary policy rate (MPR) on
the outstanding loans granted to employees. The adjusted MPR is currently 11%,
which is the prevailing MPR (i.e. 14%) minus 3%.

LIRS cited reliance on Section 3(1)(b) of Personal Income Tax Act (PITA), which
imposes tax on all gains or profits from employment including compensations,
bonuses, premiums, benefits or other perquisites, as basis for its position.

Other highlights of the Notice
include:

• Assessment of tax on the interest benefit
to be done by employer in line with the loan repayment plan i.e. assessment to
be made monthly where payment is made on monthly basis and annually, where
payment is made on annual basis

• Requirement for employers to file a schedule showing information
on employee loans and payments terms along with their annual
returns

• The directive applies to shareholders, directors and employees of a company
and will continue to apply after the relationship with the company has been
terminated, until the loan is fully repaid.

We explain

It appears LIRS has likened the interest
benefits enjoyed by employees to benefit-in-kind, which constitute taxable
income.

LIRS has not indicated if the directive
will be applied retrospectively or take effect from the date of the Notice.
Further clarification on the effective date is therefore expected to be
provided by LIRS.

The above notwithstanding, we advise
employers and other stakeholders to take note of LIRS’ directive and ensure
compliance.

Source: Nairametrics

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