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The
relevant legislation that regulates taxation matters for individuals
in
Nigeria is the Personal Income Tax Act (“PITA”). A Nigerian employer acting as
an agent for the Nigerian tax authority is required to deduct and account for
the personal income tax of its employee through the Pay-As-You-Earn (PAYE)
system.
Nigeria is the Personal Income Tax Act (“PITA”). A Nigerian employer acting as
an agent for the Nigerian tax authority is required to deduct and account for
the personal income tax of its employee through the Pay-As-You-Earn (PAYE)
system.
Best
of Judgment Assessment is a tax assessment procedure conducted by tax authorities
on the accounts of a company or individuals. It is usually done where the tax
payer does not provide any Audited Accounts or Statement
of Net-worth if it is an individual. It can also be conducted if the tax
authorities have reasons to believe the accounts presented by the tax payer is
not sufficient enough to assess their tax liability.
of Judgment Assessment is a tax assessment procedure conducted by tax authorities
on the accounts of a company or individuals. It is usually done where the tax
payer does not provide any Audited Accounts or Statement
of Net-worth if it is an individual. It can also be conducted if the tax
authorities have reasons to believe the accounts presented by the tax payer is
not sufficient enough to assess their tax liability.
Despite
the role of the employer in the assessment of the emoluments of the employee
under the PAYE system, section 54 (2)(b) of the PITA provides that the relevant
tax authority can reject the returns
filed by a taxable person and determine the amount of the assessable, total or
chargeable income of the person (employee) based on the tax authority’s “best of judgment” and make an assessment.
the role of the employer in the assessment of the emoluments of the employee
under the PAYE system, section 54 (2)(b) of the PITA provides that the relevant
tax authority can reject the returns
filed by a taxable person and determine the amount of the assessable, total or
chargeable income of the person (employee) based on the tax authority’s “best of judgment” and make an assessment.
Section 17(1) and 58 (3)
of PITA also empowers the tax payer to raise objection to the revised
assessment by the tax authority. This further reiterates the power of the tax
authorities to use their discretion to determine on a best of judgment basis, the tax liability where none or insufficient
tax has been paid by the employer who act as its agent.
of PITA also empowers the tax payer to raise objection to the revised
assessment by the tax authority. This further reiterates the power of the tax
authorities to use their discretion to determine on a best of judgment basis, the tax liability where none or insufficient
tax has been paid by the employer who act as its agent.
The recent case of Group 4
Securicor Nigeria Limited (the “Company”) and Lagos State Internal Revenue
Service (“LIRS”) at the Tax Appeal Tribunal, saw the
employer raise an objection to the assessment of its expatriate employees based
on deemed income and penalties imposed by the “LIRS”.
Securicor Nigeria Limited (the “Company”) and Lagos State Internal Revenue
Service (“LIRS”) at the Tax Appeal Tribunal, saw the
employer raise an objection to the assessment of its expatriate employees based
on deemed income and penalties imposed by the “LIRS”.
The LIRS contended that the Company
had no ‘locus standi or cause of action’ because
it is not a taxable person under the PITA being only an agent of the tax
authority therefore it is only the employee who has the right to protest or
bring a claim.
had no ‘locus standi or cause of action’ because
it is not a taxable person under the PITA being only an agent of the tax
authority therefore it is only the employee who has the right to protest or
bring a claim.
The Company claimed that the deemed
income was computed based on tax remitted by employees of a subsidiary company,
Outsourcing Services Ltd (“OSL’”) which was operating an entirely different
line of business though they were both owned by the same parent company. The
subsidiary company protested the deemed income imposed on it by the tax
authority but could not provide appropriate documents to substantiate its
position. Unlike OSL, the Company provided relevant documents to the LIRS to
confirm the actual income earned by the expatriate employees.
income was computed based on tax remitted by employees of a subsidiary company,
Outsourcing Services Ltd (“OSL’”) which was operating an entirely different
line of business though they were both owned by the same parent company. The
subsidiary company protested the deemed income imposed on it by the tax
authority but could not provide appropriate documents to substantiate its
position. Unlike OSL, the Company provided relevant documents to the LIRS to
confirm the actual income earned by the expatriate employees.
The TAT asserted that it was
legitimate for the tax authority to rely on the positions of section 54(2)(b),
17 and 58 (3) of PITA to make an assessment based on the deemed income but the
following had to be considered:
legitimate for the tax authority to rely on the positions of section 54(2)(b),
17 and 58 (3) of PITA to make an assessment based on the deemed income but the
following had to be considered:
1. The best
of judgment assessment cannot be established on a prior best of judgment
assessment i.e. it must originate from actual industry results or the parameter
must be realistic within industry context.
of judgment assessment cannot be established on a prior best of judgment
assessment i.e. it must originate from actual industry results or the parameter
must be realistic within industry context.
2. Best of
judgment must bear semblance to the normal tax assessment of identical or
closely related companies in similar or identical circumstances.
judgment must bear semblance to the normal tax assessment of identical or
closely related companies in similar or identical circumstances.
The TAT
concluded that the Company had the right to appeal against the demand notice
where there are claims by the tax authority that the emoluments were
understated and not only the case of under deduction and non remittance.
concluded that the Company had the right to appeal against the demand notice
where there are claims by the tax authority that the emoluments were
understated and not only the case of under deduction and non remittance.
The
question this case actually raises is that, in the cases where the Federal
Inland Revenue Service (FIRS) issues a best of judgment assessment as provided
in the companies income tax act where a company has not filed its returns, will
the principle in the case of Group 4
Securicor Nigeria Limited v Lagos State Internal Revenue Service (“LIRS”) be
applicable?
question this case actually raises is that, in the cases where the Federal
Inland Revenue Service (FIRS) issues a best of judgment assessment as provided
in the companies income tax act where a company has not filed its returns, will
the principle in the case of Group 4
Securicor Nigeria Limited v Lagos State Internal Revenue Service (“LIRS”) be
applicable?
By Sogo Akinola