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The Personal Income Tax (Amendment) Act 2011and the controversies

Taxpayers in Nigeria heaved a sigh of relief when the news of the amendment to the Personal Income Tax Act (PITA) spread across the length and breadth of the country. The announcement came after a prolonged wait as the Bill was passed by the immediate past sixth Assembly.

The House of Representatives passed the Bill on 25 May, 2011 while the Senate passed it on 1 June, 2011. The news of the President’s assent to the Bill to amend the Personal Income Tax Act’, Cap. P8 LFN 2004 was made public on Tuesday, 13 December 2011, during the presentation of the 2012 Budget proposal by the President to a joint session of the National Assembly.

Expectedly, the Personal Income Tax (Amendment) Act 2011 (hereafter referred to as “PITAM”) has generated series of reactions and flurry of comments, including differing views on some of the controversial aspects.

As soon as PITAM was made public, it was discovered that the date of assent by the President was 14 June 2011. Till date, it is unclear why Taxpayers have to wait for six months before the news of the signed PITAM became public.

Curiously enough,before the President’s assent, there were agitations and appeals from Taxpayers for its signing. For example, one national newspaper published on 28 October 2011, reported that Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN) appealed to the President to sign the Personal Income Tax (Amendment) Bill into law without further delay.

Some commentators have mentioned that the indicated date of assent helps to avoid a breach of Section 58 of the 1999 Constitution which requires the President to signify his assent or the withholding of his assent within thirty (30) days of a Bill being presented to him.

Another point is that, it may have been impossible for the president to assent to the bill at any period later than June 2011 which signified the end of the sixth National Assembly. The legislative rule that was then applicable is to the effect that any Bill that could not be passed at the end of a session of a particular Assembly would go through a fresh legislative process when a new Assembly is inaugurated.

Thankfully,taxpayers do not need to suffer a second round of the waiting game as the President has done justice to the Bill. The new Assembly has also modified its rule which now allows a new Assembly to continue the consideration of Bills that could not be completed during a legislative cycle. By virtue of its new Order 111, which dwells on the handling of pending Bills at the end of a legislative cycle, a Bill could now survive beyond the lifespan of a particular legislative cycle.

One of the fundamental changes introduced by PITAM is the introduction of a new Consolidated Relief Allowance (CRA) which replaced the old Personal Relief. We will deal with the controversy around the computation of CRA in this edition and discuss other controversies in the days ahead.

Based on the old law, personal relief is N5, 000 plus 20 per cent of earned income. Section 5 of PITAM which amended Section 33 of the Principal Act (PITA) replaced the old basis for computing personal relief with the new CRA.

Section 5(a) of PITAM provides that “there shall be allowed a consolidation relief allowance of  N200,000 subject to a minimum of 1 per cent of gross income whichever is higher plus 20 per cent of the gross income and the balance shall be taxed in accordance with the income table in the Sixth Schedule to the Act”.

The general understanding from this provision is that in computing CRA, Taxpayers would claim the higher of N200,000 or 1 per cent of gross income and then add such to 20 per cent of the gross income. Put in another way, for taxpayers with gross income in excess of N20m, CRA would be computed as 21 per cent while for those with lower gross income it would be N200,000 plus 1 per cent of gross income.

However, the provision of the new Sixth Schedule appears to be in conflict with the analysis above. Paragraph one of the sixth Schedule stated that CRA shall be granted on income “at flat rate of N200,000 plus 20 per cent of gross income”. This confusion was also repeated in paragraph 3 of the Sixth Schedule where the basis for computing CRA was stated as “N200,000 plus 20 per cent of gross income”.

Whilst opinions are divided on the correct basis for calculating CRA with an equal share on both sides, it is perhaps easy to predict the direction towards which the Tax Authorities may move.

They would prefer that the controversies be resolved in favour of the provisions in the Sixth Schedule. However, taxpayers (especially those with the current or anticipated annual income in excess of N20m) will pray to have the phrase “or 1% of gross income which is higher” to be retained.

While I am not a legal practitioner, I understand from my various discussions with lawyers on the foregoing issue that the provisions of a Schedule to an Act cannot override the provisions in the main body of the Act. This is trite law.

Consequently, any inconsistency between the provisions of the main Act and its accompanying Schedule would have to be resolved in favour of the former. To that extent, I will pitch my tent with the provisions of Section 5(a) of PITA. By that provision, CRA is to be computed as “N200,000 subject to a minimum of 1% of gross income whichever is higher, plus 20% of the gross income.”

Yomi Olugbenro is a Senior Tax Manager with Akintola Williams Deloitte a member firm of Deloitte Touche Tohmatsu Limited. He is Fellow of both the Institute of Chartered Accountants of Nigeria (ICAN) and the Chartered Institute of Taxation of Nigeria (CITN) and a member of the Indirect tax faculty of CITN.


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