If the recently released circular by the Lagos State Internal Revenue Service, LIRS is anything to go by, employees in Lagos state should brace up as they will no longer be exempted from the additional 20 percent relief which formerly was allowed from a portion of their income relating to the national housing fund, pension contribution, and other tax-exempt items.

By implication, workers in Lagos may have to pay more Income Tax to the administration as the personal income tax of employees in the state will now cover “income from all sources”. This is a fallout from the December 31st, signed Finance Act 2020.

Clarifying the agency’s approach to the clause as stated by the Personal Income Tax of the Finance Act 2020 in a circular released, LIRS harped on the new definition of gross income for personal income as provided by Section 29 (2) of the Finance Act 2020.

Employees in Lagos will no longer benefit from the additional 20 percent relief previously claimable on the portion of their income that relates to the national housing fund, pension contribution, and other tax-exempt items.

Recall that the piece of legislation defined “Gross Income” as income from all sources, less all non-taxable incomes, income on which no further tax is payable, tax-exempt items listed in paragraph (2) of the Sixth Schedule, and all allowable business expenses and capital allowances.

LIRS chairman’s take

In his statement on the looming increment of personal income tax within the state, Ayodele Subair, LIRS Chairman with the hindsight of the new definition of Gross Income provided by the Finance Act 2020 posited that this will mean that Personal Income Tax will include all statutory contributions to national housing fund, national health insurance scheme, national pension scheme, life assurance premium and gratuities as enjoyed or subscribed to.

What Subair’s statement portends,

These identified areas will also double as the basis for the computation of consolidated relief allowance. By this, it is pertinent to note that employees will no longer benefit from the tax relief previously claimable on income that relates to the national housing fund, pension contribution, and other tax-exempt items usually contained in the Consolidated Relief Allowance, CRA.

Experts hold that the reduction in CRA would result in a higher effective tax rate and lower disposable income. Going forward, employers need to update their payroll templates or applications to ensure compliance.

A peep through the Finance Act 2020

Recall that, the Nigerian senate by December 2020 had passed the 2020 Finance Bill, amending Capital Gains Act; Companies Income Tax Act; Industrial Development (Income Tax Relief) Act; Personal Income Tax Act; Tertiary Trust Fund Act, Customs and Excise Duties Tariff; Value-Added Tax Act; Stamp Duties Act; and Electronic Transaction Levy.

The Finance Act 2020 amended the definition of gross income for personal income tax.

Please follow and like us:

Leave a Reply

Your email address will not be published.