Tax Appeal Tribunal Rules That Voluntary Pension Contribution (VPC) Made By An Employee Is Tax Exempt And That An Employer Is Not Under Any Obligation To Ascertain Whether The VPC Meets The Five Years Requirement – In Treating The VPC As Tax Exempt


On 18th June 2019, the Tax Appeal Tribunal (TAT), Lagos (in Appeal Number: TAT/LZ/PIT/031/2018 between Nexen Petroleum Nigeria Limited v. Lagos State Board of Internal Revenue) held that apart from the deduction and remittance of PAYE tax arising from an employee’s emoluments, the employer has no obligation to account for any other tax that may be due from such employee. In computing the PAYE taxes of its employees, the appellant treated as tax exempt, voluntary pension contributions made by its employees. LIRS disregarded the tax exemption and subjected the voluntary pension contribution (VPC) to tax on the ground that the appellant did not provide evidence that these employees did not withdraw their VPC for a period of 5 years provided for the VPC to be so treated. Pursuant to section 10(4) of the Pension Reform Act, VPC shall be subject to tax if it is withdrawn before the expiration of 5 years from the date of deposit. The appellant dissatisfied with this decision of LIRS filed an appeal at the TAT.

The TAT held as follows:
(i) An employer is an agent of the government for the purpose of deducting PAYE tax at source from the employee’s emoluments and remitting same to the relevant tax authority. Thereafter, the employer does not owe any further duty to the government with regard to any income arising from any other activity of the employees.
(ii) The VPC is exempt from tax pursuant to the provisions of the Pension Reform Act and the Personal Income Tax Act (PITA). An employer is therefore, entitled to treat VPC as tax exempt at the point of computing PAYE tax.
(iii) An employer has no obligation to ensure that his employee does not abuse the tax exemption conferred on VPCs. Thus the employer has no obligation to ensure that his employee does not withdraw his VPC before the expiration of 5 years.
Furthermore, pursuant to section 113(1) of the PRA, the  transaction/relationship
between an employee and his Pension Fund Administrator (PFA) is confidential and an employer is not entitled to know if or when an employee withdraws his VPC.

Implications of this Judgment
Tax authorities wishing to ensure that the VPC scheme is not abused should liaise with the various pension fund administrators for the purpose of obtaining records of deposits and withdrawals from VPCs. Pension fund administrators have an obligation similar to banks to release information to relevant regulatory and enforcement organisations for the purpose of
preventing the commission of offences or compliance purposes. The tax authorities have adequate legal backing to obtain the information necessary to prevent or penalise abuse.

For more information contact:
Maxwell Ukpebor
Adebiyi Tax & Legal
House 20 Wema Terrace
Udi Street Ikoyi
+234 8039600520

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This Legal Alert contains information on tax /legal issues. It does not constitute legal or professional advice on such issues. Where specific legal advice is needed, the services of a solicitor/tax adviser should be sought.

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