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• Ngozi Okonjo-Iweala, Finance Minister
The recent move by Ogun State Governor, Mr.Ibikunle Amosun, to revive an age long debate over payment of Personal Income Tax (PIT), by residents of the state working in Lagos state has sparked off controversy among citizens and other stakeholders across the country.

Amosun has been making a case for residents to pay their PIT where they are living as against the current practice of where they work.

But the issue of payment of PIT to the state where one resides other than where one works is not entirely a new development because it is statutory. From Abuja to Abia, Rivers to Imo, Ondo to Ekiti,Oyo to Osun,Anambra to Delta, the story is the same. Indeed, there are a handful of civil servants residing in neighboring states such as Nassarawa and Niger states but earning their meal tickets in government agencies, ministries and parastatals in Abuja.

In Nigeria, people live in a particular state and work in other states. What that means is that these employees pay their taxes to the state where they work, not their residential state.

Particularly, Lagos and Ogun, Rivers and Abia, FCT; Niger and Nassarawa states have these peculiarities. Also, lack of jobs and opportunities, coupled with underdevelopment of other towns in Nigeria have led many people to migrate to neighboring states that can boost of better infrastructure as against what obtains in where they are resident.

The latest development may however be an eye opener for other state governments who solely depend on federal allocation by not exploring other options available, especially as it relates to Internal Generated Revenue (IGR). Many state governments complain that insufficient allocation from the federal government remained the bane of development in their respective states, forgetting that, what they are losing to their neighboring states in PIT is enough to carry out massive infrastructural development.

For instance, Amosun had about three weeks ago argued that Ogun State Government is losing about N1.5 billion every month as a result of wrongful remittance of taxes payable by people resident in the state but working for employers based in other states across the nation. The governor noted that his government had begun to put in place measures to ensure that employees' PIT deductions due to the state are henceforth remitted to the state's coffers. But this announcement has ruffled certain feathers and sent tongues wagging as to the legality or otherwise of such a policy.

Although, there are ongoing plan to amend the Personal Income Tax Act (PATIA), which presents a timely opportunity for a review of some of the outdated clauses that have imposed a rather heavy burden on Nigerian taxpayers within the extant tax laws. Among issues for consideration in the proposed tax law review are the exemptions available to taxpayers and how to maximize tax benefits to the government.

The development on the part of the Federal Government to admit the urgent need to review tax policies which, aside from reducing the burden on taxpayers, are also expected to raise the level of voluntary compliance with taxation requirement and entrench equity in the tax system. The review is expected to improve the level of internally-generated revenue of the government as well as block the leakages in the system while providing the government with the necessary fund to pursue development oriented programmes.

Even President Goodluck Jonathan at the opening of the second International Tax Conference and 5oth annivasary of the Joint Tax Board held two weeks ago in Abuja had assured Nigerians that PIT (Amendment Bill,2011 currently before him,would be given expedited action so that it could become operational Chairman of Ikeja Branch of the Chartered Institute of Taxation (CITN),Mr.Chukwuemeka Eze has said that, of late, Ogun State Government has not known peace since it decided to apply the PIT Act strictly while its workers have not only threatened a strike but have embarked on strike because of the mode of calculation of taxable income under the Ibikunle Amosun administration.

Eze who is also a legal practitioner argued that beyond the growing desire by each State of the Federation to maximize its internally generated revenue, Ogun State has a chief executive who is both an accountant and a tax practitioner. 'It is rumoured that the governor before his enthronement as executive governor of Ogun State, was a consultant with the Lagos State Internal Revenue Service (LIRS). One will not doubt that the Governor, during his years of consultancy with LIRS, obtained primary evidence of Ogun residents paying their income tax to Lagos State Government.

It is trite that most residents of Agbara, Akute, Agbado, Sango, Ojodu Isheri and Ibafon, which are towns in Ogun State inhabited by many Lagos workers, regard themselves as Lagos residents,'he said. However, the CITN chief maintained that because of the aggressiveness in tax drive of the LIRS over and above its Ogun State counterpart, many residents of these towns in Ogun State have felt obliged to have a sense of duty to pay their income tax in Lagos State.

Defending the position of the state government to implement the PIT Act to the latter, Amosun disclosed that his government has started to put measures in place to ensure that employees' personal income deductions due to the state are henceforth remitted to the state's coffers, saying that compliance with the extant law would go a long way in ensuring that the state delivers on its obligations.

Amosun said that Ogun State is taking the lead in ensuring that all stakeholders including

private and public sectors employers, employees, the business community, industry associations, professional bodies and employee unions understand and comply with the residency rule aspect of the tax laws of the country. Speaking on the need for stakeholders to understanding the residency rule for employees living in Ogun State, a World Bank consultant, Dr Biodun Adedipe said Tax managers must be aware and alive to their responsibilities ditto for employees, employers and government, amplifying that PIT should go to the state of residence of taxpayers.

'Many are ignorant, while others are not willing to comply. Quite a large number of residents do not engage in economic activities where they reside. That is tax leakage. Without sufficient revenue, there is no way expectation can be delivered,' he said. Amosun equally declared that Adedipe's submission was in tandem with the thoughts of the state. 'That is our plight in Ogun State. We want to sensitize our people, to let them know that the government will be in position to perform if they do their bit, by performing their civic responsibility-that is to pay their taxes.

It is wherever one lives other than where one works that one puts pressure on the infrastructure.

Lagos State is our brother, we are friendly. It is not about waging war against the government of Lagos State. We have cordial relationship. We are cooperating. As much as there is development in Lagos, it will be replicated in Ogun State,' he stated. Again, the governor lamented that a substantial number of people living in Ogun State do not pay their taxes to Ogun but to Lagos State.

The implication of this, according to him, is that they put pressure on all amenities the state have, adding that; without paying taxes, how they-residents will expect the state to provide amenities.

According to a document obtained from the Ogun State Internal Revenue Service titled 'Understanding the Residency Rule for your Employees Living in Ogun State. A Guide for Employers Based in Lagos State', a copy made available to Daily Sun explained that residing in Ogun State is becoming an increasingly attractive choice for workers across a number of industries.

The document informed further that the combination of close proximity to Lagos, low cost and opportunity for improved living standards has resulted in the migration of an estimated one million persons from Lagos State in the past seven years while most of these people continue to work in Lagos State. On the residency rule, the document stated that employers need to be aware that the PIT Act expressly requires that employee taxes should be deducted and paid to the state in which they reside contrary to popular belief saying the basis of remittance is not where the company resides but where the taxpayer resides.

The position of the law on PIT
Again, Eze provides an insight into what the position of the law is on PIT. The questions that will arise from the latest development on PIT according to the CITN chief include the following; 'If these residents have been paying their income taxes in Lagos, what is the legal implication of switching over to Ogun State? Do Ogun residents have discretion in the matter or are they bound by duty to pay the said taxes to Ogun State Government?

What happens in terms of remittances in the case of a company located in Lagos but having some of its members of staff resident in Lagos and some resident in Ogun State? Will Ogun State Internal Revenue Service be sending demand notices for Pay-As-You-Earn (PAYE) to companies in Lagos having Ogun residents as workers? Does Ogun State Internal Revenue Service have a database containing the names of its residents and the outfits employing them in Lagos? Is the announcement directed to workers in the informal sector only?

All these ,he said are some of the perturbing questions agitating the minds of many people since the announcement submitting that as a threshold fact, residency is a key factor in taxation, since a tax payer is generally liable to payment of taxes to the State where he is resident.

Eze said by virtue of section 2 (2) of the Personal Income Tax Act, Cap. P8, Laws of the Federation of Nigeria, 2004 ('PITA'), it is evident that tax for any year of assessment may be imposed only by the State in which the individual is deemed to be resident for that year, maintaining that, no tax can be assessed on any individual whose residence in a State cannot be proved, stressing that the rules of determination of residence are detailed out in the First Schedule to the Personal Income Tax Act.

Besides, he said where an individual has more than one source of income; his residence is determined by reference to the first of rules applicable to his circumstances in the order in which they are considered as stated hereinafter. 'Place of residence' in relation to an individual means a place available for his domestic use in Nigeria on a relevant day and does not include any hotel, rest house or other place at which he is temporarily lodging unless no more permanent place is available for his use on that day.

But the Ogun State Government said more and more people working in Lagos and other states are bona fide residents of Ogun and most of them commute to work from the state, saying unfortunately, many employers however do not comply with the provisions of the PITA. 'This violation and wrongful administration of the statutory tax by companies and institutions is marginalizing Ogun State.This tax leakage is an obvious case of revenue erosion and the economic strangulation of our state,' he said.

Amosun contended that PITA Laws of the Federation of Nigeria states that an employees residence should be the determinant factor in where an employer remits the employees personal income tax to, believing that compliance with the extant law would go a long way in ensuring that the state delivers on its obligations to its numerous stakeholders.

The State according to him was taking the lead in ensuring that all stakeholders including private and public sector employers, employees, the business community, industry associations, professional bodies and employee unions understand and comply with the residency rule aspect of the tax laws of the country.

Reasons for PITA implementation
Ogun State Government which is currently championing the cause for the strict implementation of the provisions of the PITA says there are few little things the state can do without being paid taxes.

'Lagos was able to withstand the Federal government when its allocation was seized because the people cooperated with the state. Where people are alive to their responsibilities, government will be in position to perform its own responsibilities.

When you begin to look inwards there are very few things we can do. It is the responsibility of government to provide for its people, it is the responsibility of the people to do the needful. Previous government in Ogun State did not bring this to the fore; otherwise employers of labour would have supported us.

Again, the state explained that there is an ongoing mission to rebuild Ogun State which includes ambitious programmes in health education and infrastructure because the state welcomes the flow of persons seeking better opportunities and an improved lifestyle within its borders. Also it stated that most of the residents are tax payers who are keen to see their tax being used to provide improved services and facilities where they live.

Specifically, the government argued that residents desire good roads and infrastructure, efficient health care delivery, affordable quality education and security noting that if their taxes are not paid to Ogun State as required by law, a strain is placed upon the state's resources and residents deprived of the very services that their tax deductions are intended to provide.

Strategies to make the initiative workable
Amosun said the State Government will write all employers of labour, telling them the law and why they should obey it. The helpless Governor said 'during the polio eradication exercise, Ogun State government will immunize all the children in the border towns. But the residents pay their taxes to Lagos government. Arepo has no school; I ordered that one should be provided. If these people are not there, we will be able to manage our little resources to provide for our people.

To do Arepo Byepass, we need about N680 million as contractor's fees. We are looking at awarding contracts to open up Isheri axis, about 27.2 kilometres which will cost about N23 billion. So we need all the revenue we need to get as taxes in order to be able to do all those projects.About five local governments don't pay to us, they pay to Lagos State.

We spend between N300 million to N350 million every month to resolve the challenges on the environment, particularly clearing the Lagos -Ibadan Express way. Let people know what Ogun State is suffering, let employers know how to help, draw attention to it, that residents need to have a rethink on paying their taxes. We are losing N1.5 billion to N2 billion monthly.

I have met with the Lagos State governor who promised to support what we are doing. He told me, if you have your figures, come to us and we will see what we can do. We are not interested in getting the tax backlog from Lagos State. We are going to start from where we are. The previous government generated about N700 million internal revenue every month. Maybe whenever they sold land, that amount would get to N950 million.But this money can not do anything. Every month, we are looking at generating N2billion.We have two schools, three healthcare centers and two bridges we need to quickly renovate in Akute areas,' he explained.

Also,he stated that Ogun State is totally restructuring tax collection services and is compiling detailed information within the border areas of residents and their places of work which will be used to ensure full remittance of taxes due. 'However, sensitizing employers about the issue should prompt them to voluntarily comply with the law and will prevent them incurring fines and penalties for payments made incorrectly.

Way forward
Again,Eze says 'Ogun State Government is legally right to have made the pronouncement it made during the press conference but it is most likely that these residents will be subjected to double taxation because of the clumsiness in the system. The difficulty and lack of simplicity in determining a tax payer's place of residence may pose a problem and controversy.

Personal Income Tax Act has been criticised by many scholars due to its obnoxious provisions, lack of simplicity, clarity and flexibility in various respects. Little wonder that the National Assembly, after 18 years of the existence of PITA, has amended several provisions of the Act and presented the amended version to President Goodluck Jonathan, who assured early this month (during the International Tax Conference of the Joint Tax Board in Abuja on 6th October, 2011) that he will sign the Bill into law,' he submitted.

The solution according to Eze actually lies in the recommendation of the National Tax Policy of February 2011, that every tax payer should be registered and issued with a Unique Tax Identification Number (U-TIN), which can only be one for each tax payer throughout the country.

The legal practitioner maintained that it is envisaged that a technologically-driven database will be created to make it easy for each Board of Internal Revenue to access taxpayers whether in Ogun, Lagos or any other State in the Federation.

The battle drum has been beaten, it is yet to be seen if other States will follow the Ogun State Government example to demand for income tax of residents from neighbouring States where they reside and earn a living. Time will tell.