In view of the outbreak of Coronavirus and the attendant economic meltdown, the Nigerian National Assembly passed the Emergency Economic Stimulus Bill 2020 (the Bill).
The Bill amongst other things proposes that employers who maintain the same number of employees without retrenching any of its employees from the 1st of March to 31st of December 2020 will be entitled to a 50 per cent income tax rebate on the total amount due or paid as PAYE tax under Personal Income Tax Act (PITA).
The above provision obviously raises some questions when one considers that PIT is a tax payable by an employee, not the employer, secondly the revenue arising from the payment of PIT is accruable to the state and not the federal government.
Can An Employer Benefit From an Incentive Arising from the Payment of Personal Income Tax Which Is Borne By An Employee?
The position of the law under the PITA is that taxes are imposed on the income of individuals as opposed to corporations and several other entities.
This portends that under PAYE scheme, tax liability (i.e. the tax burden) is solely borne by the employee and not the employer. The law, however, enjoins the employer to deduct at the source the tax liability of the employee and remit same to the relevant tax authority (RTA), for ease of tax administration.
Furthermore, the law is fairly settled that where the employer fails to deduct and remit the tax due, the RTA is legally mandated to proceed against the employer and recover the tax due from such employer as debt including penalties.
In any event, the law does not allow the RTA to distrain the assets of an employer in the course of trying to recover the unpaid tax. It is rather the assets of the employee in question that will be distrained since he is the one bearing tax liability.
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This shows clearly that while the tax burden is on the employee, the duty to remit the same is on the employer. Hence, where an employer fails in his duty to keep appropriate records or to deduct or remit relevant taxes or falsifies records, RTA will be at liberty to take legal action against the employer for failure to perform his duties under the Act.
It is in view of this that one would come to the conclusion that the position of the employer under the PAYE scheme is simply that of a collecting agent and no more. Flowing from the above, it is therefore impossible for the legislature to seek to benefit an employer from the taxes paid by an employee.
To further buttress this point, it is the position of the law that where there is a wrongful assessment and remittance, an employer does not have the locus to challenge/approach the RTA since he did not bear any tax burden.
It follows therefore that since the employee is the only person that can legally challenge the wrongful assessment, then it will be detrimental to the employee for the employer to reap where he did not sow.
On the whole, having clearly set out the position of the law above, it is doubtful whether an attempt by the national assembly to incentivize an employer from the employees’ tax will legally see the light of the day as an employer cannot benefit from the taxes of an employee under the PITA.
Whether the National Assembly Can Incentivize an Employer with Revenue that is Ordinarily Due to the State?
This second question raises the twin issue of tax imposition and tax collection. In Nigeria, the position of the law with respect to these two issues is not entirely the same.
This stems from the constitutional allocation of taxing powers in Nigeria. The Constitution clearly defines and allocates legislative powers to and as between the National Assembly (for the federal government and the Federal Capital Territory, Abuja) and the respective Houses of Assembly (for each state of the federation).
In doing this, the Constitution provides for two distinct legislative lists with different subjects exclusively or concurrently assigned to either or both of the National Assembly and House of Assembly.
The National Assembly has the exclusive legislative power to make laws with respect to matters provided in the exclusive list. The National Assembly also exercises legislative powers over matters contained in the concurrent list, only to the extent provided for in the concurrent list.
In addition to the powers contained in the exclusive list and the concurrent list, the National Assembly is equally empowered to exercise legislative powers over matters that are expressly reserved for it by any provision(s) of the Constitution.
On the other hand, the House of Assembly is empowered to legislate on matters contained in the concurrent list, to the extent stipulated therein. In addition to this, a House of Assembly has the power to legislate on any other matters with respect to which it is empowered to make laws in accordance with any specific provision of the Constitution.
But more importantly, a State House of Assembly has the power to make laws with respect to any matter not listed in the exclusive list and/or the concurrent list or any matter in respect of which the Constitution has not vested legislative power in the National Assembly or the House of Assembly.
These other matters which are neither in the exclusive nor in the concurrent legislative list are called the residual matters.
In order to resolve this question, we must make recourse to the exclusive and concurrent lists together with specific provisions of the constitution.
It is however worthy of mention that there is no power of tax imposition conferred on either the federal or state government under the concurrent legislative list.
Furthermore, there is no specific provision of the constitution which imposes a tax on any entity in Nigeria. The field of this enquiry is therefore narrowed down to the exclusive legislative list.
Particularly with respect to the imposition of a tax, these powers are contained in items 16, 25, 58, and 59 (taxation of incomes, profits and capital gains). In essence, therefore, the tax imposition powers of the federal government are exhausted in the exclusive list whereas there is no tax imposition power in the concurrent list.
The net effects are: there is no confluence of tax imposition powers between the federal government and the states, the PIT is a federal tax, the tax imposition powers of the states can only be sourced from residual matters.
To further buttress the above points, Section 4(7) states the law-making powers of a state and limits same to matters outside the exclusive list; also, such powers are limited to the second column in part 2 of the second schedule.
We have pointed out earlier that under the second schedule, there is no power of tax imposition donated to either of the tiers of government.
Paragraph 7 of part 2 to the second schedule to the constitution further provides vests with the national assembly with the power to appoint collecting agents pursuant to its power to impose an income tax.
This underscores the wide powers given to the federal government in relation to tax imposition and appointment of collecting agents. Further to the above paragraph of the second schedule, the National Assembly enacted the Taxes and Levies (Approved List for Collection) Act (TALACA).
Under Part 2 of the second schedule to the TALACA, the state is only vested with the powers to collect personal income tax and nothing more.
Having clearly established that federal government has the exclusive power to impose PIT, one wonders if it can it be seriously contended that they do not have the powers to make laws regulating the extent of the amount payable or returnable to a taxpayer?
The power to do an act carries with it the inherent powers to determine the extent to which such an act will be done. If the federal government has the power to impose PIT, it also has the powers to determine the rate of imposition and also the extent of the amount to be returned to a particular taxpayer in deserving circumstances.
This is more so in view of the fact that PIT is a federal tax. In effect, any incursion by the states to challenge the Bill is without more contesting the lawmaking powers of the National Assembly.
It may be argued that the National Assembly cannot legislate to deprive a state of its constitutional revenue. Be that mis[conception] as it may, it should be borne in mind that the matter under focus here is different from a revenue allocation dispute strictly speaking.
In any event, and as to whether the federal government can incentivize a taxpayer with revenues accruable to the state, the answer remains in the affirmative. This is so because as long as what the federal government is doing comes under its law-making powers under the constitution, then it will be valid.
To further drive this point home, paragraph 1 to part 2 of the second schedule to the constitution provides that subject to the provisions of the constitution, the National Assembly may by an Act make provisions for the sharing of the public revenue.
Therefore, if the National Assembly has the powers to determine revenue allocation and the imposition of PIT, then there is no reason why the federal government should be barred from incentivizing individuals from the revenue which is accruable to any tier of government; as long as there is compliance with due process of law-making under the constitution.
Finally, while the National Assembly has the vires to pass such a law, whether, in reality, such a person who is not a taxable individual within the context of a scheming head of tax can take such benefit is the question we have resolved in the negative in the first limb of this write-up.
It will be different if the person qualifies as a taxable person under the relevant statute. In summary, it has been clearly established that in passing the bill, our lawmakers misconceived the operation of the PIT. It is therefore advised that the bill be recalled and amended to avert impending floodgate of tax disputes that will emerge should it be assented in its present form.
By Ifeanyi Ugwuanyi
Ifeanyi is a resourceful, industry-driven lawyer. He employs his expertise in advising clients in simple and complex transactions. He has an interest in Finance, Taxation, corporate/commercial and dispute resolution.