The Lagos State Internal Revenue Service (LIRS) recently released series of circular on Tax matters with the aim of curtailing tax avoidances and providing explanations on salient areas in the Personal Income Tax Act (PITA). We will carefully look into this publication and get enlighten on tax as Tax matters require daily research. We shall look at the publications as it unfolds;
1. TAXATION OF EMPLOYEE LOAN
These are loan given by an employer to its employee with clear agreement on methods of repayment. The Section 3(1) (b) of the give rise to a benefit which is taxable in the hands of the employees. The Lagos State Internal Revenue Service requires that the employers compute tax on the difference between the rate of a loan to the adjusted Monetary Policy Rate (MPR) and remit to the relevant authority. Note that the adjusted MPR is MPR minus 3% and the tax deduction is based on payment terms which could be monthly or annually and it must be file alongside the annual returns.
Layman Understanding
The LIRS position is to receive tax payment on every loan release by an employer to its employee which is either zero percent interest rate or below to the market interest rate. Please note that loan above the Monetary Policy Rate (MPR) will not be subjected to additional tax.
Reasons for LIRS Position
Employer loan to its employees with no interest rate or below the Monetary Policy Rate is regarded as Benefit in Kind (BIK) and BIK, of course, passes through the tax table.
Reasonable removal expenses constitute any expense which an employee incurs to make to a new employment location and the payment made by the employer towards the expenses results in no net overall benefit to the employee. We can so to say that is any payment made on behalf of an employee taking up employment with a new employer such as relocation allowance.
Legal Basis
Section 4(3) c of PITA as amended 2011 exempt “reasonable removal expenses” from taxes. However, for “reasonable removal expenses to qualify for tax exemption” based on this notice, the employee must indeed move from his current residence to a new one, the payment made by the employer must be the exact actual cost incurred by the employer in relocating.
But any duplication, maybe temporary subsistence allowance which covers expenses that already incurred by the employer will be tax accordingly in the hand of the employee. Any employer that needs certainty on her tax treatment on the reasonable removal of expenses may submit their staff policy, guidelines and per diem rates to the LIRS for prior approval.
Disclaimer.
Please know that the information above is subject to review at any time and it is not directed to an individual, a body or an entity. Professionals should be engaged in the Payroll/PAYE Management of your establishment.
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