Nigerian Taxation Law And Financial Products Newsletter

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Tax Relief Allowances in Nigeria: What Corporate Employers Should Know March 2009 Vol. 22: Issue # 3 Virtually all modern tax codes make provisions for “tax relief” allowances to cushion the effects of various taxes and instrumentalities imposed by government. The Nigerian tax code is no exception. Under Nigerian tax laws, tax relief allowances cut across family, life assurance, pension, rents, those living with dependants, leave allowance for the employed, meal subsidy, entertainment, and utility. Under the guidelines issued by the Nigerian Joint Tax Board (JTB), direct tax relief allowance is fixed at 20 percent of earned income plus N5,000. In addition, a family of our is entitled to a tax relief of N2,500 per child up to a maximum of four children. Given that the average number of children in a Nigerian family is six children and that many Nigerian families have more than four children, this provision is inconsistent with cultural and social realities. For families with other dependants, the guideline provides for tax relief of N2,000 per dependant up to a maximum of two dependants. Again, this

provision is out of step with the sociocultural norms in Nigeria. For Nigerian tax payers who have life assurance policies, the guidelines provides for a 100 percent tax relief for the sum paid. Similarly, 100 percent of sum paid for pension contribution is given as tax relief. Other allowable tax reliefs include transportation (maximum of N20,000 per annum), rent, leave (maximum of ten percent of annual basic salary), meal subsidy, utilities, entertainment, interest on loans, et cetera. Tax practitioners in Nigeria generally agree that majority of tax payers in Nigeria are unaware of the numerous tax reliefs recognized by the Nigerian tax code. Indeed, many employers are unaware of the tax reliefs. Most employers fail to give their employees forms relating to their taxes. It is not unusual for employees to be paid without pay notifications (often described in local parlance as “pay slips”) to guide them on the amount they pay as tax. In the few instances where pay notifications or pay slips are issued to employees, tax reliefs are not issued simultaneously so that employees can fill them. This boils down to a frequent issue confronted by tax practitioners: how can a Pay As You Earn (PAYE) taxpayers know what to pay or access as

©Blackfriars LLP 2008. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.

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relief if they receive their wages as cash or by cheques? The result is that the Nigerian regime is riddled with loopholes which enable official extortion and arbitrariness. The situation calls for more efforts on the part of both tax authorities and employers to educate employees to know that these tax reliefs exist.

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©Blackfriars LLP 2008. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.