Tax Appeal Tribunal rules that withdrawal of voluntary pension may be taxable but it is not the responsibility of the employer

The Lagos Internal Revenue Service (LIRS) following a tax audit for 2013 and 2014 years of assessment issued a Notice of Refusal to Amend (NORA) to Nexen Petroleum Nigeria Limited (“the company”). The LIRS assessed the company to additional liabilities on the grounds that the company had under remitted Pay As You Earn (PAYE) tax by taking statutory tax relief for Voluntary Pension Contributions (VPCs) made by its employees to pension fund administrators (PFA).

The Tax Appeal Tribunal's decision addressed the following key issues:

1. That all pension contributions, including voluntary pension contributions without any limit, are tax deductible
2. There is no requirement for the employer to ensure that VPC was not withdrawn by the employee within a period of time to qualify for tax deduction on the contribution
3. That the agency responsibility of an employer to deduct and remit PAYE does not extend to any tax that may become payable upon withdrawal of voluntary pension contributions by an employee from the PFA

This implies that where any withdrawal of voluntary pension is taxable, it is the employee who will be responsible for the tax. It does not however preclude the tax authority from appointing a valid agent (including the employer) for future deduction of any applicable tax on such withdrawal.

Read our alert for more:

Download PwC Tax Alert_Voluntary Pension Contribution_June2019