The amendment of the Personal Income Tax Act (PITA) was borne out of the recommendation of the Prof. Dotun Philips Study Group, and the Working G r o u p w h i c h r e v i e w e d k e y recommendations of the Study Group. The Reports of both Groups revealed that certain provisions of the Act are archaic, and hence cannot meet the challenges of modern tax administration. Further to this, the Personal Income Tax Amendment Act (PITAM) Bill, recommended by the Joint Tax Board as an Executive Bill, was forwarded by the Federal Executive Council (in consultation with the National Economic Council) to the National Assembly in 2005, along with eight other Bills seeking to amend existing tax laws. The Bills included the Companies Income Tax Amendment Bill, and the Federal Inland Revenue Service (Establishment) Act Bill.

It is instructive to note at this juncture that of the nine Bills sent for approval, the PITAM Bill stayed longest with the NASS. It is probably one of the most controversial bills passed by the National Assembly in recent times. Its vetting process started 8 years ago, passing through three Presidents, 4th, 5th, 6th and
7th NASS and four Ministers of Finance. In 2005, it was presented to the first Joint Public Hearing by both Chambers of the NASS. In 2010, it was represented to the
6th NASS, and went through the second Joint Public Hearing by both Chambers of the NASS.

In December 2011, the PITAM Bill was assented to by the President Goodluck Jonathan but was dated 14th June, 2011. This generated a lot controversy about an implementation date and the Joint Tax Board intervened to state that by 1st April, 2012 Taxpayers and Tax Authorities should be ready to start implementation.

One controversy, among others, was if the Amendment meant that taxpayers and withholding agents e.g. employers will be required to backdate and recalculate PIT and PAYE, and if they will be entitled to refunds.


The Amendment Act addresses some of the challenges in the Principal Act. It:

1. Brings the Personal Income Tax Act up to date with existing realities of the Nigeria economy

2.Introduces a more equitable tax system by providing realistic tax rates, and recommending an efficient and effective tax administrative system, and simpler tax laws. It empowers tax authorities to shift from direct to indirect taxation by lowering direct tax rates. In fact, the thrust of the Amendment is in line with the National Tax Policy of the Government which aims at tax burden reduction, equitable income redistribution, and a shift from direct to indirect taxation

3. Redistributes income by reducing the overall burden of low and middle income earners, shifting it to higher net worth individuals. This is in consonance with the principles of taxation has enunciated in Adams Smith's treatises

4. Introduces a simplified process of compliance which will enhance voluntary tax compliance and a subsequent increase in tax revenue generated

5. Introduces the Tax Appeal Tribunal
(TAT) which was established by Section
59 of the Federal Inland Revenue (Establishment) Act, 2007. The Tax Appeal Tribunal replaces the defunct Body of Appeal Commissioners in Section 14 of the PITAM, 2011. This body is established to adjudicate over disputes arising from the operations of the FIRS Act, and other Acts listed in its first schedule (PITA included). In other words, this provision of the amended Personal Income Tax Act only brings it in line with the existing provision of the FIRS Act. The TAT is now to provide an independent outlet for aggrieved taxpayers complaints, and speedy resolution of disputes

6. Increases the minimum tax payable from 0.5 per cent of total income to 1 per cent of total income in Section 37. The import of this is that low income earners e.g. National Youth Service Corps members, interns and contract staff are now to pay taxes

7. Broadens the mode of serving a Notice of Assessment on taxpayers in Section 57. It may now be sent by courier and email

8. Amends Section 10 of the PITA. Section 4 of the PITAM now defines the period of residency in Nigeria to include the period of annual leave or temporary period of absence. This clause now essentially captures itinerant tax avoiders and brings them into the tax net. Similarly, there is an amendment of the definition of “Principal Place of Residence” in the PITAM. An individual who works in the branch office or operational site of a company or other body corporate, the place at which the branch office or operational office or operational site is situated, which includes oil terminals, oil platforms, flow stations, factories, quarries, construction sites with a minimum workforce of 50 workers, shall be the Principal Place of Residence for purposes of charging personal income tax

The issue of residency is a topical one that deserves additional discourse. It would appear that the residency rule which obligates a taxpayer to pay to the relevant tax authority of where he resides still stands; what has now been amended is the principal place of residence which should be considered when an individual has more than one residence. A challenge with this amendment was if camps, hotels or restrooms, provided for an oil company employee by his employer for instance, qualify under the PITAM as a principal place of residence, given the PITA that provides that a place of abode shall exclude these places. The provision in the PITA still stands. Furthermore, an employee who maintains dual residence would appear to have a right to exercise discretion as to where he declares as place of residence in his employment records with an employer; this appears to compound the problem. The employer is bound in remitting the employee's PAYE to the relevant tax authority, in line with the employee's emolument records, in accordance with the provision of the Operation of PAYE Regulations S.S. 18 of
2002 No.104 and PITA.

A school of thought has opined that there is need for a shift from the residency principle to a derivative principle. It suggests that future amendments to the Personal Income Tax Act should not make residency the basis for charging personal income tax, but derivation. The case of the Federal Capital Territory (FCT) and the neighboring state of Nasarawa, for instance, have a majority of workers work in FCT but resident in Nasarawa territory like Maraba, New Nyanya and New Karu, with the implication of paying taxes to Nasarawa State despite spending majority of their time in the FCT and considerable use of its facilities.

9. Adjusts the period for which a refund of excess Withholding Tax should be made to within 90 days

10. Empowers the Minister of Finance in Section 30, on the recommendation of JTB, to make Regulations for the furtherance of PITA. Section 6 reinforces this with respect to Presumptive Tax Regulations

11. Introduces the presumptive tax regime, in Section 6, to make it easier to tax income by earners who find it r e l a t i v e l y d i ff i c u l t o r p r a c t i c a l l y impossible to keep records e.g. the informal sector

12. Requires Ministries, Departments and Agencies (MDAs), and banks to demand Tax Clearance Certificates (TCCs) - and by extension a Taxpayer Identification Number - in respect of certain transactions in Section 21. A Taxpayer Identification number (TIN) must be quoted on every TCC issued by a tax authority. There is a penalty of N5million or imprisonment or both upon conviction for any defaulting authority that does not request a TCC where one is required

13. Requires the President, Vice President and all other political office holders exempted from paying taxes to now do so

14. Amends the computation of tax under the Personal Income Tax (Amendment) Act, 2011. It shall now be based on the provisions of the sixth schedule of the Act as follows:
First N300, 000 taxed @ 7 percent Next N300, 000 taxed @ 11 percent Next N500, 000 taxed @ 15 percent Next N500, 000 taxed @ 19 percent Next N1, 600, 000 taxed @ 21 percent Above N3, 200, 000 taxed @ 24 percent
This amendment has a significant reduction of income of tax paid by low income earners.

15. Provides for the following as tax deductible income: National Housing Fund Contribution, National Health Insurance Scheme, Life Assurance Premium, National Pension Scheme and gratuities. Taxpayers can take advantage of these allowable deductions as there is no ceiling to the amount an income earner can contribute. It can be used as a tax avoidance scheme to the detriment of tax authorities

16. Increases statutory reliefs: N5,000 plus 20 percent of earned income is replaced with a Consolidated Relief Allowance (CRA) to be computed as the higher of N200, 000 or 1 percent gross income plus 20 percent gross income. The CRA has also substituted the previous relief allowances - housing allowances (N150, 000), transport allowance (N20,
000), entertainment (N6, 000), children allowance (N5, 000) etc. This provision of the PITAM is not specific on applicability. It would therefore seem the CRA is fully claimable by all individuals liable to pay income tax under the PIT Regime, regardless if they are in paid employment or self employed

17. Provides that Benefit in Kind (BIK) is to be considered in determining an employee's gross emolument for CRA in Section 5. The import of this provision is that Political Office Holders with a retinue of domestic staff, official cars and occupying official quarters, for instance, will have to pay taxes in respect of these benefits

18. Introduces stiffer penalties and offences geared towards enhancing compliance. These include, but are not limited to the following: A person who engages in bank business that fails to render returns or keep books is now to pay N500, 000 as fine (for corporates) compared to N5000 in the principal Act; failure to keep book of accounts is now an offence that attracts a fine of N500, 000 for corporates and N50, 000 for individuals; failure to demand a TCC and verify it, attracts a fine of N5 million or 3 years jail or both upon conviction

Conclusion and Suggestions

The thrust of the amendment is to bring the Personal Income Tax Act in line with existing realities in the Nigerian economy, and the National Tax Policy of the Government, which aims at tax burden reduction, equitable redistribution of income, promoting tax compliance, and a radical shift from direct to indirect taxation.

The advent of the PITAM is a good opportunity for employers to carry out a PAYE health check, and maintain a simple payroll structure for easy administration and annual consolidation. The era of the lengthy pay structure has passed, considering that irrespective of the structure adopted by employees, the new CRA has streamlined claim of tax reliefs and deductions. Employers with a policy that pays reimbursable expenses to employees through their payroll may have to reconsider their approach. It may also be necessary, in view of the PITAM, for employers to plan their BIK policy around non-cash benefits, and review pension policies, so that employees can take maximum advantage of the provisions of the amended Act.

In view of the PITA, there is likely to be a drop in PAYE to the tax authorities, hence tax authorities are enjoined to identify and register their taxpayers. The Joint Tax Board Taxpayer Identification Number (TIN) initiative is creating a robust taxpayer database that will assist tax authorities widen and deepen the tax net, and enhance voluntary compliance.