Emergency Economic Stimulus Bill 2020 A Floodgate To Tax Disputes By Ifeanyi Ugwuanyi

In view of the outbreak of Corona virus 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 1^st of March to 31^st of December 2020 will be entitled to a 50% income tax rebate[1] on total amount due or paid as PAYE[2] tax under Personal Income Tax Act (PITA)[3].

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. It is in view of the foregoing that this paper seeks to investigate the correct position of the law with respect to the scenario highlighted above. In doing this, we shall examine the nature of PIT particularly, PAYE scheme. We shall further inquire into the law making powers of the federal/state government as regards imposition and collection of PIT. Both enquiries will ultimately enable us determine: (a) Whether PIT is a kind of tax that an employer can legally benefit from – regards being had to the fact that the burden is on the employee.  (b) Whether the law making powers of the federal government as regards PIT is such that will enable the National Assembly incentivize a tax payer from the revenue that accrues to another tier of government without the approval of the latter tier of government.

1. 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[4] 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 source the tax liability of the employee and remit same to the relevant tax authority (RTA)[5], 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.[6]  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[7]. It is rather the assets of the employee in question that will be distrained since he is the one bearing tax liability. This shows clearly that while the tax burden is on the employee, duty to remit 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 a 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 PAYE scheme is simply that of a collecting agent and no more.[8] 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[9]. It follows therefore that since the employee is the only person that can legally challenge 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[10].

2. 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)[11]

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.[12] The National Assembly also exercises legislative powers over matters contained in the concurrent list, only to the extent provided for in the concurrent list.[13] 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.[14] On the other hand, the House of Assembly is empowered to legislate on matters contained in the concurrent list, to the extent stipulated therein.[15] 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.[16] 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,[17] 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[18]

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 tax on any entity in Nigeria. The field of this enquiry is therefore narrowed down to the exclusive legislative list.

Particularly with respect to imposition of 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 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[19].

Paragraph 7 of part 2 to second schedule to the constitution further provides vests the national assembly with the power to appoint collecting agents pursuant to its power to impose 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 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?[20] The power to do an act carries with it the inherent powers to determine the extent to which such 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 amount to be returned to a particular tax payer 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 tax payer 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 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 scheme 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 law makers 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.

[1] The term rebate ordinarily means reimbursement or repayment. Section 5 of the bill define rebate to mean 100% refund of employers income tax which shall be 50% of PAYE tax due or paid on employees of such employer who maintain the same status of employees from 1^st of March to 31^st December 2020 or such further period as the president may stipulate.

[2] Pay As You Earn

[3] See section 3 of the Emergency Economic Stimulus Bill 2020.

[4] Section 3 PITA

[5] See section 82 PITA.

[6] Section 81(2) and (3), Section 82

[7] This is anchored on the reasoning that an employer is not a taxable person within the contemplation of PITA. See NDDC V. RSBIR (2020) 3 NWLR Pt. 1711. 371 CA

[8] Worthy of mention is the fact that the essence of this kind of arrangement is for ease of tax administration otherwise the appropriate situation should be that each employee will be entitled to receive his salary at gross value and then proceed to the RTA to net off. In essence there will be nothing like net salary at the stage of employer/employee relationship phase. One can only imagine the level of complexities that a system like this will create together with the attendant revenue loss – due to tax avoidance or outright evasion. To save situations like this, both the PITA and the PAYE Regulation Scheme (subsidiary regulation made pursuant to PITA) are both consistent that en employer is merely a collection agent for the purposes of PAYE.

[9] Regulation 15, PAYE Regulation, 2002.

[10]This is on the assumption that the wordings of the Bill represent the intentions of the legislature otherwise the appropriate thing is to void the provision for ambiguity. In finding the intention of the legislature, recourse will only be had to the words used by the legislature and no more.

[11] Fasakin Foods Limited v Shosanya (2006) 4 KLR (Pt 216) 1447

[12] Constitution of the Federal Republic of Nigeria 1999 (1999 Constitution), s 4(3).

[13] Ibid. s 4(4)(a).

[14] Ibid. s 4(4)(b).

[15] Ibid. s 4(7)(b).

[16] Ibid. s 4(7)(c).

[17] Ibid. s 4(7)(a) and (b).

[18] They are residual because they are not provided for in either list. It is worthy of mention that matters in the residual matters are exclusive to the states.

[19] This is because the taxing provisions in the concurrent list merely prescribe how the taxing powers contained in the exclusive list would be exercised. See items 7 and 8 of the concurrent list. Item 8 enables the National Assembly to make laws to avoid double taxation by various states in respect of the powers that may be delegated to them to collect the taxes listed in item 7.

[20] That is the incentives in this case.