The Tax Appeal Tribunal has on the 20th day of June, 2019 ruled that gratuity is not liable to personal income tax. This decision by the tribunal was made in the case between Nigerian Breweries PLC and Abia State Board of Internal Revenue in appeal number TAT/SEZ/002/17

Abia State Board of Internal Revenue notified Nigerian Breweries PLC of its intention to commence an audit exercise for the years 2014-2015 in relation to Pay-As-You-Earn (PAYE) and withholding tax as well as the appointment of tax consultants – Yesufu Ahmed & Co – to carry out the audit. Upon conclusion of the audit exercise, the Abia State Board of Internal Revenue issued an assessment in the sum of Ten Million, Forty-Nine Thousand, Six Hundred and Forty-Four Naira, Forty-Five kobo (N10,049,644.45). The assessment comprises outstanding PAYE obligations including penalties and interests.

In response to the assessment, Nigerian Breweries Plc stated that the assessment was wrong in law because:
(a) Abia State Board of Internal Revenue did not take into account statutory reliefs such as interest on mortgage loans, pension and
(b) life insurance and consolidated tax reliefs were not properly computed
in response, Abia State Board of Internal Revenue requested for more information from the Nigerian Breweries Plc following which it issued a revised assessment dated 24th April, 2019 revising the Nigerian Breweries Plc’s tax liability from (N10,049,644.45)to Three Million, Two Hundred and Sixty-Three Thousand, Eight Hundred and Thirty-Seven Naira, Ninety-Two kobo (N3,263,837.92). in arriving at the reassessment, the Abia State Board of Internal Revenue subjected gratuities paid by the Nigerian Breweries Plc to its retired employee to tax
the appellant again objected to the reassessment on the following grounds:
(a) gratuity which was subject to tax under the 1993 Personal Income Tax (PITA) was no longer subject to tax by virtue of the Finance (Miscellaneous Taxation Provisions) Decree No. 32 of 1996 which deleted gratuities from chargeable income
(b) the effect of the deletion rendered schedule 3, paragraph 18(b), to the PITA, which subjected gratuities in excess of One Hundred Thousand Naira (N100,000) since gratuity was no longer taxable
in response to the Appellant’s objection, Abia State Board of Internal Revenue served the Appellant with the Notice of refusal to Amend (NORA), the appellant then appealed to the Tax Tribunal seeking tow reliefs:
a) an order discharging the assessment noticen issued by the Abia State Board of Internal Revenue and
b) a declaration that by virtue of Decree 1996 all gratuity are tax exempt

The tribunal first determined the second relief and instantly refused same. It held:
“since this appeal is determinable under PITA, Cap P8 LFN, 2004 and knowtowing to the maxim of les posterior derogat priori (meaning, a later law takes precedence over an earlier one) the tribunal does not deem it necessary to grant this relief and it is hereby refused.”
On the first relief, the court began by producing the provision of section 3 of PITA which provides thus:
Subject to the provisions of this Act, tax shall be payable for each year of assessment on the aggregate amounts each of which is the income of every taxable person, for the year, from a source inside or outside Nigeria, including, without restricting the generality of the foregoing-
(b) any salary, wage, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums, benefits or other perquisites allowed, given or granted by any person to any temporary or permanent employee other than so much of any sums as or expenses incurred by him in the performance of his duties, and from which it is not intended that the employee should make any profit or gain

Paragraph 18 of 3rd schedule of the Act provides that
Gratuities payable to an employee in the private sector in respect of services rendered by him under a contract of service with his employer and described as gratuities either in the contract or some other document issued by or on behalf of the employer in connection with such contractor:
Provided that-

(a) ….
(b) where the total gratuity payable exceeds the amount of N 100,000 the amount of any excess shall not be so exempt but shall be deemed to be income of the employee on the last day of his employment, including any terminal leave arising therefrom;
(c) where the period of service (or where service is not continuous, the aggregate period of service in any 63 consecutive months) does not amount to five years, then, if the total gratuities exceed a sum calculated at the rate o f N 1,000 per annum for such period or aggregate period the amount of any excess shall not be so exempt but shall be deemed to be income of the last day of the employment, including any terminal leave arising therefrom.
Every tax legislation has a chargeable section and the court after reviewing replete of decided case outside Nigerian jurisdiction and concluded that a chargeable section must have the following:
a) It is a foundation and condition precedent for any tax liability to be imposed
b) Charging section guides the machinery sections of the enabling law
c) A subject cannot be taxed unless the charging section clearly and unambiguously imposes obligations
d) Tax obligation is based on it, any tax imposed outside it amounts to imposing of fiction and
e) Absence of charging subject from the charging section summarily discharges a wrongly assessed entity from tax liability.
A fortiori, since gratuity has been deleted or excluded from the charging sections, it is safe to apply the maxim expression unius est exclusion alterious (meaning, the express mention of one thing means the exclusion of another). The court relied on Buhari v. Yusuf (2003) LPELR-81 where the Supreme Court held:

“The principle is well settled that in the construction of statutory provisions, where a statute mentions specific things or persons, the intention is that those not mentioned are not intended to be included. This is the expressio unius est exclusio alterius rule, meaning that the express mention of one thing in a statutory provision automatically excludes any other which otherwise would have been included by implication.”

On the strength of this Supreme Court position and from other judicial and statutory supports already mentioned or cited,” gratuities” are automatically excluded from the charging section of the PITA.

The tribunal further determined another question as to what happens when the tax is not charged in the charging section but is taxable wholy or partially in the schedule to the law. The court opined that paragraph 18, 3rd schedule to the constitution which provides that any amount on gratuity paid which is in excess of N100, 000 is taxable contradicts section 3 of the PITA therefore inapplicable to the Appellant and placed reliance on AC & ANOR V. INEC (2007) LPELR-66(SC among others.
The tribunal further considered the mischief rule and asked the following questions:

I. How did the law stand before the extant Personal Income Tax, Cap P8 LFN, 2004?
II. What was the mischief for which PITA 2004 did not provide?
III. What remedy did PITA 2004 provide to cure the mischief?
The answers to these questions are obvious:
I. The stand of the law before the charging section captured in section 3, PITA of 1993 was that gratuities were chargeable under section 3 PITA
II. PITA of 1993 did not provide for exemption of gratuities from personal income tax
III. The remedy provided by PITA 2004 was the deletion of gratuities from the charging section of PITA of 1993 in order to cure the mischief
So by applying the mischief rule of interpretation, the same result enures, that is: Gratuities are tax exempt under the extant Personal Income Tax Act. Issue (c) as framed by the tribunal therefore, is resolved in favour of the Appellant.

Consequently, an order was made discharging the revised assessment issued by the Abia State Internal Revenue to the Appellant.

Folajimi Olamide Akinla of PWC Appellant
Obike Onyemere, Esq. Respondent

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