Taxation of Income on Securities: Notice of Change in Law + Administration
Lagos State’s Internal Revenue Service (LIRS) recently issued two Public Notices.
The first Public Notice notified the public of the expiration of Nigeria’s 10years personal income tax (PIT) exemption on income earned on securities. The exemption which ended on January 1, 2022, was by virtue of the PIT (Exemption of Holders of Bonds and Short-Term Government Securities) Notice, 2011] (PIT Exemption Notice). The PIT Exemption Notice which took effect on January 2, 2012, exempted from PIT, the income or interests earned on:
- all short-term securities, such as treasury bills and promissory notes issued by the Federal Government of Nigeria (FGN); and
- bonds issued by corporate bodies and Government, that is, Federal, State, Local and Supranationals.
The Public Notice requires all affected Lagos State residents to duly declare and pay the appropriate PIT on their income from securities, save for payment on income on FGN Bonds. The latter which will continue to enjoy the exemption granted by Paragraph 31A of the Third Schedule to the PIT Act, 1993 (as amended).
Significantly, the Public Notice notified Collecting Agents under the Withholding Tax (WHT) Regulations to:
- deduct 10% (ten percent) WHT from the resulting interests or other payments made to relevant Lagos State residents; and
- remit the deductions to the LIRS within 30days of the deduction; and
- https://etax.lirs.net/login), the Schedule of all deductions and remittances made. It is noteworthy that this filing requirement is a new compliance obligation for Collecting Agents that deal with relevant Lagos State residents.
The second Public Notice notified the public of the chargeability of 10% (ten percent) capital gains tax (CGT) on the chargeable gains made from the qualifying disposal of the shares of companies incorporated under Nigeria’s Companies and Allied Matters Act, 1990 (as amended). This is by virtue of Section 2 of the Finance Act, 2021 (FA21) which removed the long-standing CGT-exemption of gains made from the sale of shares, save where, the:
- proceeds from the sale (or relevant part thereof) are reinvested, in the same year, in the purchase of the shares of the same or other Nigerian companies; or
- aggregate proceeds from the disposal(s), in any 12 consecutive months, is less than N100million; or
- securities are transferred between an Approved Borrower or Approved Lender in a Regulated Securities Lending Transaction in Nigeria.
The Public Notice requires all affected Lagos State residents to:
- duly declare their gains from the sale of shares in their annual PIT Returns filing (due by March 30 of the succeeding year); and
- within 30days of the sale of the shares, pay applicable CGT to LIRS through its e-Tax Platform.
Significantly, the Public Notice invoked the powers of the LIRS under Section 50 of the PIT Act[BO5] (extendable to CGT administration by Section 43(1) of the CGT Act, 1967 (as amended )) by appointing Stockbrokers and other Capital Market Operators as LIRS’ Agents for filing Returns on shares sale transactions made by or on behalf of relevant residents of Lagos State. This new compliance obligation of Stockbrokers and other Capital Market Operators is due bi-annually in June and December.
The LIRS Public Notices creates new compliance obligations for the following categories of persons and or businesses:
- Lagos State residents who make chargeable gains on disposal of qualifying sale (<N100million) of the shares of a Nigerian company who are now required to pay the applicable CGT to LIRS within 30days of the sale of the shares.
- Collecting Agents under the WHT Regulations who are now required to, in respect of their Lagos State resident clients, compulsorily file on LIRS’ e-Tax Platform, the Schedule of all WHT deductions and remittances made from the interests or other payments on all securities sale, save for those made on the sale of FGN Bonds.
- Stockbrokers and other Capital Market Operators who are now required to bi-annually (June and December) file Returns on the sale of shares made by or on behalf of their Lagos State resident clients.
LIRS’ directives are within its administrative powers to make while taxpayers are at liberty to engage and challenge the LIRS where they are unsure of their liabilities or obligations. For example, it is arguable that the expiration of the PIT Exemption Notice does not affect the continuing validity of Paragraph 31A of the Third Schedule to PITA (as introduced by Section 33 of the Personal Income Tax (Amendment) Act 2011 ) which exempts from PIT, the income/interests earned on bonds and short-term securities issued by all of Government (Federal, State, Local, Agencies and Supra-nationals) and corporates. This provision remains abiding and unchanged under the PIT Act.
Further, the obligation placed on Lagos State residents to pay applicable CGT to LIRS within 30days of the realization of the chargeable gain is against the grain of the Section 2(4) of the CGT Act, 1967 (as amended) (as introduced by Section 2 of FA21). These provisions impose a bi-annual (June 30 and December 31) payment and filing obligation on the taxpayer, rather than the monthly payment obligation sought by LIRS.
Please do not treat the foregoing as tax advice as it is only an expression of our Tax Information Service. All enquiries should please be directed to our TaxThursday Desk at firstname.lastname@example.org; +234 700 TAXAIDE or any of our following personnel: