The Tax Appeal Tribunal (TAT or “the Tribunal”) sitting in Enugu recently delivered judgement in the case of Nigerian Breweries Plc (“the Appellant”) and Abia State Board of Internal Revenue (“the Respondent”) to the effect that gratuities are wholly tax-exempt under the Personal Income Tax (PIT) Act 2004 (as amended).
Section 3 of PIT Decree 104 of 1993 (now PIT Act, Cap. P8, Laws of the Federation of Nigeria (LFN), 2004), included gratuities as an income chargeable to Pay-As-You-Earn (PAYE) tax. However, Paragraph 18 of its Third Schedule exempts gratuity up to only N100,000 from tax, and thereby makes gratuity above N100,000 liable to PAYE tax. Following amendments introduced by the Finance (Miscellaneous Taxation Provisions) (No. 3) Decree 1996 (“the 1996 Decree”), the term “gratuities” was deleted from the list of chargeable incomes under Section 3 of the PIT Decree. This was reflected in the PIT Act LFN 2004 and retained in the PIT Act 2011 (as amended). Nonetheless, the provision of Paragraph 18 of the Third Schedule to the PIT Act remained unchanged.
Facts of the case
The Respondent imposed additional PAYE tax liabilities, inclusive of interest and penalties, on the Appellant following a tax audit conducted for the 2014 and 2015 tax years. The additional PAYE tax liabilities arose because the Respondent subjected gratuities paid by the Appellant to its retired employees to tax. The Appellant objected to the Respondent’s revised assessment, after which the Respondent issued a Notice of Refusal to Amend the alleged liabilities. Dissatisfied with the Respondent’s action, the Appellant filed an appeal at the TAT arguing that gratuity is no longer taxable under the PIT Act since the1996 Decree deleted it from the list of chargeable incomes and introduced a new exemption for all compensation for loss of office, thereby, rendering the provisions of Paragraph 18 of the Third Schedule to PIT Act redundant. The Appellant further argued that where there is a conflict between a section of a statute and a schedule thereto, the section will override the schedule.
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