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Nigeria: Tax treatment of employment terminal benefits (Delta State)

Nigeria: Tax treatment of employment terminal benefits

Delta State Board of Internal Revenue (DSBIR) issued guidance on compliance requirements for employers who pay “compensation for loss of employment” to employees who reside in Delta State.


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According to the DSBIR, the guidance was viewed as being necessary because of perceived ambiguity in a provision to the individual (personal) income tax law—a provision that exempts any compensation for loss of employment from tax.

The DSBIR guidance classifies compensation for loss of employment as either “terminal benefit” or “termination benefit.”

  • The term "terminal benefit" is defined as a retirement or resignation lump-sum payment (such as a pension and gratuity) and based on pre-defined terms and satisfactory performance of employment duties.
  • The term "termination benefit" is defined as a redundancy lump-sum payment accruable on premature termination of an employment or contract.

The DSBIR’s view is that a terminal benefit is revenue and taxable under the individual income tax law, whereas a termination benefit is capital in nature and taxable under the capital gains tax law.  The DSBIR further stated that compensation for loss of employment will only qualify for an exemption from income tax if the amount paid was not pre-agreed, and that any pre-agreed payment would be subject to capital gains tax.

The guidance directs employers that pay a capital sum as compensation of loss of employment, to deduct and remit the capital gains tax due on such payments, to the DSBIR, within seven days from the date the payment was made.

Read a September 2019 report [PDF 156 KB] prepared by the KPMG member firm in Nigeria

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