Nigeria: Voluntary pension contributions | KPMG | GLOBAL
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Nigeria: Voluntary pension contributions, addressing certain tax avoidance practices

Nigeria: Voluntary pension contributions

Nigeria’s Joint Tax Board (JTB) and the Lagos State Internal Revenue Service (LIRS) recently issued separate notices on their position on the adverse effect of voluntary pension contributions on tax revenue.


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A measure of the Pension Reform Act (PRA) 2014 provides that any eligible employee may, in addition to statutory contributions, make voluntary contributions to a retirement savings account.  A provision allows for the tax-deductibility of such pension contributions. However, any income earned on voluntary contributions made and withdrawn within five years would be subject to tax at the point of withdrawal (in contrast to an earlier measure that taxed voluntary contributions withdrawn less than five years after the date of contribution, and not merely the income earned on such contributions).

Addressing tax avoidance

The notices appear to have been triggered by a common tax avoidance practice of employees making uncapped voluntary contributions from their monthly salaries, claiming tax relief on the contributions made, and then subsequently withdrawing the voluntary contributions from their retirement savings account. The position of the JTB is that such practices are inconsistent with the PRA 2014, and are to be treated by the tax authorities as an “artificial transaction” under the individual (personal) income tax law. The LIRS reflected the same view in its notice, but also stated that only withdrawals from retirement savings accounts that fall under a section of PRA 2014 would be treated as tax-deductible (the subject section covers pension withdrawals by employees above 50 years of age and those below 50 years with specified health or employment challenges).


Read an August 2017 report [PDF 131 KB] prepared by the KPMG member firm in Nigeria

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