Section 1 of the Personal Income Tax Act (PITA) Cap P8 LFN 2004 (as amended) imposes tax on the income of individuals, communities, families and trustee or agent. The Act defines Individual as a corporation sole and a body of individuals but does not include a company, partnership, community, family, trustee or executor, or any body of trustees or executors. This tax is payable for each year of assessment on the total income of individuals…….deemed to be resident for that year in the relevant state……. Section 2 (2) further provides that In the case of an individual, other than an itinerant worker and persons covered under paragraph (b) of subsection (1) of this section, tax for any year of assessment may be collected only by the State in which the individual is deemed to be resident for that year under the provisions of the First Schedule to this Act….
This provisions clearly shows that the tax on income of an individual will be paid in the place of residence.
- PLACE OF RESIDENCE
The First Schedule to the Act defines place of residence in relation to an individual as a place available for his domestic use in Nigeria on a relevant day, and does not include any hotel, rest-house or other place at which he is temporarily lodging unless no permanent place is available for his use on that day. This schedule makes provisions for how to determine the residence of an individual by dividing income into the following categories:
- Nigerian Employment
Paragraph 3 of the First Schedule to PITA states that an individual who holds a Nigerian employment on the 1st day of January in a year of assessment, or who first becomes liable to income tax in Nigeria for that year by reason of his entering that employment during that year, shall be deemed to be resident for that year in the territory in which he has a place or principal place of residence on that day.
- Other Earned Income
Paragraph 6 of the first schedule provides that an individual that has other sources of income in Nigeria, other than an employment, will be deemed to be resident for a year in the territory in which he had a place or principal place of residence on the 1st of January in that year. The paragraph however has the following conditions:
– If the source of the income is first acquired by the individual during the year of assessment, and he had no place of residence on the first day of that year, he shall be deemed to be resident for that year in the territory where he first establishes a place of residence during that year; and
– In any other case, the individual shall be deemed to be resident for that year in any territory from which any part or the whole of his earned income arising in Nigeria is derived, if the income is derived from more than one territory.
- Corporation Sole or Body of Individuals
Paragraph 9 of First Schedule 1 to PITA provides that a corporation sole or body of individuals other than a family or community shall be deemed to be resident for a year of assessment in the territory in which its principal office in Nigeria is situated on the first day of January in that year or, if it has no office in Nigeria on that day, in a territory in which any part or the whole of its income liable to tax in Nigeria arises for that year.
- Unearned Income
According to the law, an individual (other than a corporation sole or body of individuals) who has no employment income but has source(s) of unearned income, will be deemed to resident in the territory in which he has a place or principal place of residence on the 1st day of January of the year of assessment. Paragraph 7 also gives 2 other provisions in respect of unearned income as follows:
– If all the unearned income of the individual for that year arises in one territory, and he has no place of residence on that day, he shall be deemed to be resident for that year in that territory;
– If the unearned income of the individual arises for that year in more than one territory, and he has no place of residence on that day, he shall be deemed to be resident .for that year in the territory from which any part of the unearned income arises
2. PRINCIPAL PLACE OF RESIDENCE
The PITA envisages a situation whereby it will be difficult to determine the place of residence of individual. This is possible in a situation whereby spend some days in 2 different territory (but not at the same time).
Therefore, Paragraph 1 of the First schedule to PITA provides that Principal place of residence in relation to an individual with two or more places of residence on a relevant day, not being both within anyone territory means:
– In the case of an individual with no source of income other than a pension in Nigeria, that place of those places in which he usually resides
– In the case of an individual who has a source of earned income other than a pension in Nigeria, that place of those places which on a relevant day is nearest to his usual place of work;
– In the case of an individual who has a source or sources of unearned income in Nigeria, that place of those places in which he usually resides;
– In the case of an individual who works in the branch office or operational site of a company or other body corporate, the place at which the branch office or operational site is situate.
Operational site includes; Oil terminals, Oil Platforms, Flow Stations, Factories, Quarries, Construction site with a minimum of 50 workers etc.
It is clear that according to the PITA, it is the place or principal place of residence of an individual that determines the territory where tax will be paid and not where the place of work is.