Fuel subsidy noisemaking and the tax dimension

In this era of fuel subsidy removal, perhaps we should wisely face where our stomachs are facing and pay our personal income taxes to the State where our economic activity takes place and stop further subsidy to the bedroom.

THE counsel of the elders admonishes us to face the market and not the noise in order to avoid any distraction from the main issues. However, in this instance some of the noisemaking, amusing as they are, deserve some “facing” in view of their various tax dimensions. Three are sufficient for the present purpose.

The first, which is considered most ignorant and totally off-point is that because sometime in the recent past in one of the protest centres, protest was led by a Pastor, then it meant, therefore, that he was using the offerings and tithes paid in his church to facilitate the protest and therefore churches should now be taxed. Were there no Muslims on the podium during the protest? There were surely many Muslims on the podium canvassing and expressing support for the protest. Are tithes and offerings income to the church for it to be taxed? Is the church engaged in business and its earnings are now called tithes and offerings? What are tithes and offerings? They are donations and are allowable deductions from the donor’s profit for tax purposes under section 25 (5) (c) of CITA 2004 being donations to an ecclesiastical institution.

The second is that fuel vouchers should be distributed to the poor. Who are the poor? Is it the middle class that pay many school fees of many relations or the one that subsidises the life of numerous members of the extended family? Is there an identification mark for the poor? Why not food vouchers? Would this “poor” man be employed or unemployed? Is this a non-taxable benefit in kind? Would it be some form of transport allowance? From which employer? What exactly is this fuel voucher about?

The third is all about fiscal federalism, the derivation principle that the subsidy payment be allocated on the basis of consumption per state and the residency question. It is about giving the state of origin the share of each person’s subsidy savings irrespective of living in another state and making a living and a fortune in that other state. This must lead inevitably to the residency question in personal taxation. Section 2 (2) of the Personal Income Tax Act of 2004 provides that an individual shall be imposed tax for any year of assessment by the “state in which the individual is deemed to be resident”. This principle should apply in case this funny subsidy proposition is bought.

Residence of an individual in a Nigerian component State need not be merely physical. It can be “deemed”. The case of KARAM V. COMMISSIONER OF INCOME TAX (1946-49) 12 WACA 331 at 337, even states that residence may be “derived from” where profits arise from transactions carried out where the individual is not physically present. This argument stems from the concept of economic allegiance first propounded by Peter Harris of the University of Cambridge in the United Kingdom.

The doctrine of economic allegiance suggests that those who benefit from government services in any State are obliged to fund the government. Put in another way, a particular government has no justification, no jurisdiction to tax unless there is an appropriate connecting factor, that is, a recognised basis of economic allegiance arising. Taxation may also be based on economic allegiance arising from activities taking place within a particular jurisdiction, in the context of an income tax; these are activities giving rise to producing income, referred to as the “source of income”.

In one sense, “source” is used to mean the activity from which the income arises. In a second sense, “source” is used to mean the geographical location of that activity. The doctrine of economic allegiance is debatable and the jury is still out to determine its effectiveness under domestic law. Would it apply, for example, to those who work and earn a living in Lagos State but live and sleep in Ogun State? Should their taxes be remitted to Ogun State by their employers in Lagos State who are obliged to register for the Pay As You Earn purposes with the State Internal Revenue Service nearest to its place of business for the purpose of paying taxes deducted from employees’ emoluments in accordance with Paragraph 1 of the PAYE Regulations of 2002?

Should the tax collected in one State from a business activity in that State be remitted to the State of Origin or where one merely sleeps? Where is our home and where exactly do we reside? Should there be an apportionment of time, tax and subsidy between where one’s economic activity takes place, where the living activity takes place or the state of origin? Will the doctrine of economic allegiance override the statutory provision in section 2 (2) of PITA 2004 or will simply modify it on the basis of the justice of the matter? The doctrine raises the potential for a double or multiple imposition of income tax where a person owes economic allegiance to many states or has a divided allegiance.

In this era of fuel subsidy removal, perhaps we should wisely face where our stomachs are facing and pay our personal income taxes to the State where our economic activity takes place and stop further subsidy to the bedroom. Hopefully our wives, spouses and female companions will understand and be kind enough to read “Hard times” by Charles Dickens.

M.T. Abdulrazaq is a Professor of Taxation and member of the Editorial Advisory Board of Naija Times. Email: [email protected]