Lagos State Internal Revenue Service (LIRS) recently appointed all payers of capital sums as Capital Gains Tax (CGT) collection agents, through a public notice, effective from 1 January 2019. LIRS specifically mentioned that employers are obliged to withhold CGT from amounts payable/paid to exited employees, as compensation for loss of employment, and remit same.
Even though capital sums, including compensation for loss of employment, are taxable under the Capital Gains Tax Act (CGTA) and not the Personal Income Tax Act (PITA), it would ordinarily be expected that payers of capital sums are not obliged to deduct CGT due thereof, as the obligation to withhold tax (either as PAYE or withholding tax) is only directly provided for in the PITA.
LIRS is however relying on Section 43(1) and the Schedule to the CGTA, both of which jointly appear to allow it import the provisions of Section 50 of the PITA to the CGTA. Section 50 of the PITA empowers the relevant tax authority, which in this case, the LIRS to appoint agents to taxpayers, who shall be obliged to account for tax due on amounts payable to the taxpayers.
LIRS requires the appointed collection agents to remit CGT deducted as and when due, and make relevant disclosures in their annual returns.
Please note that the public notice only relates to taxpayers resident in Lagos State and persons making capital payments to such persons.
Beyond this alert, please expect our newsletter which will provide in-depth analysis of the public notice and its implications for taxpayers.