The Lagos State Inland
Revenue Service (LIRS) issued a public notice to all employers, company owners
or their representatives, employees, high net worth individuals and
other members of the public.
Definition
Employee loans are
loans given by an employer to an employee for specific reasons with the
expectation that such loan will be repaid in full to the employer through a
pre-agreed deduction from the employee’s net salary, with or without any interest.
Legal basis
Section 3 (1)(b) of
the PITA imposes tax on any salary, wage, fee, allowance or other gain or
profit from employment including compensations, bonuses, premiums, benefits or
other perquisites allowed, given or granted by any temporary or permanent
employee. More often than not, an employer may offer loans to it employees at
an interest rate lower than the market interest rate or zero percent interest
rate. This arrangement gives rise to a benefit which is taxable in the hands of
the employees.
Compliance Requirements
1. Deduction of PAYE: The
employer is required to compute tax on difference between the rate on such
employee loan and the adjusted Monetary Policy Rate (MPR) and remit to the
relevant authority. The adjusted MPR is MPR minus 3%. The obligation to deduct
tax on the difference depends on payment terms:
-
Where the payment is on a monthly basis, the
tax(the difference between the rate on the loan and the adjusted MPR) should be
assessed by the employer on a monthly basis;
-
Where the payment is on and annual basis, the
benefit should be assessed by the employer on an annual basis.
2. Reporting Obligation: Every
employer is required to file, alongside their annual returns, a schedule
showing the information on its employee loan and the payment terms.
3.
Other
Issues:
a)
Applicability: This
provision will apply to directors and employees of a company and will continue
to apply to even after the relationship with the company has been terminated as
long as the loan remains unpaid. The principle will also be applied to
significant shareholders.
b)
Any employee loan with interest above the adjusted
MPR or at commercial rates will not be assessed to any additional benefit for
the employees receiving such a loan.
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