Changing 'Gross Emolument' to 'Gross Income': Personal Income Tax Charge and Administration Issues

Abstract

This Article reviewed one of the notable modifications to the Personal Income Tax Act,1993 (as amended), introduced by the Finance Act, 2020. In what appears to be a slight change, the phrase "gross emolument" has been substituted with "gross income" (the “Amendment”). The Amendment will affect the consolidated relief allowance the law grants to individual taxpayers (now to be claimed on what is left after tax deductions), and consequently, the personal income tax computations. This otherwise slight change will have a considerable implication on taxpayers as it will increase the tax amount payable by individuals and thus shrink their disposable income. As expected, the States, starting with Lagos, are already implementing the Amendment. While the Amendment is coherent and consistent with the law, implementing the same in the manner stated in the Public Notice that the Lagos State Internal Revenue Service issued would create intractable administrative issues and may, in fact, compel employers to breach employees’ constitutional privacy right. It is thus suggested in this Article that, while the Amendment should be sustained, the Notice should be jettisoned or revised to address the issues identified here.

Keywords: Tax, Personal Income Tax, Gross Emolument, Gross Income, Consolidated Relief Allowance.

JEL Classification: K34