by Nnamdi Oragwu , Patience Obiagbaoso and Favour Babajamu
PUNUKA Attorneys & Solicitors
Generally, the basis for imposing and collecting personal income tax under the Personal Income Tax Act as amended (PITA) in Nigeria is classified into two viz the residence and source. On this premise, income derived from, received in or brought into Nigeria are chargeable to tax in Nigeria under the Nigerian personal income tax regime.
The principle of residence which remains the focus here posits that there is sufficient nexus between a taxpayer and a relevant tax authority and where it is shown that a taxpayer resides in a particular State, the relevant State Internal Revenue Service becomes the appropriate authority for collection of personal income tax from such taxpayer. See Section 2(2) of PITA (as amended).
Thus, in an employment situation, the employer is obligated to remit the Pay as You Earn (PAYE) on behalf of its employees to the relevant tax authority. The procedure for remittance of PAYE and the filing of relevant returns appears seamless but challenges may arise where the taxpayer/employee has multiple places of residence or where the taxpayer resides in multiple jurisdictions. PITA clearly stipulates the test for determining principal place of residence in the case of multiple places of residence. The ultimate burden of proof in civil litigation remains on the party who institutes the action whilst the evidential burden of proof is predicated on the evidence adduced by the parties. In this piece, we will be examining higher degree of proof required in civil cases vis a vis the decision in Honeywell Flour Mills Plc (Honeywell) v Ogun State Internal Revenue Service (OGIRS).
The OGIRS commissioned an enumeration of Ogun State residents along its border areas, in the course of which it discovered some employees of Honeywell who were residents of Ogun State, but whose taxes were not remitted to Ogun State as required by law. The OGIRS subsequently notified Honeywell of this issue in writing stating the names found and a demand that their tax be paid to Ogun State. Upon Honeywell’s failure to respond to the demand, the OGIRS relying on best of judgment served an assessment notice on Honeywell alleging liability for PAYE taxes and development levy for the years 2011 to 2016 to the tune of N48,687,447.60. Honeywell objected to the assessment on the grounds that the OGIRS included Lagos State employees, unknown/unidentified persons and wrongful calculation of the penalty and interest. Further to a reconciliation meeting wherein the OGIRS requested Honeywell to provide satisfactory documentary evidence in support of its objection, the OGIRS issued a revised assessment notice increasing the tax liability to N133,612,401.73. Honeywell further objected to the revised assessment and the OGIRS upon receipt of the said Notice of Objection refused to amend its assessment and forwarded a Notice of Refusal to Amend (NORA) to Honeywell. Honeywell promptly filed an appeal at the Tax Appeal Tribunal (TAT) challenging the assessment for PAYE taxes and development levy for the years 2011 to 2016.
Argument by Parties
At the TAT, Honeywell argued amongst others that the initial assessment included its Lagos employees for whom tax had already been remitted to Lagos State; included unknown/unidentified persons; wrongly assessed fictitious 16 employees for Development levy for 2011 to 2016; and wrongly assessed the penalty and interest.
Honeywell opined that its employees were not resident in Ogun State and that from the cross-examination of its witness and the OGIRS’s final address, it was not in contention that “the proof of residency in Lagos were untrue”. Thus, Honeywell submitted that the trite rule of ‘[an] uncontroverted evidence [being] deemed admitted’ is applicable because the evidence of their employees’ residence was uncontroverted.
The OGIRS argued that it was not merely enough for Honeywell to claim that the employees added to the assessment were not resident in Ogun State from 2011 to 2016, rather that the assertion should be substantiated with evidence, such as acknowledged copies of employment letters, evidence of place of residence i.e. tenancy agreement and utility bills and Bank Verification Numbers (BVN) of the employees concerned as requested by the OGIRS after the reconciliation meeting. The OGIRS further argued that the annual employees return filed with Lagos State Internal Revenue Service (LIRS), revenue receipts for January-February 2016, revenue receipts for January – June 2015 and staff data form for 10 (Ten) staff only were never presented to substantiate Honeywell’s notice of objection rather, Honeywell only submitted same for the first time at the TAT through admission by it’s witness during cross-examination. Specifically, the OGIRS argued the annual employees return filed with the LIRS does not show evidence of the employees’ residence, no revenue receipts were presented for 2011 – 2014 and that the revenue receipts without more are not enough to show that the concerned staff were either resident in Ogun or Lagos State.
The Tribunal held that Honeywell failed to discharge the evidential burden of proof on it to establish that it has no employee resident in Ogun State from 2011-2016, as it can be deduced from the evaluation of the exhibits that Honeywell never tendered any further independent corroborative document such as a Lagos State Residents Registration Agency (LASRRA) Registration document, letter of employment, utility bills, tenancy agreement, voters registration card, or other evidence pertaining to its employees to show that they were resident in Lagos State and not Ogun State. The Tribunal opined that the annual returns filed with the LIRS, receipts of PAYE remittances to LIRS, list of employees were not sufficient to prove that the employees were not resident in Ogun State.
The decision in this case appears to have increased the requisites for proof of residence by taxpayers and the substantial discharge of the onus of proof by taxpayers.
In line with the provisions of Paragraph 15(6) of the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act, the decisions in Best Children International Schools Ltd v FIRS (2018) LPELR- 46727 , OWUH & ORS vs. IDU & ORS (2002) FWLR (Pt.94) 65; ONYENGE & ORS vs. EBERE & ORS (2004) All FWLR (Pt.219) 981; OGBU vs. WOKOMA (2005)7 SC (Pt.11) 123, the Tribunal held that the onus of proving that the assessment complained of was excessive remains on the appellant. Thus, Honeywell had the onus to prove that its employees were not resident in Ogun State for the relevant years of assessment and ultimately, that the assessment was excessive.
However, it is imperative to examine whether this burden was substantially discharged by Honeywell. In the instant case, Honeywell in its notice of objection challenging the initial assessment of N48,687,447.60 failed to support its objection with relevant documents to show that the assessment included Lagos employees, unknown/unidentified persons and wrongful calculation of the penalty and interest. In response to the revised assessment of N133,612,401.73, Honeywell merely attached to its notice of objection a list of 25 persons who are under its employment but are not resident in Lagos and another list of three persons who are unknown to it but are on the assessment list of the OGIRS. Honeywell subsequently filed additional documents such as annual returns for personal income tax for the years 2012 – 2016, copies of receipts of PAYE Tax Remittances (2011 – 2016), Staff Data Form for only 10 out of all its Employees (note that the assessment by the OGIRS was in respect of 36 employees), only stating the address of residence indicated by the 10 employees at the point of employment, but which does not indicate any subsequent updates to the information provided at the point of employment to show that the employees have not changed their residence since the date of their employment.
The Tribunal noted that Honeywell ought to have tendered further independent corroborative documents such as a Lagos State Residents Registration Agency (LASRRA) Registration document, letter of employment, utility bills, tenancy agreement, voters registration card, or other evidence pertaining to its workers to show that they were resident in Lagos State and not Ogun State. Notwithstanding the fact that Honeywell failed to file its relevant documents in support of its notice of objection, it is uncertain why the annual returns, receipts of PAYE tax remittances to the LIRS for some relevant years subsequently filed will constitute insufficient evidence in proof of the residency of its employees.
The law is trite that in civil cases, the burden of first proving the existence or non-existence of a fact lies on the party against whom the judgment of the Court would be given if no evidence were produced on either side, regard being had to any presumption that may arise on the pleadings – Section 137(1) of the Evidence Act.
Thus, if such party adduces any evidence which ought reasonably to satisfy the court that the fact sought to be proved is established, the burden then lies on the party against whom judgment would be given if no more evidence were adduced and successively, until all the issues in the pleadings have been dealt with. This is the clear position of the law as enunciated in YIWA v. TATA (2018) LPELR-44669(CA). Hence, evidence to establish a fact ought to be credible and sufficient to discharge the burden of proof based on the standard of preponderance of evidence considering which side outweighs the other side on the imaginary scale of justice. Dibiamaka v. Osakwe (1989) 3 NWLR (Pt.107) p.101 at p.113;
Jiaza v. Bamgbose (1999) 7 NWLR (Pt. 610) 10 NWLR (Pt.1202) p.412; Ayorinde v. Sogunro (2012) LPELR – 7808(SC)
We note however that after the reconciliation meeting, Honeywell updated its records and forwarded an additional list of 25 employees resident in Ogun State and that it was on the basis of the said list that the OGIRS issued a revised assessment. The said list was not challenged by Honeywell during cross examination neither did Honeywell provide proof that the individuals listed in the OGIRS’s assessment were not resident in Ogun State.
The decision in Honeywell’s case appears to have increased the requisites for proof of residence by taxpayers and the substantial discharge of the onus of proof by taxpayers from the known balance of probabilities accustomed to civil cases. This is inferred from the position of the Tribunal that further independent corroborative documents such as the State Residents Registration Agency Registration document, letter of employment, utility bills, tenancy agreement, voters registration cards.must be adduced that irrefutably and incontrovertibly establishes the residence of the taxpayer.
As such it appears from this decision that it is immaterial that evidence of annual returns, PAYE receipts or remittances properly so filed in another state is adduced without any further evidence. As opined by the Tribunal, further independent corroborative documents such as the State Residents Registration Agency Registration document, letter of employment, utility bills, tenancy agreement, voters registration card, or other evidence pertaining to the specific employee residence would be submitted by the taxpayer in discharge of the onus proof. This appears to imbue on the taxpayer a higher degree of proof than is required in civil cases beyond the permitted exceptions of proof beyond reasonable doubt upon allegation of crime in a civil case1, claim of special damages2 and special interests. Specifically, where there is an allegation of crime in a civil case, such allegation must be proved beyond reasonable doubt as is obtainable in criminal matters. Any claim of special damages or special interest also requires a higher degree of proof as same must be pleaded and strictly proved.
Thus, until this decision is reviewed, it appears that taxpayers opposing any PAYE assessment on the ground of non-residence will in addition to objecting with evidence of remittances to the relevant tax authority, annual returns etc need to adduce further evidence to corroborate the non-residency of its employees.
1. See Agbaje v Fashola (2008) 6 NWLR (pt. 1982) 90 at 147 para E, Akeredolu v Mimiko (2014) 1 NWLR (pt 1388) 439 paras C-D
2. Khawan v. Akinkugba (2002) FWLR (pt 109) 1574
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