Lagos State Internal Revenue Service (LIRS) recently appointed all payers of capital sums as collection agents for Capital Gains Tax (CGT). This appointment takes effect on 1 January 2019. According to LIRS, employers will withhold and remit CGT from compensation for loss of employment payable to employees. Loss of employment comes in various forms. They include employees who;
- terminate a contract of employment,
- are dismissed, or
- are retrenched.
The capital sum is often subject to CGT.
Section 6 of Capital Gains Tax Act (CGTA) recognizes disposal of an asset as where an employee receives capital sum as compensation for loss of office or employment or where the person paying a capital sum does not buy an asset. Once an employee meets either threshold, CGT will be payable at ten percent (10%). Meanwhile, section 50 of PITA empowers the relevant tax authority to assign a person, in writing, as an agent for collection of tax from another person. Then, taxes will be withheld from the amount payable to another person. Under Section 43(1) of the CGTA, the provisions of PITA can be modified to suit CGTA. LIRS is relying on this provision. The arrangement tends to hold employers and paying party accountable for CGT since it may be difficult for LIRS to request tax payment from individual taxpayers.
LIRS requires collection agents to remit capital gains tax and make relevant disclosures in their annual tax returns. The public notice is only for taxpayers in Lagos State and persons paying a capital sum to an individual.