The Supreme Court of Nigeria has held that the State taxing authority, and not the Federal taxing authority, is vested with the power to collect personal income tax from itinerant workers.
In Federal Inland Revenue Service (FIRS) v. Attorney General of Bayelsa State & Anor, a five-member panel of the apex court (Saulawa, Abubakar, Agim, Ogbuinya and Abiru, JJSC) affirmed that the Bayelsa State Board of Internal Revenue is the appropriate tax authority to collect the Pay As You Earn (PAYE) tax of employees of Pacific Inter Drilling West Africa Limited (PIDWAL) and the Nigeria Content Development and Monitoring Board (NCDMB) working at the Agbami Oilfield. The court resolved the issue in favour of the respondents.
How the dispute arose
The appellant, FIRS, is the federal tax authority. The respondents are the Attorney General of Bayelsa State, the State’s chief law officer, and the Bayelsa State Board of Internal Revenue, the State’s tax authority (2nd respondent).
Between July 2011 and May 2017, PIDWAL and the NCDMB paid PAYE tax for their employees working at the Agbami Oilfield to FIRS. On discovering what they described as erroneous payments, the respondents, through their tax advisers, KPMG, sought the intervention of the Joint Tax Board.
By a letter dated 23 February 2018, the Joint Tax Board affirmed that the 2nd respondent was the appropriate tax authority for the collection of personal income tax from employees working at the Agbami Oilfield.
FIRS then conducted a statutory refund audit and acknowledged its refund obligation to the Bayelsa State Government in respect of the PAYE taxes it had collected. It deducted sums representing alleged outstanding Value Added Tax (VAT) and Withholding Tax (WHT) liabilities of the Bayelsa State Government, leaving a balance proposed for refund.
By a letter dated 18 September 2018, the 2nd respondent accepted the proposed deduction and supplied its account details for the refund. But by a letter dated 3 October 2018, FIRS reversed its position, contending that the Agbami Oilfield lies within Nigeria’s Exclusive Economic Zone and that the Federal Government was therefore entitled to collect the personal income tax of employees working there.
After efforts to settle the matter amicably failed, the respondents sued. They sought, among other reliefs, a declaration that the 2nd respondent was the appropriate tax authority over the Agbami Oilfield and an order directing FIRS to refund the balance of the PAYE taxes after the proposed deduction.
The lower courts
On 4 March 2020, the trial court delivered judgment in favour of the respondents. FIRS appealed to the Court of Appeal, which allowed the appeal in part but affirmed that the 2nd respondent was the appropriate tax authority for the collection of the personal income tax in question. FIRS appealed further to the Supreme Court.
The issue
One of the issues for determination was whether, on the facts, the Court of Appeal was correct in affirming the trial High Court’s decision that the Second Respondent was the appropriate taxing authority in respect of the personal income tax payable by the employees of PIDWAL and the NCDMB, and thus entitled to the repatriation of the balance of the PAYE taxes held by FIRS.
Arguments
For FIRS. Learned Silk for the appellant argued that FIRS was the appropriate authority to collect the PAYE of PIDWAL and NCDMB employees at the Agbami Oilfield. He said the field, particularly OML 127, lies about 70 kilometres offshore the Niger Delta coast, beyond the territorial boundaries of Bayelsa State, within Nigeria’s Exclusive Economic Zone and so subject to the sovereign rights and jurisdiction of the Federal Government. He added that the employees were expatriates who worked and lived on the oilfield and were not persons resident in Bayelsa State for personal income tax purposes. The Federal Government, acting through FIRS, was therefore the appropriate collector.
For Bayelsa. Learned Silk for the respondents argued that the 2nd respondent was the appropriate authority, that the PAYE taxes had been erroneously remitted to FIRS, and that the employees were subject to Bayelsa’s taxing authority. He submitted that the relevant State tax authority is empowered to collect tax from itinerant workers and individuals deemed resident in that State. Where an individual has two or more places of residence, he said, the tax law recognises the company’s operational site as the principal place of residence of an employee working there. He argued that the inclusion of oil terminals, oil platforms and flow stations in the definition of an operational site brought the employees within the provisions on itinerant workers, making their personal income tax payable to the Bayelsa State Board of Internal Revenue.
The Supreme Court’s decision
The Supreme Court held that the State taxing authority, and not the Federal taxing authority, is vested with the power to collect Personal Income Tax from itinerant workers.
The court explained that the preambles of the laws relied on by FIRS do not concern the administration of personal income tax payable by persons working or residing within Nigeria’s exclusive economic zone or territorial waters. It held that the provision is clear and unambiguous and, by its own force, confers on the 2nd respondent the statutory authority to collect tax from the itinerant employees.
On the facts, the court found that the employees of PIDWAL and the NCDMB, whose taxation was in dispute, qualified as itinerant workers. It accordingly affirmed that the Bayelsa State Board of Internal Revenue, rather than FIRS, was the relevant taxing authority statutorily empowered to collect their personal income tax. The issue was resolved in favour of the respondents.
Counsel
Prince Lateef Fagbemi, SAN, with J. U. K. Igwe, SAN, T. A. Gazali, SAN, Omosanya Popoola, SAN, Hajara Bolanle Oniyangi, Moses Ideho, O. A. Oloruntogbe and E. D. Gbetsere appeared for the appellant. Preye Agedah, SAN, with Somina Johnbull and Karina Awo, appeared for the respondents.
Post Title: “States, Not FIRS, Collect Itinerant Workers’ Income Tax” — Supreme Court Rules For Bayelsa In Offshore PAYE Dispute By Naijaonpoint.