A Review of the Tax Regime Under the Nigerian Pension Reform Act, 2014

Abstract

The Nigerian Pension Scheme has passed through several legislative reforms since 1951, the extant pension scheme being the Uniform Contributory Pension Scheme, which is regulated by the Pension Reform Act, 2014 (“PRA, 2014”), which repealed the Pension Reform Act, 2004 (“PRA, 2004”). The PRA, 2014makes it mandatory for employers and employees in both the public and private sectors to contribute towards the retirement benefits of employee, and also makes provision for voluntary contribution by the employee to augment the employee’s savings for retirement. The PRA, 2014 also addressed the sundry issues bedeviling the Nigerian pension system under the previous pension regimes, one of which, was the tax regime under the Nigerian pension scheme. This thesis examines the various reforms that have taken place in the Nigerian pension system, especially in the area of taxation, the taxability of pensions (including cross-border taxation) under the PRA, 2014, and the extent to which the measures provided under the PRA, 2014 towards achieving the objectives of the Nigerian contributory pension scheme, especially in relation to taxation, has impacted in the Nigerian pension scheme, as well as the Nigerian economy. This thesis finds that ordinarily, pension contributions, including the incomes earned thereon, are tax exempt. Under the penultimate regime (PRA, 2004 era), voluntary contributions of employees were taxed when withdrawn within 5 years from the date the voluntary contribution was made; however, it is only the ‘income earned’ from the voluntary contributions that is taxed under the PRA, 2014. Furthermore, the provision for tax under the PRA, 2014 is essentially aimed at discouraging employees from making withdrawals from the pension funds at short intervals of lodgment, given the objective of the scheme - which is to provide employees with a means of securing a good standard of living upon retirement; and to curb the use of the pension to avoid tax payment in Nigeria. Although the PRA, 2014 has reasonably impacted on the Nigerian pension system by ensuring that the major objectives of the pension scheme in Nigeria are achieved, there is still need for improvement in the area of tax administration. In the course of this research, reference will be made to some statutes, case laws (including foreign case laws), as well as text books and articles from renowned authors.