Interest benefit to be deemed at MPR -3%, that is, 11% (currently MPR at 14% - 3% = 11%).

Over time, employers have adopted various practices in the treatment of loans that were granted to their employees for tax purposes. The Lagos state Internal Revenue Service (LIRS) has now issued its position on what should be an appropriate tax treatment of loans that are granted to employees by their employers.

While the basis of determining the taxable benefit may be debatable, it is clear that a benefit arises when a loan is granted to an employee at below commercial interest rates. As a result the LIRS Notice will help reduce the uncertainty regarding taxation of employee loans.

The LIRS should therefore take further steps to seek specific amendments to the law to clearly specify the basis and manner of determining the taxable benefit. It may also be useful to provide a tax exemption threshold by amount and tenor to avoid significant administrative cost to employers.

Given that this is a change in established practice of the LIRS, a cut-off point and transition period should be provided.

Read our alert for more.

Download PwC Tax alert_Taxation of employee loans_Sep2017


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