The Pension Reform Act 2014 ("PRA" or "the Act") and the repealed Pension Reform Act 2004 played a great role in ensuring employers and the employees in Nigeria save for employees' retirement. Employees in Nigeria have further improved their savings culture by contributing above the statutory minimum of 8% of their gross monthly emoluments to their Retirement Savings Account (RSA).
Contributions to the scheme under the Act forms part of tax deductible expenses in the computation of tax payable by an employer or employee under the relevant income tax law.
In practice, participants in the scheme enjoy tax relief on contributions and thereafter withdraw the principal amount with the tax relief not being reversed or the tax due accounted for. The consequential question would then be: at what point should tax apply, if any and how should the tax be collected and remitted?
The withdrawal pattern of the Voluntary Pension Contribution (VPC) is further made ambiguous by Section 10(4) of the Act which provides that income earned on any VPC will be subject to tax at the point of withdrawal where the withdrawal is made before the end of five (5) years from the date the VPC was made. This may imply the possibility of early withdrawal on VPC. It should be noted that withdrawal from the RSA may not be consummated without the approval of PENCOM, the regulator.
Thus, PENCOM has the responsibility to ensure that the income earned on the VPC before withdrawal is subjected to applicable income tax at the point of withdrawal and to ensure the tax deducted are remitted to the relevant tax authorities.
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