The Finance Acts 2019 and 2020 refined a wide spectrum of the Nigerian tax laws to reflect current realities and resolve certain contentious issues. One of the laws that the Finance Act, 2020 amended is the Personal Income Tax (PIT) Act. Among other amendments to the PIT Act, the Finance Act, 2020 (FA 2020) changed the basis of computing the personal allowance claimable while computing the income tax. This was achieved by the amendment to Section 33(2) of PIT Act, which defines the "Gross Income" to be adopted in computing Consolidated Relief Allowance (CRA) for PIT purposes. Based on Section 33(1) of the PIT Act, CRA is computed as 'the higher of ₦200,000 and 1% of Gross Income + 20% of Gross Income'. As a principal component of Consolidated Relief Allowance, the Gross Income has always been a major consideration in determining the eventual PIT payable.

This is because CRA typically reduces the taxable income, thereby increasing employees' monthly net pay or the disposable income of other persons liable to tax under the PIT Act. It follows therefore, that a contracted Gross Income will increase the taxable income, increase the PIT payable and ultimately reduce the net pay or disposable income.

This article examines the amendments made to Section 33(2) of the PIT Act as it relates to the computation of Consolidated Relief Allowance, with particular emphasis on possible interpretations of the Section 33(2) amendment by taxpayers and tax authorities.

Consolidated Relief Allowance pre-Finance Act, 2020

Prior to the amendments made to Section 33(2) by FA 2020, the PIT (Amendment) Act provided thus: "For the purposes of this section, "gross emolument" means wages, salaries, allowances (including benefits in kind), gratuities, superannuation and any other incomes derived solely by reason of employment". Based on the above, Section 33(2) defined the constituents of "Gross Emolument" for the purpose of computing CRA while Section 33(1) makes reference to "Gross Income". The inclusion of the expansive phrase 'any other incomes' presumed that the entire gamut of incomes derived by an individual from the course of employment, including compensations, bonuses, premiums, fees, perquisites and all similar sources of income arising from the employment, all fell within the definition of gross emoluments. Since Gross Emolument presupposes employment income, it appeared that the above definition was only relevant for computing CRA in instances where the individual is liable to PAYE tax. It was not sufficient in determining the constituents of Gross Income for other persons such as an individual business owner liable to tax under the PIT Act with income streams arising outside the course of employment. This lacuna thus gave rise to diverse interpretations of the "Gross Income" which was adopted in the computation of CRA.

Consolidated Relief Allowance post-Finance Act, 2020

In order to address any prior misconception, the FA 2020 in Section 33(2) expressly defines "Gross Income" for purposes of computing CRA as follows: "For the purposes of this Section, "gross income" means income from all sources less all non-taxable income, income on which no further tax is payable, tax-exempt items listed in paragraph (2) of the Sixth Schedule and all allowable business expenses and capital allowance."

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