Navigating The Tax Landscape For Itinerant Workers In Nigeria

Introduction

Nigeria's workforce includes a distinctive group of individuals whose jobs require frequent travel across state borders, often without a fixed place of residence. Unlike the routine commute of a typical employee to a designated workplace, itinerant workers navigate a more unpredictable professional landscape. Their work locations vary widely, from hotel rooms and airport lounges to trains, cars, and other transient spaces.

This mobile lifestyle demands flexibility and the ability to adapt to constantly changing environments and challenges. Yet, amid this mobility, it is essential for both the workers and tax authorities to understand the tax implications associated with such a nomadic work pattern.

This article explores the intersection of mobility and taxation for itinerant workers in Nigeria, highlighting key considerations for navigating the country's tax framework considering their unique working arrangements.

Background

The term "itinerary" originates from the Latin itinerarium, meaning a route or journey, while "itinerant" comes from itinerantem, which signifies "to travel". These historically travel-related terms aptly describe individuals whose work takes them across various locations.

According to Collins Dictionary, an itinerary is "a plan of a journey, detailing routes and places to visit." In this context, itinerant work refers to employment that involves moving from one location to another, either intermittently or regularly, to perform job duties. This type of work is common in Nigeria across sectors such as construction, agriculture, sales, and consulting. Itinerant workers may be self-employed or work for organizations, with assignments ranging from short-term engagements to long-term contracts.

From a tax perspective, an itinerant worker is an individual who earns income in multiple states across Nigeria without maintaining a fixed residence, due to the nature of their employment.

Currently, the taxation of such workers is governed by the Personal Income Tax Act (PITA), Cap P8 LFN 2011. However, the upcoming Nigeria Tax Act (NTA) 2025, effective from 1 January 2026, will consolidate and update these provisions. The NTA 2025 introduces a more progressive personal income tax regime, revising income brackets and tax rates to promote a fairer distribution of the tax burden. These changes will directly affect how itinerant workers calculate and fulfill their tax obligations.

Tax Jurisdiction for Itinerant Workers in Nigeria

Residence status is a key determinant in establishing tax liability for itinerant workers in Nigeria. Under the PITA and the forthcoming NTA 2025, an individual is considered a resident in Nigeria during an assessment year if they meet any of the following conditions:

1. Domicile: The individual is domiciled in Nigeria.
2. Physical presence: The individual is physically present in Nigeria for a total of 183 days or more within any 12-month period, including periods of leave or temporary absence.
3. Permanent home: The individual has a permanent place available for domestic use in any part of Nigeria.
4. Diplomatic service: The individual serves as a diplomat or diplomatic agent of Nigeria in another country.

These criteria are used to determine which state tax authority has jurisdiction over the individual's income tax, especially in cases involving itinerant workers who may work across multiple states.

Legal Basis

Under Section 2 of the PITA, the collection of tax on an individual's income is determined by the territory in which the individual is deemed to be resident. This establishes residency as the basis for assigning tax jurisdiction.

Section 28 of PITA addresses itinerant workers specifically, stating that their assessable income for any year of assessment may be determined either under the general provisions of Sections 23 to 27 or based on the income earned in the calendar year ending on 31 December within the assessment year.

A more detailed definition of an itinerant worker is provided in Section 108 of PITA, which defines an itinerant worker as:

"An individual, irrespective of status, who works at any time in any state during a year of assessment, other than as a government security officer, for wages, salaries, or livelihood by working in more than one state, and works for a minimum of twenty (20) days in at least three (3) months of every assessment year."

Where tax has already been remitted by an itinerant worker in one state, the relevant state tax authority may grant a tax credit, provided it does not exceed the amount of tax already paid.

With the enactment of the NTA 2025, the legal framework for taxing itinerant workers has been significantly modernized. Section 3 of the NTA 2025 imposes income tax on all individuals, including itinerant workers, thereby affirming their inclusion in the national tax net. The Act consolidates over twenty existing tax-related laws, including PITA, Company Income Tax Act, Value Added Tax Act, Stamp Duties Act, and others, into a single unified statute

This consolidation aims to eliminate overlapping provisions, reduce ambiguity, and enhance compliance by providing a streamlined and coherent legal structure. Additionally, the NTA 2025 introduces a more progressive personal income tax regime, revising income brackets and adjusting tax rates to ensure a fairer distribution of the tax burden across income levels.

Relevant Judicial Decisions

Several judicial decisions have clarified taxation issues concerning itinerant workers in Nigeria. A notable example is the case of Bayelsa State Board of Internal Revenue v. Speciality Drilling Fluids (TAT/SSZ/008/2023).

In this case, the Tax Appeal Tribunal (TAT) ruled that the respondent's drilling operations, conducted within Bayelsa State and involving workers stationed on platforms in the state, fell under the tax jurisdiction of the Bayelsa State Board of Internal Revenue. The Tribunal affirmed that the relevant tax authority is determined by the location of the economic activity and the presence of workers, in line with statutory guidelines under PITA.

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This decision underscores the importance of:

• Adhering to statutory residency and source rules,
• Recognizing the taxing rights of state authorities, and
• Promoting inter-state tax harmonization, especially in cases involving itinerant workers.

Common Perception

An itinerant worker is often misunderstood as someone lacking a specific profession or as an impoverished laborer. However, in the realm of taxation, this is a misconception. Take, for example, a Regional Manager employed by a company with offices spread across multiple states in Nigeria. This professional is required to move from one state or geopolitical zone to another.

Similarly, a nomad or herdsman may fall under the category of an itinerant worker if they operate under an employer for compensation, whether monthly, quarterly, or annually, or if they independently own and trade cattle for profit. From a taxation perspective, such a nomad or herdsman would be assessed as an itinerant worker.

These examples emphasize the diverse nature of the itinerant worker classification, which goes beyond traditional employment perceptions.

Tax Considerations for Itinerant Workers

Understanding tax obligations as an itinerant worker in Nigeria involves navigating several key areas of the tax system:

1. Residency status: For tax purposes, individuals are categorized as either resident or non-resident. Resident individuals are subject to tax on their worldwide income, while non-residents are taxed only on income derived from Nigeria. Itinerant workers need to determine their residency status based on the duration and nature of their stay in Nigeria.
2. Personal Income Tax: Itinerant workers are liable to pay income tax on earnings derived from services rendered within Nigeria, regardless of residency. The tax rates vary based on income levels, with progressive tax brackets applicable to resident individuals. The NTA 2025's progressive PIT regime adjusts tax rates based on revised income brackets, potentially reducing the tax burden for lower-income earners, including itinerant workers while increasing it for higher earners.
3. Withholding Tax (WHT): Employers or clients must deduct WHT from payments made to itinerant workers for services rendered. The WHT rates vary depending on the nature of the services. The Withholding Regulations 2024 govern these deductions and ensure proper remittance to tax authorities
4. Value Added Tax (VAT): Itinerant workers engaged in business activities may be required to register for, collect, and remit VAT. VAT rate is standardized at 7.5% across Nigeria. According to Section 8 of the VAT Act, registration is mandatory for any individual or business supplying taxable goods or services and must be done immediately upon commencement of business.

Compliance and Documentation

To remain compliant with tax regulations, itinerant workers should maintain thorough and accurate records of their financial activities. Key documentation includes:

• Contracts or agreements outlining the scope of work and compensation terms.
• Invoices and receipts for services provided or goods sold.
• WHT certificates issued by clients or employers as proof of tax deductions
• VAT registration certificate (if applicable), confirming compliance with VAT obligations
• Bank statements and financial records that reflect income received and expenses incurred

Challenges in Tax Administration for Itinerant Workers

Administering taxes for itinerant workers presents a unique set of challenges that require thoughtful analysis and strategic solutions.

1. Determining Tax Residency: One of the core difficulties lies in establishing the primary residence of itinerant workers, whose roles often involve frequent travel across multiple states in Nigeria. Tax residency is typically based on physical presence, such as the number of days spent in a particular location. However, due to their mobility, itinerant workers may spend varying amounts of time in different jurisdictions, complicating the determination of their tax residency and, by extension, their tax obligations.
2. Fragmented State Tax Systems: The lack of uniformity in state-level tax collection frameworks leads to inconsistencies in tax rates and compliance requirements. As itinerant workers move between states, they may encounter conflicting regulations, increasing the risk of non-compliance, missed remittances, or penalties. The NTA 2025 aims to address these issues by consolidating tax laws into a unified legal framework, promoting consistency and ease of compliance.
3. Worker Classification Issues - Misclassification of workers such as treating employees as independent contractors or vice versa can result in incorrect taxes and missed statutory contributions. This not only affects tax compliance but also impacts access to benefits like social security, pension schemes, and unemployment insurance.

Addressing these challenges requires clearer residency guidelines, a more cohesive tax system across States, and stronger enforcement of worker classifications to ensure proper tax compliance.

Recommendations for Improving Tax Administration for Itinerant Works

To address the unique challenges associated with taxing itinerant workers, the following measures are recommended for government agencies, tax authorities, and other stakeholders:

1. Strengthen Inter-Agency Collaboration: Foster closer cooperation between the State Boards of Internal Revenue (SBIRS) and the Federal Inland Revenue Service (FIRS) to promote a unified and efficient tax administration system.
2. Implement Seamless Inter-State Tax Credit Mechanisms: Develop and adopt systems that allow for smooth transfer and recognition of tax credits across state lines, thereby reducing the risk of double taxation for mobile workers.
3. Clarify Residency Guidelines: Establish clear and practical criteria for determining tax residency in cases involving frequent inter-state movement, to ensure consistent and fair tax assessments.
4. Harmonize State Tax Frameworks: Encourage the standardization of tax rates and compliance procedures across states to reduce regulatory fragmentation and ease the compliance burden on itinerant workers.
5. Enhance Worker Classification Enforcement: Improve oversight to ensure proper classification of workers as employees or independent contractors, which is critical for accurate tax withholding and access to statutory benefits.
6. Raise Awareness and Provide Guidance: Launch targeted education campaigns to help itinerant workers understand their obligations under the NTA 2025 and the NTAA 2025.
7. Enforce Compliance Through Regular Audits: Conduct periodic audits and enforce the provisions of the relevant provisions of the law to ensure accountability and compliance.
8. Encourage Professional Tax Advisory Support: Itinerant workers should be encouraged to seek professional tax advice to navigate complex tax rules and maintain compliance across jurisdictions.

Conclusion

The taxation of itinerant workers in Nigeria is shaped by a complex interplay of legal provisions, mobility patterns, and administrative frameworks. Determining the appropriate taxing authority, establishing tax residency, and applying relevant tax credits are all critical to ensuring a fair and effective tax system.

As itinerant workers continue to contribute significantly to Nigeria's diverse economic sectors, the legal structures governing their taxation particularly under the PITA and related guidelines must continue to evolve to reflect the realities of mobile employment. These frameworks serve as the legal anchor for balancing the fluidity of itinerant work with the necessity of tax compliance.

To support effective tax administration, stakeholders involved in managing itinerant worker documentation are encouraged to prioritize accurate record-keeping, clear classification of employment status, and collaboration with tax authorities. This will help streamline compliance and reduce the risk of errors or penalties.

Finally, itinerant workers are strongly advised to seek professional tax guidance to navigate the complexities of Nigeria's tax laws and ensure full compliance. Expert support can make a significant difference in managing obligations effectively and avoiding costly mistakes.

The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.