Lagosians to now pay tax on loans – LIRS

Peoples Digest Online-   The Lagos State Internal Revenue Service (LIRS), and PriceWatercoopers (PWC), a firm that focuses on audit and assurance, tax and consulting services have explained how loans that are granted to employees by their employers can be taxed. In a public notice, LIRS explained that when a Benefit-In-Kind (BIK) arises from a loan that is granted to an employee by an employer and how to ascertain the benefit that is enjoyed by the employee from the loan.

According to the public notice, LIRS defined employee loans as loans given by an employer to an employee for specific reasons with the expectation that such loans will be repaid to the employer in full. Also, a benefit arises when an employer provides a loan to an employee and the interest rate is lower than the adjusted Monetary Policy Rate (MPR) which for tax purposes has been set at MPR minus 3 per cent.

Explaining details of the notice, Taiwo Oyedele, Head of Tax & Regulatory Services at PwC Nigeria and West Africa said interest benefit to be deemed at MPR -3 per cent, means 11percent (currently MPR at 14 per cent – 3 per cent = 11per cent). “If the interest rate charged is up to or higher than the adjusted MPR, then there will be no taxable BIK. The MPR is currently 14per cent, this means any employee loan granted by the employer below 11per cent per annum will be subject to BIK tax,” he stated.

Historically, no benefit tax is imposed on interest free loan or loan granted at below commercial interest rate between the employer and the employee. According to him, the BIK assessment is to be done at the point of repayment of the loan, which could be monthly, annual or other periodic basis.

The LIRS directive is applicable to all employee loans and loans to directors of a company even after the relationship between them and the company is terminated until such loan amount is fully repaid.

 

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