Businessday :: News you can trust

•Slams N0.62m tax on luxury car

In what appears to be a new  strategy devised to lure every taxable Lagosian to declare their earnings for personal income tax, the Lagos State Government through its Internal Revenue Service (LIRS) has started taxing luxury cars. 
This approach, Business Day authoritatively gathered from the LIRS which is their best of Judgment approach targets using Lagosians expenditure to evaluate their earnings/income, thereby administering personal income taxes on them. 
The LIRS had written a letter signed by one Hakeem Abiru, coordinator (informal sector 1), to a Lagosian (name withheld) a copy of which was made available to BusinessDay seeking the payment to tax liabilities to the tone of N627,899.25 kobo on her new car (Toyota Rav 4 Jeep) with a stated registration number. 
Part of the letter dated September 11, 2009 states: “Ref: Personal Income Tax Matters. Demand Notice on Liabilities for years 2006-2008. 
“Further to our earlier letter dated 10th June, 2009 duly served on you on 24th of June, 2009 in respect of your new car (Toyota Rav 4 Jeep) with registration number …, your failure to respond to the above letter within the statutory time limit has since rendered this assessment notice final and conclusive by virtue of section 66 of Personal Income Tax Act Cap 8 LFN 2004. 
“Accordingly, and pursuant to section 76(1) and 77 of the same act, you are required by law to effect payment of the assessed liability N471,750:00 plus 10 percent penalty (N47,175:00) and 21 percent interest (N108,974:25) totalling N627,899:25 (Six hundred and twenty-seven thousand, eight hundred and ninety-nine naira, twenty-five kobo only) within seven (7) days from the date of service of this demand notice to Government coffers through any of the designated banks without further delay using the following codes: Agency Code: 4250003; Revenue Code: 4010002. Failure to comply with the above, this office will not hesitate to impound the vehicle involved and also prosecute you to enforce payment.”  
Section 38 of the Capital Gains Tax Act (LFN 1990) which made provision for Motor Cars states that “a mechanically propelled road vehicle constructed or adapted for the carriage of passengers shall not be an asset for the purpose of this Act unless it is a vehicle of type not commonly used as private vehicle and is unsuitable to be so used.”  
When BusinessDay reached Abiru on phone through the corporate communications department of LIRS to confirm if the letter actually emanated from his office, he affirmed its authenticity, saying the letter targets bringing the owner of the car to declare his or her income. 
When BusinessDay contacted some tax experts on the new dimension to tax drive taken by Lagos State to evaluate residents’ earnings, Eben Akinyemi, partner, Tax Ideas, noted that it is within the rights of the LIRS to assess people to tax on their best of judgment. According to him, “such judgment could be based on the expenditure of the tax payer. In this instance, expenditure would be seen to demonstrate earnings/income.” 
He, however, queried the rationale for taxing a car or the threat to impound the vehicle as contained in the letter. “No tax is payable in respect of a car in itself because the owner must have paid customs duties, Value Added Tax (VAT), import duties, licensing permit. There is no personal income tax or capital gains tax attached to vehicles. What basis should the LIRS impound the vehicle in question?” Akinyemi said.
According to the tax expert, the car itself should not be assessed to tax based on the law. “The car may be used as a basis to estimate a best of judgment assessment of the owner’s income, but the car itself is not liable to tax under Personal Income Tax Act (PITA) or Capital Gains Tax Act (CGTA),” Akinyemi said. 
He said the onus is on the person assessed to object within the provision of both Personal Income Tax Act (PITA) and Capital Gains Tax Act (CGTA). 
“Firstly, where someone buys an asset out of his savings on earnings on which proper tax has been paid, no further tax should be payable on the income. This would typically apply to those in paid employment, whose employers had deducted Pay As You Earn (PAYE) in their income. Here, any issue relating to additional assessment should be raised with the employer. Secondly, in the case of a housewife who has no income of her own, whatsoever, and then receives a gift or an asset from her husband or relative, this should definitely not fall under the ambit of Personal Income Tax Act (PITA) because gifts are subject to tax under Capital Gains Tax Act (CGTA). Specifically, Section 39 of the CGTA (2004 LFN) exempts motor cars from Capital Gains Tax. 
Section 40 of CGTA (2004 LFN) also exempts gifts and disposal of gifts. 
Akinyemi stated: “PITA however requires every one to file tax returns. It does not exempt the unemployed. Also Section 37 of PITA (LFN) imposes a minimum tax of 0.5 percent of total income on any one with no chargeable income. Therefore, there is no income. 0.5 percent of total income will yield a nil tax.”  
Section 39 of Capital Gain Tax Act (LFN 1990) which also provides for gifts stated: “Subject to the provision of this Act, where a person disposes, by way of gift, an asset acquired by him by way of a gift or otherwise (not being an acquisition on a devolution on death), the person making the disposal shall not be chargeable to capital gains tax under this Act by reference to that disposal. In this section, GIFT has the same meaning as in section 7 (2) of this Act.”