The Joint Tax Board (“JTB”) and the Lagos State Internal Revenue Service (“LIRS”) this week published separate Public Notices on the abuse of the Additional Voluntary Contribution (AVC) to pension accounts as a tax relief by employers and employees.
The publications noted that several employees have, with the collusion of pension fund administrators (PFAs), continually abused the provision in section 4 (3) of Pension Reform Act 2014 (“PRA”) which allows for employees to contribute additional sums from their emoluments to their retirement savings accounts (RSA) maintained with PFA. The PRA explicitly exempts all contributions to RSA from taxation in the hand of employer and employee. Withdrawals from AVC by an employee prior to 5 years of making such contributions makes the interest earned on the contributions liable to income tax. Since the enactment of the PRA in 2014 however, most PFAs appear to have been promoting the use of the AVC as a tax-saving plan for employees, by encouraging employees to channel larger portions of their earnings to the RSA as AVC with assurances of easy withdrawal within a short time.