Supreme Court Rules States, Not FIRS, Should Collect Income Tax From Itinerant Workers

The Supreme Court has ruled that state governments, rather than the Federal Inland Revenue Service (FIRS), have the statutory authority to collect personal income tax from itinerant workers, dismissing the federal tax agency’s position in a dispute involving offshore workers at the Agbami Oilfield.

In its judgment in the case between the Federal Inland Revenue Service and the Attorney-General of Bayelsa State and another, a five-member panel of the apex court affirmed that the Bayelsa State Board of Internal Revenue was the appropriate authority to collect Pay As You Earn (PAYE) taxes from employees of Pacific Inter Drilling West Africa Limited (PIDWAL) and the Nigerian Content Development and Monitoring Board (NCDMB) working at the oilfield.

The panel comprised Justices Saulawa, Abubakar, Agim, Ogbuinya and Abiru.

The dispute arose from PAYE payments made by PIDWAL and NCDMB to FIRS between July 2011 and May 2017 for employees working at the Agbami Oilfield.

Bayelsa State later challenged the payments, maintaining that the taxes ought to have been remitted to its Board of Internal Revenue.

Following an intervention by the Joint Tax Board, the state tax authority was recognised as the appropriate body to collect the personal income tax from the workers.

FIRS subsequently carried out a refund audit and acknowledged an obligation to return the taxes collected. However, it proposed deducting amounts it said represented outstanding Value Added Tax and Withholding Tax liabilities owed by the Bayelsa State Government.

The state tax authority initially accepted the proposed deductions and supplied its bank details for the refund. FIRS, however, reversed its position in October 2018, arguing that the Agbami Oilfield was located within Nigeria’s Exclusive Economic Zone and that the Federal Government therefore had jurisdiction over the tax collection.

The disagreement eventually proceeded to court after attempts to resolve the matter failed.

FIRS, Bayelsa disagree over tax jurisdiction

FIRS argued that the oilfield, particularly OML 127, was located about 70 kilometres offshore the Niger Delta coast, outside Bayelsa State’s territorial boundaries but within Nigeria’s Exclusive Economic Zone.

It also contended that the employees were expatriates who worked and lived offshore and were not residents of Bayelsa State for personal income tax purposes.

Bayelsa, however, maintained that the employees fell within the category of itinerant workers covered by the relevant personal income tax provisions.

The state argued that the law empowered its tax authority to collect taxes from such workers and that an employee’s operational worksite could be recognised as a principal place of residence for tax purposes.

It further relied on provisions recognising oil terminals, platforms and flow stations as operational sites.

Supreme Court resolves dispute in Bayelsa’s favour

The Supreme Court held that the relevant state tax authority, and not the federal tax authority, was empowered to collect personal income tax from itinerant workers.

The justices explained that the legal provisions relied upon by FIRS did not address the administration of personal income tax payable by persons working or residing within Nigeria’s territorial waters or Exclusive Economic Zone in the manner argued by the federal agency.

The court found that the employees of PIDWAL and NCDMB involved in the dispute qualified as itinerant workers under the applicable law.

It consequently affirmed the authority of the Bayelsa State Board of Internal Revenue to collect their personal income tax.

The ruling followed earlier proceedings at the lower courts. The trial court had delivered judgment in favour of Bayelsa on March 4, 2020. Although the Court of Appeal allowed FIRS’s appeal in part, it upheld the state tax authority’s position on the collection of the disputed personal income tax.

FIRS subsequently took the matter to the Supreme Court, which resolved the central issue in favour of Bayelsa.

Prince Lateef Fagbemi, SAN, led the legal team for FIRS, while Preye Agedah, SAN, represented the Bayelsa respondents.

The decision clarifies the authority responsible for collecting personal income tax from itinerant workers in circumstances covered by the relevant tax law, including the offshore employment arrangement that gave rise to the dispute.