Authors: Oseinoma Okpeku (Partner), Tunji Muritala (Partner), and Onyinye Nnoli(Associate). The Law Crest LLP
Introduction
The Minister of Interior (“Minister”) on the 27th of February, 2024 issued the Expatriate Employment Levy Handbook (the “Handbook”) imposing expatriate employment levy (“EEL” or the “Levy”) on expatriates employed within Nigeria.
This article attempts to interrogate the legality of the EEL; the dollarisation of the Levy as well the potential impact of the EEL on the operations of organisations if it is fully implemented.
We have for this article considered, the Handbook, Immigration Act, 2015 (“Immigration Act”), Immigration Regulations, 2017 (“Immigration Regulations”), Constitution of the Federal Republic of Nigeria 1999 (as amended), National Tax Policy, 2017 (“Tax Policy”), Taxes and Levies (Approved List for Collection) Act Cap T2 Laws of the Federation of Nigeria (“LFN”) 2004 (“Taxes & Levies Act”), Interpretation Act Cap I23 LFN 2004 (“Interpretation Act”), Nigerian Investment Promotion Commission Act Cap N117 LFN 2004 (“NIPC Act”), The Financial Year Act, Chapter F7, Laws of The Federation, 2004 (“Financial Year Act”), Discrimination (Employment and Occupation) Convention, 1958 (No. 111) (“Convention 111”) of the International Labour Organisation (“ILO”) and judicial decisions applicable to the subject matter of our Opinion.
Stipulations of the EEL Handbook
As provided in Paragraphs 2.1.1 to 2.1.4 of the Handbook, the key objective of the Handbook is to develop the local workforce, lower reliance on foreign skills, and encourage companies to prioritize Nigerian citizens as employees. The Handbook aims to balance economic growth and workforce development by ensuring equitable contributions from expatriate employment.
To achieve its objective, the Handbook imposes EEL on expatriate employees whose employment duration in Nigeria is not less than 183 (One Hundred and Eighty-Three) days within a fiscal year. The EEL is payable by the employers of the expatriate employees annually at the rate of $15,000 (Fifteen Thousand United States Dollars) in the case of directors and the sum of $10,000 (Ten Thousand United States Dollars) for other categories of expatriates employed in Nigeria.
By Paragraph 3.1 of the Handbook, all employers (including multinational corporations, small and medium-sized enterprises (“SMEs”), and other entities (engaging expatriates) are required to pay the EEL.
By the combined reading of Paragraphs 3.2, 3.4, 3.6.1, 3.72, 3.8.1 and 8.4.1, the EEL does not apply to (i) expatriates employees who have worked in Nigeria for an aggregate of less than 183 days within a fiscal year, (ii) accredited staff of Diplomatic Missions and government officials, (iii) expatriates who do not occupy quota position in a company operating in Nigeria, (iv) unemployed dependents of expatriates in Nigeria, (v) exempted organisation or persons as may be stipulated in the approved list to be determined by the Nigeria Immigration Service (“NIS”), and (vi) expatriates employed outside Nigeria.
NIS is charged with the responsibility of determining which expatriates fall within the EEL purview and enforcing the EEL in line with the provisions of the Immigration Act and the extant Nigeria Visa Policy.
Employers of expatriates are obligated to (i) maintain comprehensive records relating to expatriate employees which should include information about employment contracts, salary details, work permits and accurate calculation other relevant documentation; (ii) make a timely report of expatriate employment details for accurate calculation of EEL; (iii) provide updated and accurate information to Government agencies within specified timeframes, which may coincide with payroll cycles or employment contract renewals; and (iv) promptly notify relevant government agencies of any changes in job roles, salary, employment duration and other significant factors that may impact on the EEL calculation.
Failure to comply with the obligations referenced above shall result in sanctions imposed under (i) Section 56(5) of the Immigration Act, (ii) Section 52(6) of the Immigration Regulation, and (iii) Paragraph 6.3 of the Handbook. The sanctions created and imposed by the Handbook under its Paragraph 6.3 are (i) failure to file EEL within 30 days, (ii) failure to register new employees within 30 days, (iii) falsification of information on EEL, and (iv) failure to renew EEL within 30 days which all attract a fine of N3,000,000.00 (Three Million Naira).
Legality of the EEL: The EEL has no Basis in the Immigration Act
The Handbook is a subsidiary instrument, having been made by the Minister. Paragraph 4.1 of the Handbook mandates the NIS to enforce the EEL in line with the provisions of the Immigration Act, the only substantive legislation referenced in the Handbook in terms of enforcement and imposition of sanctions. Thus, as can be gleaned from a holistic reading of the Handbook, the Handbook is represented to be a subsidiary instrument made by the Minister pursuant to the Immigration Act.
Thus, the legality of the Handbook is contingent on whether the Handbook is, indeed, rooted in the Immigration Act. The law is trite that a subsidiary instrument is an instrument subsequently made under and pursuant to the power conferred by a principal legislation or enactment. It derives its force or efficacy from the principal legislation to which it is therefore secondary and complimentary. As such, where a subsidiary instrument does not flow from its principal legislation, such subsidiary instrument is a nullity as the power to make subsidiary instruments under any Act does not include the power to make instruments to extend the frontiers of the principal Act. The Court of Appeal, in similar circumstances, re-emphasised this time-honoured principle of law in the case of Shell (Nig) Exploration and Production Co. Limited v NOSDRA(2021) LPELR – 53068 (CA) Pages 41-43 Paragraphs A-D. Hence, the EEL imposed by the Handbook must have a basis in the Immigration Act
A review of the Immigration Act and the Handbook reveals that the EEL has no basis in the Immigration Act and the Minister acted ultra vires by attempting to extend the frontiers of the Immigration Act which has no provision on imposing levies on expatriates solely on the basis that they are employed in Nigeria. Section 112(1) of the Immigration Act only empowers the Minister to make Regulations as in his opinion are necessary or expedient for giving effect to the provisions of the Immigration Act. There is no provision of the Immigration Act that the Handbook gives effect to by imposing the EEL and it is unsurprising that no such provision of the Immigration Act is referenced in the Handbook.
In fact, from the Explanatory Memorandum which codifies the scope of the Immigration Act, the imposition of EEL or any other similar levies is not within the framework of the Immigration Act. The Explanatory Memorandum reads as follows: “This Act which repeals Immigration Act, Cap. I1, LFN, 2004, and the Passport (Miscellaneous Provisions Act, Cap. P1, LFN, 2004) sets out the provisions for matters relating to immigration, passports, visas, resident permits, work permits, and the prohibition of smuggling of migrants into and from Nigeria, and for the protection and provision of remedies and assistance to, objects of smuggling of migrant offences in Nigeria. This Act also gives effect in the Federal Republic of Nigeria to the Provisions of the Protocol Against the Smuggling of Migrants by Land, Sea and Air, supplementing the United Nations Conventions Against Transnational Organised Crimes”. The imposition of the EEL does not feature in the Explanatory Memorandum.
It is worth mentioning that unlike the EEL, current federal levies in Nigeria have basis in their relevant principal legislation. For instance, the National Information technology development levy, Industrial Training levy, the National Social Insurance Trust Fund levy, the petroleum product and natural gas levy and National cyber security levy all have their basis in the National Information Technology Development Act 2007, Industrial Training Act, Employees’ Compensation Act, Petroleum Industry Act 2021 and Cybercrimes (Prohibition, Prevention ETC) Act, 2015 respectively.
Flowing from the above, we are of the view that the EEL is illegal and the Handbook imposing the said EEL is a nullity as it is not rooted in the Immigration Act but merely seeks to arbitrarily extend the frontiers of the Immigration Act. The EEL is a form of tax and the Immigration Act has no provision on the imposition of taxes. We have, in the succeeding paragraph, considered the legality of the EEL under our tax laws and policy.
Legality of the EEL: The EEL has No Basis under Nigerian Tax Laws
The EEL as a Tax
The Tax Policy defines “tax” as “any compulsory payment to government imposed by law without direct benefit or return of value or a service whether it is called a tax or not”. The EEL is (i) a compulsory payment to the government as it is described in Paragraph 1.1 of the Handbook as a “government-mandated contribution”, (ii) imposed by law as the Handbook is a subsidiary instrument which qualifies as a law by virtue of Section 18(1) of the Interpretation Act which defines “law”, and (iii) not designed to bestow direct benefit or return of value or a service to its payer.
The definition of levy also received judicial pronouncement in FIRS v AG Lagos State2022) LPELR-58021 (CA). where the Court of Appeal relied on the definition of tax proffered by Prof. Taofeeq Abdulrazaq in his book titled, “Cases and Materials on Nigerian Taxation, 2016, at page 5”, as a financial charge or levy imposed upon an individual or legal entity by a State, or a component of the State.
Thus, having ascertained that the EEL qualifies as a tax, all provisions relating to the imposition and collection of taxes under Nigerian law apply and are considered in determining the legality of the EEL.
The Constitution
Every tax must be clearly named in a legislation with relevant details and the assessment stated with clarity as held by the Court of Appeal in the case of MTN v BIRS2021) LPELR-56259(CA) Pages 49-50 Paragraphs E-B. This is premised on the fact that taxing powers of the government are rooted in the Constitution. Constitutionally, the prerogative to impose taxes, levies and other charges is solely a legislative function. This is because taxation is included as a matter under the legislative lists contained in the Second Schedule to the Constitution. Section 4(2) of the Constitution provides that the National Assembly shall be able to make laws for the Federation in respect of matters included in the Exclusive Legislative List. Some of the items included under the Exclusive Legislative List are in relation to taxation. Further, Item 7 of the Concurrent Legislative List indicates that the National Assembly possesses the powers to impose taxes or duties on capital gains, incomes or profits of persons other than companies. The implication of this is that the authority to impose taxes rests with the National Assembly alone.
Thus, for any other authority outside the National Assembly to exercise the power to impose taxes and levies, such an authority must have been authorised by an Act of the National Assembly. It was stated in S.A. Authority v Regional Tax Board (1970) LPELR-2967 (SC) (Pp. 15 paras. C) that no tax can be imposed on a subject without words in an Act of Parliament clearly showing intent on it to lay a burden on him. This position was further strengthened by the case of Peace Mass Transit Ltd v. FCT & Ors (2014) LPELR-23740(CA) where the Court of Appeal emphasised the position as follows: “The prescription on taxes and levies (approved list) for collection under the Act is unambiguous. I am at one with the view expressed by the learned counsel for the appellant that before the respondent can introduce any levy or tax on anybody, the validity of such an act must be authorised by the National Assembly.” This makes it clear that any tax or levy imposed contrary to this standard is invalid and ultra vires.
Thus, the EEL was introduced in the utter violation of the constitutional provisions as it has no basis in any Act of the National Assembly. As such, we consider the levy illegal and liable to be nullified in the event that it is challenged in Court.
Taxes and Levies Act
The EEL is a tax collectible by the Federal Government through the Ministry of Interior. Section 1(1) of the Taxes and Levies Act provides for the taxes and levies the Federal Government is responsible for collecting under Part I of the Schedule to the Act. By Section 1(2), it is the statutory duty of the Minister of Finance, on the advice of the Joint Tax Board and by Order published in the Gazette, to amend the Schedule to the Taxes and Levies Act.
As evident from Part 1 of the Schedule to the Taxes and Levies Act, the taxes and levy the Federal Government is allowed to collect are (i) Companies income tax, (ii) Withholding tax on companies, residents of the Federal Capital Territory, Abuja and non-resident individuals, (iii) Petroleum profits tax, (iv) Value added tax, (v) Education tax, (vi) Capital gains tax on residents of the Federal Capital Territory, Abuja, bodies corporate and non-resident individuals, (vii) Stamp duties on bodies corporate and residents of the Federal Capital Territory, Abuja, (viii) Personal income tax in respect of- (a) members of the armed forces of the Federation;(b) members of the Nigeria Police Force; (c) Residents of the Federal Capital Territory, Abuja; and (d) staff of the Ministry of Foreign Affairs and non-resident individuals, (ix) National Information Technology Development Levy. No amendment has been made to Part I of the Schedule to the Taxes and Levies Act as to include EEL as a levy collectible by the Federal Government. In the absence of such inclusion, our position is that it is illegal for the Federal Government to proceed to collect the tax through the Federal Ministry of Interior. As held in the case of Nirvana Oilfield Services Ltd V FIRS(2022) LPELR-58812(CA) Pages 33-34 Paragraphs A-B, tax statutes are strictly or narrowly construed as there is no equity and presumption about tax. Nothing is to be read in and nothing is to be implied. Thus, nothing is to be read into the Taxes and Levies Act as to suggest the inference that EEL is collectible by the Federal Government.
