EXCLUSION FROM FILING ANNUAL TAX RETURNS

The Income Tax Act, 2015 (Act 896) imposes an obligation under section 124 of the Act for a person to file a return of income with the C-G not later than four months after the end of a basis period. The basis period of a person is, in the case of an individual or a partnership, the calendar year; and in the case of a company or a trust, the accounting year of the company or trust.

Notwithstanding the provision in section 124 of Act 896, section 125 of the Act provides instances where a return of income is not required. Section 125(1) as amended by the Income Tax Act (Amendment) (No.2) Act, 2016 (Act 924) provides that; a resident individual who has no tax payable for the year; or a non-resident person who has no tax payable for the year is not required to file a tax return.

It is important to note that, Act 924 amended Act 896 by deleting the provision which excluded from filing a return of income, a resident individual whose tax payable for the year relates exclusively to income from employment which is subject to withholding tax. In effect, individuals whose only source of income is employment are still required to file a return of income. (As to whether this is currently being strictly enforced is a discussion for another day).

What then happens in the case of businesses or organizations that are exempt from paying income tax?

Businesses or organizations that enjoy tax exemptions or temporary concessions tend to disregard their obligation to file tax returns under the mistaken belief that an exemption from paying income tax extends to filing their tax returns.

The Income Tax Act, 2015 (Act 896) fully exempts some businesses or organizations from paying tax on their income or for a temporary period known as a temporary concession. As regards temporary concessions, this article refers only to Free Zone Developers and Enterprises because other businesses that enjoy tax concessions under the Sixth Schedule to Act 896 are liable to a tax rate of 1% during the concession period and are therefore, strictly speaking not exempt from paying tax. The income of charitable organizations, clubs and trade associations, and building societies is exempt from income tax under sections 97(4), 98(3), and 99(2) of Act 896 respectively. As regards temporary concessions, the profits of a Free Zone developer or enterprise is exempt from income tax for 10 years from the date it begins its operations.

Notwithstanding the exempt status of businesses, flowing from the provisions of section 125 of Act 896, the only instances where a return of income is not required is where a resident individual or non-resident person has no tax payable for the year. Accordingly, the obligation to file a return of income under section 124 of Act 896 is not dismissed by an exemption, or a temporary concession from paying income tax.

Contact

Email: ismail@al-ibrah.com