Nigeria operates a federal system of government. Governing bodies at the centre differ from governing bodies in the sub-units (states). This dichotomy also impacts tax administration, with the Federal Inland Revenue Service (FIRS) overseeing taxation of companies, non-resident individuals etc., and State Boards of Internal Revenue (SBIRs) administering taxation of individuals resident within its territory.

This tax administration dichotomy sometimes degenerates into controversies on the authority with taxing rights in some situations – e.g. income of workers exercising their employment duties on offshore oil-drilling platforms on Nigeria’s territorial waters.

Territorial waters generally mean the waters under the sovereign jurisdiction of a nation. Internationally and based on the Territorial Waters Act (TWA), Nigeria’s territorial waters (in terms of ownership, control, and proprietary right to land) include every part of the open sea, not exceeding 12 nautical miles from the coast of Nigeria. This jurisdiction is under the exclusive purview of the Federal Government (FG) and only Federal laws are applicable there.

Personal Income Tax Act (PITA), which is a federal legislation, applies within Nigeria’s territorial waters. Generally, section 2(2) of PITA, provides that personal income tax (PIT) be paid to the State where an individual taxpayer resides. Therefore, it becomes imperative to ascertain the relevant “State” with taxing rights on territorial waters considering it is under the control of Federal Government.

There appears to be no direct legislation at this point to ascertain the relevant State. However, we can draw an analogy from the provision of Allocation of Revenue (Abolition of Dichotomy in the Principle of Derivation) Act 2004 (ARDPDA), which provides that “the two-hundred-meter water depth Isobaths contiguous to a State of the Federation shall be deemed to be a part of that State,” when determining resources from the states in accordance with Nigeria’s constitution.

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