The Tax Appeal Tribunal (TAT) on 21 August 2019 ruled that a taxpayer can pay a tax audit liability when the process for issuing the assessment is in line with the tax law; in the case between Polaris Bank Plc. (Polaris) and the Abia State Board of Internal Revenue (ABIABIR).
ABIABIR issued a demand notice to Polaris, based on a tax audit exercise from 2006 to 2011 while Polaris objected to the notice. Thereafter, ABIABIR raised another notice, asking for payment of the supposed tax liability on or before 7 days. TAT resolved three issues as presented below.
- Whether Abia State Board of Internal Revenue (BIR) has the right to collect Development Levy and Business Premises Levy from Polaris without an enabling state statute
The Taxes and Levies (Approved List for Collection) Act 1998 has a list of taxes and levies that the three levels of government in Nigeria can collect. Business premises and development levies are two types of levies collected by the State BIR. A business premises levy is a flat charge on a property used to generate income such as office space, factory. The fee payable depends on the company’s location. For urban areas, the registration fee is NGN10,000 in the first year while the renewal fee is NGN5,000. Companies in rural areas have a lower registration fee of NGN2,000 while the renewal fee is NGN1,000. Development levy (DL) is an annual rate of NGN100 on every taxable person in Nigeria. For instance, Company XYZ had 200 employees in Lagos state from 2017 to 2018 and the DL is NGN40,000 (200 employees * NGN100 * 2 years). Some companies pay both levies at the point of filing their annual employer tax returns while other companies pay during a state tax audit exercise.
TAT ruled that Taxes and Levies Act has no charging section. Rather, it contains a list of authorized taxes and levies for collection. Hence, a State BIR can only assess a taxpayer for business premises and development levies when a tax/levy has specific legislation.
- Whether ABIABIR can collect penalty and interest stated on the assessment notices
A tax authority can charge penalty and interest when a tax liability is valid. Thus, interest and penalty on the agreed tax liability which Polaris paid would have been outstanding. However, as the agreed tax liability covers more than six years, ABIABIR cannot enforce penalty and interest on the undisputed liability.
- Whether ABIABIR can issue a final and conclusive assessment when a taxpayer was yet to give an objection
Here, the TAT declared that tax authorities must follow the procedures in Sections 58 and 68(2) of the Personal Income Tax Act before issuing a tax liability. ABIABIR demand notices were therefore overlooked as failed to meet the requirements for issuing an assessment as final and conclusive.
Overall, the decision of the TAT beckons on the need for to enact laws, at the State level, for taxes/levies payable to the state. To download the ruling, click here.