INTRODUCTION
Limitation laws are made to stipulate a timeframe within which a person may bring an action to pursue a claim or enforce a right. When that time expires, a person is barred from pursuing his claims in a court of law or tribunal.
To clearly capture the very essence of statute of limitation, Niki Tobi, JSC in Mercantile Bank of Nig. Plc. v. FETECO (Nig) Ltd. (1998) 2 NWLR (PT. 540) 143 at 156-157, para……. stated thus:
“A Statute of Limitation of action is designed to stop or avoid situations where a plaintiff can commence action any time he feels like doing so, even when human memory would have normally faded and therefore failed. Putting it in another language, by the Statutes of limitation, a plaintiff has not the freedom of the air to sleep or slumber and wake up at his own time to commence an action against a defendant.”
Thus, the statute of limitation has the primary aim of making a plaintiff/prospective plaintiff be on his toes and not sleep on his right to institute an action against a defendant.
STATUTE OF LIMITATION AND INCOME TAXES IN NIGERIA
The various income tax regimes in Nigeria made provisions on the procedure of assessing income taxes from taxpayers. The Federal Inland Revenue Service (FIRS) established under section 1 of the Federal Inland Revenue Service Establishment Act (FIRSEA) has the mandate to assess income taxes of all revenue accruing to the Federal Government. The various tax legislations administered by the FIRS are all enumerated under the provisions of the First Schedule to the FIRSEA. With this enormous power and onerous responsibility on the shoulders of the FIRS, it still has a time limit to which it can assess the income taxes of individuals and corporate entities as provided under the FIRSEA.
The various pieces of tax legislation allow the FIRS to make additional assessments even after the period stipulated by law for such assessment has elapsed. Under section 55 of the Personal Income Tax Act (as amended), section 66 of the Companies Income Tax Act (as amended), section 283 of the Petroleum Industry Act, 2021 etc., these tax Acts provide that the tax authority has the power to make additional assessment within a period of 6 (six) years from the specific year of assessment. The provisions of these tax Acts are reproduced hereunder for reference.
Section 66 (1) of the Companies Income Tax Act (as amended) provides thus:
“If the Service discovers or is of the opinion at any time that any company liable to tax has not been assessed or has been assessed at a less amount than that which ought to have been charged, the Service may, within the year of assessment or within six years after the expiration thereof and as often as may be necessary, assess such company at such amount or additional amount, as ought to have been charged, and the provisions of this Act as to notice of assessment, appeal and other proceedings shall apply to such assessment or additional assessment and to the tax charged thereunder. (underlining mine)
Similarly, section 55 (1) of the Personal Income Tax Act (as amended) provides thus:
“If the relevant tax authority discovers or is of opinion at any time that a taxable person liable to income tax has not been assessed or has been assessed at a less amount than that which ought to have been charged, the relevant tax authority may, within the year of assessment or within six years after the expiration thereof and as often as may be necessary, assess the taxable person at such amount or additional amount as ought to have been charged, and the provisions of this Act as to notice of assessment, appeal and other proceedings shall apply to that assessment or additional assessment and to the tax thereunder.” (underlining mine).
Section 283 (1) of the Petroleum Industry Act, 2021 provides as follows:
“Where the Service discovers or is of the opinion at any time that, with respect to any company liable to hydrocarbon tax, tax has not been charged or assessed upon a company or has been charged and assessed upon a company at an amount less than that which ought to have been assessed and charged for any accounting period of the company, the Service may within six years after the expiration of that accounting period –
(a) Assess the company, as often as may be necessary, with tax for that accounting period at such amount or additional amount in the opinion of the Service ought to have been charged and assessed; and
(b) May take any consequential revision of the tax charged or to be charged for any subsequent accounting period of the company.” (underlining mine).
On the other hand, under section 34 (2) of the FIRSEA, the FIRS has a distinct provision for the timeframe within which it can make such additional demands from a taxpayer. This distinct timeframe of 5 years is based on instances of underassessment of the taxpayer by the taxing authority or erroneous repayment of tax by the taxing authority to the taxpayer. Section 34 (2) of the FIRSEA provides as follows:
“Where any tax has been under-assessed or erroneously repaid, the person who should have paid the amount under-assessed or to whom the repayment has erroneously been made shall on demand by the proper officer, pay the amount under-assessed or erroneously repaid, as the case may be, and any such amount may be recovered as if it were a tax to which a person to whom the amount was so under-assessed or erroneously repaid were liable:
Provided that the appropriate officer shall not make any such demand after 5 years from the date of such under-assessment or erroneous payment unless such under-assessment or erroneous repayment was caused by the production of a document or the making of a statement which was untrue in any material particular.” (underlining mine)
Under the regime of section 34(2) of the FIRSEA, the FIRS is barred from making any further demand from a taxpayer or maintain an action against the affected taxpayer in respect of an under-assessment or erroneous repayment of tax. Specifically, the proviso under section 34(2) of the FIRSEA goes on to bar any officer of the FIRS from carrying out any act in furtherance of rectifying such a mistake after the effluxion of 5 years from the date of underassessment or erroneous repayment.
The position of the law is that where there is a provision on statute of limitation by any law or Act, the courts will calculate the timeframe and interpret same as provided under such law or Act. The courts in NDIC v The Governing Council of the Industrial Training Fund (2011) LPELR 19755 (CA), Nigeria Social Insurance Trust Fund Management Board v Klifco Nigeria Limited (2010) LPELR – 2006 (SC) and Ajayi v Adebiyi (2012) LPELR – 7811 (SC) held that statute of limitation is a defence available to a defendant to estop a plaintiff from going on with an already instituted matter in court which was filed after the period stipulated for the commencement of such suit. In civil matters, the courts have held that the pleadings of parties serve as the yardstick to calculate whether or not an aggrieved party is barred from commencing such a matter (see Elabanjo v. Dawodu (2006) 5 NWLR (Pt. 1001) 123; Egbe v. Adefarasin (No. 2) (1987) 1 NWLR (Pt. 47) 21. In this circumstance, the courts or the TAT will take a cursory look at the date of the Notice of Assessment issued by the taxing authority in respect of a specific accounting period to ascertain if the additional assessment is statute-barred. In the case of erroneous repayment of tax, the courts and the TAT will look at the date the erroneous repayment was made by the taxing authority.
The question is whether time runs against the FIRS in assessing income taxes in Nigeria? Better couched, are there exceptions to when time may not run against the taxing authority in making additional assessment of tax under the various tax regimes?
EXCEPTIONS TO THE APPLICABILITY OF STATUTE OF LIMITATION ON INCOME TAXES IN NIGERIA
Firstly, the provisos of section 55(2) of the PITA, section 66(2) of the CITA, and section 283(4) of the Petroleum Industry Act all provide for the period when the FIRS can additionally assess a taxpayer even after the expiration of the 6 (six) years as stipulated under the above listed tax regimes. The proviso under section 55 (2) of the CITA (as amended) provides thus:
“Provided that where any form of fraud, wilful default or neglect has been committed by or on behalf of any company in connection with any tax imposed under this Act or under the Companies Income Tax Act, 1961 the Service may at any time and as often as may be necessary, assess such company at such amount or additional amount as may be necessary for the purpose of making good any loss of tax attributable to the fraud, wilful default or neglect.”
The above cited proviso is the same as that of the other tax laws cited above. The FIRS will be empowered by the law to make additional assessment where it is shown that the taxpayer had willfully defaulted or neglected to pay the tax imposed on him; or there is an element of fraud that has been perpetrated by the taxpayer even after the effluxion of the 6 (six) year tenure from the specific accounting year.
Under the proviso to section 34(2) of the FIRSEA, the FIRS is empowered to make a demand from a taxpayer even after the effluxion of 5 years from the date a taxpayer was discovered to have been under-assessed or had received an erroneous repayment of tax only if it comes within the exceptions contained in the proviso:
“Provided that the appropriate officer shall not make any such demand after 5 years from the date of such under-assessment or erroneous payment unless such under-assessment or erroneous repayment was caused by the production of a document or the making of a statement which was untrue in any material particular.” (underlining mine)
Now, such a demand can be made by the appropriate officer of the FIRS where it is shown that the underassessment or erroneous repayment was caused by the production of a document or the making of a statement which was untrue in any material particular.
The Tax Appeal Tribunal (TAT) in Citibank Nigeria Limited v Rivers State Board of Internal Revenue (TAT/SSZ/017/2018) and Delta State Board of Internal Revenue v Ecobank (TAT/SSZ/005/2020), ruled in favour of the taxpayer. The rationale behind the judgment was that the taxing authority relied heavily on the provisions of section 55(2) of the CITA (as amended) to make additional assessments against the Appellants at the TAT. However, the taxing authority failed to prove that the taxpayers willfully neglected or defaulted in their payment of the income tax imposed on them nor did they prove any form of fraud perpetrated by the taxpayers. The TAT held in the cases cited above that the taxing authorities erred in law by making additional assessments from the taxpayers at the expiration of the 6-year period from the accounting year in question having failed to prove willful neglect, fraud or default in payment as provided by the Companies Income Tax Act (as amended).
We note the strange and conflicting provision of the First Schedule to the FIRSEA and the relevant provisions of the tax laws that provide for statute of limitation. The provision of the First Schedule to the FIRSEA bars the application of statute of limitation on any appeal brought before the TAT. This obviously, is contrary to the intendments of the draftsmen of the various tax laws applicable in Nigeria and the rulings of the courts on statute of limitation. The provision of a schedule to an Act is subordinate to the provisions in the body of the Act. This is the ruling of the court in Idris v ANPP (2008) 8 NWLR (pt. 1088) p109, para……. where Justice Omokri, JCA held thus:
“…it is important to note that on no accounts should provisions in the schedule to a statute override those enacted in the body of the statute. Therefore, where an ambiguity or conflict occurs in the construction of a statute relating to the provision in the body of the statute and those of the schedule, the former prevails over the latter.”
The provision of paragraph 19 to the First Schedule to the FIRSEA runs foul of our laws and practice in Nigeria, as disputes and litigation must have an end. Hence, the provision is and will remain inapplicable in respect of law of limitation in Nigeria.
CONCLUSION
It is clear from our tax laws that in limited circumstances the limitation period for assessments can be overcome by the tax authority. Until the taxing authority can prove a taxpayer willfully defaults or neglects to pay the tax(es) imposed on him or that there is an element of fraud, then, the taxing authority cannot reopen a tax case – or even go on to assess more taxes to the taxpayer. Also the taxing authority cannot reopen an issue of underassessment or erroneous repayment of tax after a period of 5 years from the date of such events unless, they were caused by the production of a document or the making of a statement which was untrue in any material particular.