In Nigeria, tax disputes are common, just like in other sectors. A tax dispute arises when there is a disagreement between a taxpayer (whether an individual, business, or organization) and the tax authority over issues such as tax assessment, liability, payment, or compliance. These disputes often occur when taxpayers challenge the amount of tax imposed, penalties for non-compliance, or interpretations of tax laws and regulations made by the Federal Inland Revenue Service (FIRS) or state tax authorities.
Factors contribute to tax disputes, with the most frequent being:
- Tax Assessments: These disputes emerge when a taxpayer questions the accuracy of an assessment issued by tax authorities.
- Tax Liabilities: Disagreements about the total tax owed, especially over deductions, exemptions, or credits, are common.
- Penalties for Non-compliance: Disputes may arise over fines or penalties imposed for late filing or non-payment of taxes.
- Double Taxation: Taxpayers sometimes argue they are being taxed twice on the same income or asset.
Interpretation of Tax Laws
Conflicts can also arise due to differing interpretations of tax laws and regulations.
To resolve these tax disputes in Nigeria, it is via two key channels: the courts and the Tax Appeal Tribunal (TAT). The courts, including the Federal High Court, handle complex tax matters that may involve legal interpretation and constitutional questions. Meanwhile, the Tax Appeal Tribunal serves as a specialized body designed to adjudicate tax-related disputes more efficiently, offering an alternative forum for taxpayers and tax authorities to resolve issues without the formalities of regular courts. Both institutions play a crucial role in ensuring fair and effective resolution of tax disputes in the country.
Tax disputes can be initiated either by the taxpayer or by the Relevant Tax Authority (RTA). Where a taxpayer is dissatisfied with the tax assessment levied by the RTA, he shall commence by objecting to the tax assessment by way of Notice of Objection which must be done within 30 days of receiving the tax assessment. Depending on whether it is a federal or state tax, the notice of objection shall be made to either the Federal or State Inland Revenue Service to review the tax assessment along the lines of the objection raised. Where the RTA agrees with the objection, the assessment will be amended accordingly. However, where the RTA disagrees with the objection, a Notice of Refusal to Amend (NORA) shall be issued. Within 30 days of the receipt of the NORA, the dissatisfied taxpayer shall file an appeal at the Tax Appeal Tribunal (TAT), or file an action at the relevant federal or state high court.
The next step to be taken by the taxpayer is hugely dependent on the type of tax, as there exist certain differences in the commencement of disputes over different types of taxes. The differences are set out below:
Personal Income tax: Disputes relating to Personal Income Tax may be commenced before the revenue Courts, customary Courts, Magistrates’ Courts, State High Courts, the TAT or the Federal High Court, depending on the jurisdiction of the Court, the amount of tax involved, and whether the action is against the federal or state tax authority.
Corporation tax: Company income tax is a federal tax and all disputes relating to its payment are commenced before the TAT or the Federal High Court.
Wealth taxes: Individuals are not taxed on their net wealth as a separate tax in Nigeria. Property taxes, withholding tax on dividends and capital gains taxes are charged on companies or individuals. Commencement of tax disputes would depend on the taxpayer and the tax base.
Partnerships: For tax purposes in Nigeria, in partnerships, it is the individual partners that are taxed on their respective shares of the partnership profit. Disputes arising out of taxes on the individual partners may be commenced before customary Courts, Magistrates’ Courts, State High Courts, the TAT or the Federal High Court, depending on the jurisdiction of the court, the taxpayer, the amount of tax involved and whether the action is against the federal or state tax authority.
Indirect taxes: Indirect taxes in Nigeria include Value-Added Tax (VAT) and customs and excise duties. As with federal taxes, disputes are initiated at the TAT and the Federal High Court. However, where it involves individuals, the commencement procedure for individuals and partnerships as listed above applies.
Stamp duty: This may be commenced before the State High Courts, the TAT or the Federal High Court depending on whether the duties accrue to the federal or state government, and whether they involve individuals, partnerships or corporations
Pursuant to the provisions of the Tax Appeal Tribunal (Procedure) Rules, 2021, to commence proceedings before the TAT, an appellant must file a Notice of Appeal using Form Tax Appeal Tribunal 1A, accompanied by the prescribed fees. The TAT Rules mandate that the appellant deposit 50% of the disputed amount into a designated account to validate the appeal. The Notice of Appeal should contain: the grounds of appeal, the reliefs sought, names and addresses of all parties affected by the appeal, service addresses for both the appellant and respondent. The respondent has 30 days to respond in Form Tax Appeal Tribunal 3. The onus of proof rests on the appellant, and after hearing both parties, the tribunal can confirm, reduce, increase, or annul the assessment. Proceedings can also take place remotely via virtual platforms. Appeals against TAT decisions must be made to the Federal High Court within 30 days of the TAT’s final decision. Failing to appeal within this timeframe makes the assessment or demand notice final and conclusive.
The Tax Audit Process
Tax audit is a process whereby tax returns filed by taxpayers are assessed in accordance with the provisions of the law. A tax audit involves an examination of a taxpayer’s tax returns to establish that the financial information at the base of the tax returns is reported correctly and completely. Under the self-assessment regime, taxpayers are expected to file returns monthly, quarterly, and yearly depending on the nature of taxes being filed. The taxpayers must willfully declare taxes and file returns with the FIRS.
The Federal Inland Revenue Service, in their way of checking the compliance level of the relevant taxpayers, may decide to carry out it’s compliance check through the following:
- Desk Audit: This is the type of audit process whereby the tax officer reviews the documents submitted to the tax authority monthly or annually in line with the provisions of the tax law.
- Field Audit: This is an audit process whereby tax officers directly examine the documents submitted and question the taxpayer onsite.
A typical tax audit process comprises of the pre-audit stage, field audit stage and post-audit stage:
- Pre-Audit Stage: This involves the tax audit planning stage and consists of the following activities; selecting taxpayers; notifying taxpayers of tax audit exercise and selecting tax audit teams.
- Field Audit stage: This commences on the agreed date in the taxpayers premises and signifies the beginning of the tax audit cycle. The activities at this stage are carried out in the premises of the taxpayer. The service of the assessments and demand notices on the taxpayer signifies the end of the audit cycle.
- Post Audit Stage: This consists of activities relating to the collection and appeal procedure and it covers: payments, objections and appeals by taxpayers based on the provisions of tax laws.
Several factors can trigger a tax audit, including: Fluctuations in assessable profits, claims for large capital allowances, refund claims for VAT or withholding tax, high expense-to-revenue ratios, related party transactions, business restructuring, mergers, or acquisitions, unreported revenue or discrepancies between financial statements and tax returns.
When undergoing a FIRS audit, taxpayers are expected to provide key documents which includes; an audited financial statements, trial balance, bank statements, revenue and cost ledgers, supporting documents for payments, filed tax returns and evidence of remittances. These documents vary depending on the nature of the company’s business but are essential for a smooth audit process.
Conclusion
Tax disputes and audits are a critical part of the Nigerian tax system, ensuring that taxes are fairly assessed and collected. By understanding the common causes of disputes, the resolution channels, and the audit process, taxpayers can better navigate these complexities and ensure compliance with tax laws.
Contact Us
For premier ways of handling Tax Disputes and Audits in Nigeria, contact Chaman Law Firm today. Our offices are conveniently located in Lagos, FCT Abuja, Ogun State, and the UK. We are readily available to assist you with your legal needs. Whether you require consultation, representation, or ongoing legal support, Chaman Law Firm is your trusted partner in Tax Disputes and Audits.
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