Tax Limitation Period in Nigeria

Certainty is one of the hallmarks of a good tax system. In this regard, a tax payer should know the timeframe within which he can be held responsible for previous noncompliance.

This is probably one of the reasons the National Tax Policy (NTP) canvasses for periodic and timely audit by tax authorities of returns filed by tax payers. It notes that this would ensure that difficulties associated with recovery of relevant information/documents by tax payers due to passage of time (loss or deterioration of information, deliberate destruction of information in line with tax payer's policy, staff movement, liquidation of taxpayer etc.) is minimised.

This perspective is consistent with the provisions of the Companies Income Tax Act (CITA), the Personal Income Tax Act (PITA) and the Petroleum Profit Tax Act (PPTA) which prescribe that tax payers have an opportunity to recover any overpayment of tax within a six year period. Thus, the tax laws impose a six year limitation (from the relevant year of assessment) on the timeframe within which the tax authority may raise additional assessment in connection with the returns filed by the tax payer. The Federal Inland Revenue Service (Establishment) Act (FIRSEA) further stipulates that no officer shall make a demand for an under-assessment or erroneous repayment of tax after five years.

Therefore, it is logical that where the tax authorities have not carried out an audit on a tax payer for a period of more than six years (or five years in the case of under-assessment or erroneous repayment of tax), the period beyond six or five years (as applicable) becomes statute barred. Ordinarily, the above, should bring some form of comfort to the tax payer. However, tax authorities are usually not open to precluding any assessment year for tax audit even where the relevant periods have become statute barred. The legal weapon used by the tax authorities to open the barred period is a recovery of tax on the basis that the taxpayer has probably been fraudulent in the tax returns filed or has wilfully defaulted or neglected to file appropriate returns with the tax authorities or otherwise has actively facilitated the circumstances from which he now seeks to benefit.

This triggers a tax investigation on the basis of an alleged tax evasion rather than a routine or normal audit. Tax evasion is a criminal offence and therefore not statute barred. Hence, where at any time and as often as necessary the tax authorities are 'of the opinion' that fraud, wilful default, neglect or misinformation has been committed by the tax payer, it may commission an investigation to recover any lost tax.

Depending on the direction of interpretation, a review of the provisions around a tax payer's right to reclaim excess taxes either shows a strict six year window (according to CITA) or a refund after a proper audit by the tax authority and eligibility rules and conditions, though subject to the approval of tax authority's management board (according to FIRSEA). Obviously, when the provisions of any of the tax laws are inconsistent with the provisions of the FIRSEA, the FIRSEA prevails.

But then, is there a risk that a tax payer who fails to institute a tax recovery process within the six year window would be exposed to a forfeiture of excess taxes paid to the tax authorities? What happens if the overpayment was due to an ambiguity in the law which is subsequently clarified in favour of the taxpayer by the judiciary?