The liability to pay tax, in Nigeria, must be based on a statutory provision. The Section of any statute that creates a liability to pay tax is known as the charging provisions. Section 9(1) CITA231 provides that tax shall, for each year of assessment, be payable at the rate specified in subsection (1) of Section 40, of this Act upon the profits of any company accruing in, derived from, brought into or received in Nigeria in respect of:
(a) Any trade or business for whatever period of time such trade, or business may have been carried on;
(b) Rent or any premium arising from a right granted to any other person for the use or occupation of any property; and where any payment on account of such a rent as is mentioned in this paragraph is made before the expiration of the period to which it relates and is included for the purposes of this paragraph in the profits of a company, then, so
228 Section 69(5) CITA, Section 58(3) PITA.
229 Section 59 FIRS(E) Act. The provisions of Section 71-75, PITA on Appeal Commissioners are no longer applicable.
230 Section 76 CITA.
231 Similar provision on taxation of individual is in Section 3 of PITA.
111 much of the payment as relates to any period beginning with the date on which the payment is made shall be treated for these purposes as accruing to the company proportionally from day to day over the last mentioned period or over the five years beginning with that date, whichever is the shortest.
(c) Dividends, interest, royalties, discounts, charges or annuities.
(d) Any source of annual profits or gains not falling within the preceding categories.
(e) Any amount deemed to be income or profit under a provision of this Act, or, with respect to any benefit arising from a pension or provident fund, of the Personal Income Tax Act.
(f) Any amount of profits or gains arising from acquisition and disposal of short term money instruments like Federal Government securities, treasury bills, treasury or savings certificates, debenture certificates, or treasury bonds.
From the forgoing, a taxpayer is liable to pay tax, only when he is in receipt of an
income chargeable, as against capital receipt.232 Generally, every income is chargeable, except it falls into any of the allowable deductions or exemptions provided under any statute.
The Company Income Tax Act233 did not define the word income, however the Personal Income Tax Act234 defines income as follows: ‗income includes any amount deemed to be income under the Act‘ this definition falls short of a definition, at best it is a tautological definition, and does not serve the purpose of a definition. The Webster Dictionary defines income as ‗whatever is received as gain e.g. wages or salary, receipts from business, dividends from investment etc.‘235 It was also defined by the Chambers 21st Century Dictionary as ‗money received over a period of
232 MN Umenweke, op cit, p. 99.
233Op cit
234Section 3(2) b.
235 LT Lorimer, The New Webster’s Dictionary of the English Language (Int. Ed.)(New York: Lexicon Publications Inc., 1995) p. 489.
112 time as payment for work etc; or as interest or profit from shares or investment.‘236Adeshola defined income as ‗the amount of an individual‘s consumption outlays plus the increase or minus the decrease in his net worth during a particular time period.‘237 Income was defined by Somolu J. in Williams v Reginal Tax Board238as follows: ‗Income means gains, or profit from any trade, business, profession or vocation. It is excess of returns over outlay and the gains as profits.‘From the above definitions, it is clear that an income implies a gain or profit from a business, capital investment or wages.
It is also important to define the word profit. The Cambridge International Dictionary of English defines profit as ‗money that is earned in trade or business especially after paying the cost of producing and selling goods and services.‘239
Similarly the Dictionary of English Law defines profit as ‗advantage or gain in money or in money‘s worth.‘240 Nigerian statutes did not define profits; also the UK Taxes Act does not clearly specify what constitutes profit.241 In the UK, the earliest judicial pronouncement as to what constitutes profit was given in 1888 by Lord Herschell in Russell v Aberdeen Town and Country Bank,242 he stated that: ‗…the profit of a trade or business is the surplus by which the receipts from the trade or business exceed the expenditure.‘
Gains on the other hand have been defined by the Chambers 21st Century Dictionary in the verb form to mean ‗to get, obtain or earn (something desirable), to win (especially a victory or prize) to have or experience an increase in something.243It appears that from the definitions above income, profit and gains are similarly and can be used interchangeably. Thus, it has been
236 M Robbison, Chambers 21st Century Dictionary (London: Chambers Harrap Publishers Ltd, 2001)
237 DM Adesola, Income Tax Law and Administration in Nigeria, culled from MN Umenweke, op cit, p. 91.
2382012, 6 TLRN, 130, pp at 132.
239 P. Procter (ed.) op cit.
240 J Earl, TheDictionary of English Law, (London: Sweet and Maxwell Ltd.,) Vol 1.
241 J Law and EA Martins (eds), Oxford Dictionary of Law, 7th ed. Op cit. p. 430.
242(1888) 13 AC 418.
113 observed that ‗a thorough examination of the above definitions of income, profit, and gain will reveal that they all boil down to the same meaning, income, profit or gain means an increase in worth or spending power.‘245
Section 9 of the Companies Income Tax Act, places a liability to tax on the profits of any company accruing in, derived from, brought into, or received in. These words were also used in the Income Tax Management Act,246but were not retained in the Personal Income Tax Act (as amended).247Instead the charging provisions of PITA248 uses the words ‗from a source inside or outside Nigeria‘ which is easier to construe.
The charging provisions of the tax statutes of many Commonwealth countries also have similar provisions.249 For instance, Section 51 of the New Zealand Land Income Tax Assessment Act 1900, charges tax on ‗all profits derived from and / or received in New Zealand.‘ Also, Section 42 of the Victoria Income Tax Act charges profits earned in or derived from Victoria.
Similarly, Section 5 of the Trinidad and Tobago Income Tax Ordinance 1940, charges any income ‗accruing in, derived from or received in the colony. Section 10(1) of the Singapore‘s Income Tax Act imposes tax on income ‗accruing in or derived from Singapore or received in Singapore from outside Singapore.250
The meaning of the words ‗accruing in, derived from, brought into or received in‘ needs to be further examined.Accruing in is a combination of the words ―Accrue‘ and ‗in.‖ The words accrued in and derived from does not seem to have the same meaning, however in CT v Kirk,251 the word derived was treated as synonymous with the word arising or accruing. This was
243Opcit.
245 MN Umenweke, op cit, p. 93.
246 1961
247Op cit.
248Section 3.
249 MN Umenweke, op cit, p. 112.
250 Cap 134 Laws of Singapore www.singaporelaw.sg Accessed on the 1st may, 2016.
114 followed in the Nigerian case of Offshore International SA v FBIR.252Clearly to derive and to accrue cannot mean the same thing. The Merriam Webster Dictionary253 defines derive as follows: ‗to take, receive, or obtain especially from a specified source‘ while accrue is defined as
‗to accumulate or be added periodically‘254 Therefore derived from is targeting tax from income earned outside Nigeria while accrue in is targeting tax from income earned within Nigeria. In this direction ithas been observed, that:
It would seem clear that ‗accruing in‘ was intended to cover gains or profits arising in Nigeria, while ‗derived from‘ is charged to tax gains or profits that had their source in Nigeria even if they became due and payable elsewhere.255
The arguments on the difference between accruing in and derived from could have been avoided by simply stating that any income from any source is deemed to have accrued in Nigeria and are taxable subject to the exceptions provided by extant tax laws and double taxation agreements. This will help to achieve the intendment of the Legislature to bring every income within the tax net, irrespective of where it is earned.
The words ‗Brought into or Received in‘, used in Section 9 of CITA256 appears to have the same import with the words accruing in and derived from. It is something that is brought into that you receive in, in other words you can only receive in what is brought into. Whether it is necessary to use these words in the Act is another subject of debate. It has been argued that the words appears unnecessary and of no effect,257 because Section 13 of CITA258 provides to the
251(1900) A C 588 at 592.
252Unreported FHC decision, cited in MN Umenweke, op cit, p. 123.
253 Merriam Webstar E-Dictonary, op cit.
254Ibid.
255MN Umenweke, op cit, p. 125
256Op cit.
257Ibid at 140.
115 effect that the profit of a Nigerian company shall be deemed to accrue in Nigeria wherever they have arisen and whether or not they have been brought into or received in Nigeria.259 It further provides that the profits of a company other than a Nigerian company from any trade or business shall be deemed to be derived from Nigeria;260if that company has a fixed base in Nigeria. Thus, it was further noted that: ‗…as there is no alternative to a company being either Nigerian company or a company other than a Nigerian company, the fact of any company profits having been brought into or received in Nigeria or not is irrelevant for taxation purposes.261 While this argument seems tenable, it is my position that the real issue is whether the words ‗brought into or received in‘ in both section 9 and 13 of CITA262 are the most appropriate words to convey the intendment of the Legislature. It is obvious that they are not, it is therefore suggested that in place of the words ‗brought into or received in‘ the words ‗from any source inside or outside Nigeria should be used. This is easier to construe, thus, Section 9 and 13 of CITA263 should be amended by substituting the words ‗accruing in, derived from, brought into or received,‘ with the words, ‗from any source inside or outside Nigeria.‘
As a general rule, every income is subject to tax, however, there are exemptions, reliefs, allowable deductions, provided by the relevant statutes. These exemptions and reliefs are intended to stimulate and encourage investment in certain sectors of the economy. In chapter four of this dissertation the researcher shall examine whether tax incentives have been able to create the necessary impact on trade and investment in Nigeria.
258Op cit.
259Ibid.
260Ibid.
261MN Umenweke, op cit, p. 40.
262Op cit.
263Op cit.
116 In this chapter, an attempt was made to look at the devolution of taxing powers in Nigeria. Also, the structure for the administration of tax laws in Nigeria was examined. It was necessary to undertake these analyses to lay a proper foundation for further discussions in chapter 4 and 5 of this work. In subsequent chapters, I shall demonstrate how the structure of tax administration in Nigeria, encourages multiple taxation with the attendant negative impact on trade and investment.
117 CHAPTER FOUR
IMPACT OF TAXES ON TRADE AND INVESTMENT IN NIGERIA.