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PURPORT OF WITHHOLDING TAX

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✓ Withholding Tax (WHT) or retention tax is really a term of art/generic expression (or sui generis) devised by tax authorities for tax administration through the method of deduction of tax at source from income including payments due to a benefiting party, by the paying party, for onward remittance to the appropriate tax authority of the benefiting party – See 7Up Bottling Company Plc v. L.S.I.R.B. (supra) at pages 617-618 thus: ‘The way I understand it, is that the withholding Tax (WHT) system is a form of tax administration which enables tax authorities to recover at source from taxable persons tax from payment made for certain services which such persons render to another. What is deducted by the person who pays for the services is a percentage of this payment. Now if so deducted, when the taxable person’s tax for the year is duly assessed, whatever had been deducted is credited to him in a manner that he does not pay tax twice on the same income accruing from that payment. Under both PAYE and the WHT systems, the employer or payer who pays for the services of his employee/taxable person, by way of emolument or the cost of supplies or other services to a taxable person, is obliged to deduct and remit tax so deducted (from source) to the authority. He is the Agent of the tax authority as it were. This is the effect of section 72(5) of Decree 104 (supra) and Section 4 of the Regulations of 1997. We are unable, with respect to agree with the appellants that there is no statutory provision for WHT. It must be realized that the employer/person deducting the tax from source is not the assessable person or tax-payer under the tax laws. As earlier stated, if anyone needs object to the assessment or deduction, it should be the tax payer or tax assessable person.’ – J.S. Ikyegh, JCA. Nigerian Breweries v Oyo BIR (2012) – CA/I/M.25/2007

✓ In other words, WHT or retention tax occurs in any of the statutorily provided transactions respecting goods and services when payments from one person to another, including corporate bodies, are expected to be deducted at source on specified percentage on the total value of the transactions and remitted to the relevant tax authority within the statutory period on pain of penalty, in the event of default by the payee. In effect WHT or retention tax is required by tax legislation to be withheld by a party acting as a conduit or handler of the tax authority from each payment made to another contracting party from income or services rendered and/or arising from such transactions and remitted to the tax authority by the withholder within the fixed statutory period. By the procedure the payee of an item of income temporarily withholds tax from the payments and pays same in lump sum to tax authority which acts as check against tax evasion and delinquency in filing tax returns by the payee.

— J.S. Ikyegh, JCA. Nigerian Breweries v Oyo BIR (2012) – CA/I/M.25/2007

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SERVING NOTICE OF TAX ASSESSMENT ON THE TAX PAYER MUST BE DONE

In this regard, the case of Fasogbon v. Layande (1999) 11 NWLR (Pt. 6280) 543 becomes very apt, wherein it was held at pages 556 557 that: “From the steps that must be taken before the tax payable is evolved, to argue that serving notice of assessment on the tax payer is not part of the procedure under the decree is unthinkable. It is like a Romeo without a Juliet. In the realm of the law, to say that the tax payer who by operation of personal income tax is legally indebted to the tax authority for the assessed income tax is not informed of the assessment of the income tax payable would be an imposition, an arbitrary act that affects his civil rights and therefore infringes upon his civil rights and of fair hearing under Section 36 of the 1999 Constitution of the Federal Republic of Nigeria.”

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PROCEDURE BY TAX AUTHORITY WHERE FAILURE TO MAKE NECESSARY TAX RETURNS

My understanding of the aforestated, is that where a taxable person fails to make the necessary tax returns in a year as prescribed by the relevant tax authority, the latter shall after the expiration of the period allowed proceed to make necessary assessment of the amount of tax due based on its best of judgment and such amount assessed must be delivered to the taxable person for his information and compliance. If after there is a failure or refusal to comply then a demand notice may be sent to him or the two may be sent together to facilitate the process of tax payment. Two points are required to be made clearer here. The first is that the assessment shall be on yearly basis for purposes of clarity and not a lumped up assessment. This is to ensure that tax payable for each year is clearly set out. The total number of years assessed where applicable may however be attached together with the demand notice and delivered to the taxable person. In other words, a demand notice is not the same as assessment notice as contended by the Respondent.

— S.C. Oseji, JCA. Access Bank v Edo State BIR (2018) – CA/B/333/2015

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TAX IS LEVIED WHERE THE PERSON RESIDES

The issue here is that of Personal Income Tax provided for by the PITA 2015. The tax is levied where the person resides.

— I.E. Ekwo, J. Daudu v FIRS (2023) – FHC/ABJ/TA/1/2021

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TAXES FEDERAL GOVERNMENT IS EMPOWERED TO IMPOSE

I have stated the gravamen of the issues of the Appellant. In A.-G., Rivers State v. FIRS (unreported) (supra), this Court examined the provisions of Items 58 and 59 of Part 1 of the 2nd Schedule to the 1999 Constitution (as amended) and held that law has specifically designated the taxes that the Federal Government is empowered to impose and collect to the exclusion of other taxes like Value Added Tax, Withholding Tax, Education Tax, and Technology Tax. Earlier, this Court in Emmanuel Chukwuka Ukala, SAN v. A. – G., Fed. & Anor. (Unreported) (Supra) per Oshomah, J., had given a similar decision. In my candid opinion, these decisions have knocked the bottom off the decision of the TAT. It must be noted that these decisions are by Courts of Coordinate jurisdiction. They express the jurisprudence on the subject to my satisfaction and I am thereby persuaded. I have no reason therefore to make a conflicting decision to them. The Respondent ought to have been guided by the decision in Emmanuel Chukwuka Ukala, SAN v. A. G., Fed. & Anor. (Unreported) (Supra) being that it was decided on 12th December, 2020 long before the TAT gave its decision on 23rd June, 2021 per page 1038 of the Record.

— I.E. Ekwo, J. Daudu v FIRS (2023) – FHC/ABJ/TA/1/2021

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TRANSACTION LOCATION, AND NOT RESIDENCE, DETERMINE WITHHOLDOING TAX

It is clear to me that the residence of third parties engaged in transactions attracting WHT with a payee is not material. The significant factor is the venue or place the transactions were effected. Once it is shown the transactions with third parties were implemented in Oyo State by way of supplying the transacted items or goods or services in Oyo State, whether the supplier or group of suppliers are not resident in Oyo State, the transactions that arose from the contractual arrangement for the sale or purchase of the goods or services would be the items subject to 5% WHT liability, not the manufacturing business of the payee itself. The WHT is therefore on the goods and services contracted for, not on the manufacturing concern of the payee.

– J.S. Ikyegh, JCA. Nigerian Breweries v Oyo BIR (2012) – CA/I/M.25/2007

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DEFINITION OF INCOME FOR THE PURPOSE OF TAX

See Longsdon v. Minister of Pensions and National Insurance (1956) 1 ALL E.R. 83 defining “income” inter-alia as “that which comes in.” While Lord Chetwode v. IRC (1977) 1 ALL E.R. 638 held inter-alia that “income” means gross income as reduced for the purpose of tax assessment by deductions specified in the tax code. Consequently, any contractual transaction in which something of exchangeable worth proceeding from the property, severed from the capital, is drawn by the recipient for separate use or benefit is “income” – See Goodrich v. Edwards 255 U.S. 527 referred to in the authoritative work titled Encyclopedia of Taxation Law and Practice (First Edition) page 138 by Sir T.A. Nwamara, and 7up Bottling Company (supra) on the sugar transaction between the company and third parties which was held to attract WHT liability in that case.

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