Introduction

The statute of limitations is a fundamental legal principle that sets a maximum period within which legal proceedings must be initiated following an event. While the application and specifics of these statutes vary by jurisdiction, they are a common feature in tax systems worldwide. In the context of Nigerian tax law, the statute of limitations defines the timeframe within which the Relevant Tax Authority (RTA) can assess a taxpayer for a particular year of assessment (YOA).

Nigerian Tax System and Statutes of Limitations

In Nigeria, tax authorities have the authority to audit, assess, and collect taxes due from taxable persons. According to Nigerian tax legislation, the RTA can issue additional tax assessments within six years after the end of a YOA if it discovers or suspects that tax has not been assessed or has been under-assessed. This provision is reflected in the Personal Income Tax Act (PITA), Companies Income Tax Act (CITA), Petroleum Profits Tax Act (PPTA), and the Federal Inland Revenue Service (Establishment) Act 2007.

However, this six-year limitation does not apply in cases of fraud, willful default, or neglect. Unfortunately, the Acts do not specify who is responsible for proving fraud or willful default before an investigation can begin. This raises concerns about whether the RTA can review, assess, and collect taxes from any past period based on an assumption of such misconduct, thus questioning the effectiveness of the statute of limitations in Nigerian tax laws.

Tax Investigation and Record Keeping

In the event of a tax investigation, the RTA can review a taxpayer’s records from up to ten years prior. Nigerian tax laws, however, do not specify how long taxpayers must maintain their tax and accounting records. According to Section 332 of the Companies and Allied Matters Act (CAMA), a company is required to maintain accounting records for only six years from the date they were made. This provision seems to conflict with the need to provide records beyond six years during a tax investigation.

The National Tax Policy mandates timely audits and investigations by revenue agencies. However, if a taxpayer has not been audited for more than six years, they may be unsure whether they need to maintain records indefinitely for fear of future requests by the RTA. Six years should be sufficient for the RTA to review records and determine any additional tax liabilities.

In practice, taxpayers’ attempts to resist audits of statute-barred years have generally been unsuccessful. Tax authorities may conduct investigations based on undisclosed triggers or issue assessment notices based on tax returns submitted up to ten years prior. Taxpayers must then provide supporting documents, and failure to do so may result in a best of judgment assessment, shifting the burden of proof to the taxpayer. This situation is problematic given the statutory limitation of record-keeping requirements and the practical challenges of maintaining records for extended periods.

Legal Implications and Global Comparisons

Taxpayers should not be obligated to provide documents beyond six years due to statutory limitations imposed by CAMA. The accused is not required to assist in proving their case. While RTAs have the authority to investigate and issue additional assessments, they must prove fraud, willful default, or neglect before proceeding. This proof should be obtained from a competent court, ensuring that the statute of limitations in tax legislation is effective.

For comparison, in the United States, the Internal Revenue Service (IRS) can review records within three years from the original tax return filing date or its due date. This period extends to six years if there is a 25% omission of gross income. In cases of fraud, there is no limitation on how far back the IRS can review. The IRS must prove fraud with credible evidence beyond a reasonable doubt in criminal cases, such as failure to file a return or filing a false return.

Conclusion

Nigerian tax laws provide a statute of limitations that should be strictly interpreted to avoid punitive effects on taxpayers. Continuous additional assessments based on unproven allegations of fraud, willful default, or neglect undermine this limitation. Legislative amendments may be needed to clarify the ambiguity regarding the statute of limitations’ existence and application. While the RTA’s power to review taxpayers’ records is not disputed, it is crucial that this is done correctly to prevent system abuse and ensure that compliant taxpayers are not burdened with excessive documentation requirements for statute-barred years.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.