Tax Substitution: Double taxation of entrepreneurs and individuals by federal regulators in Nigeria

To avoid double taxation, the tax system spells out which government unit (federal, state or local) has the power to levy taxes on specific persons and matters.

The Federal Inland Revenue Service Establishment Act 2007 provides in Section 25 that the Federal Inland Revenue Service (FIRS – primary tax agency for the federal government) shall have the power to administer the following taxes:

  1. Companies Income Tax Act (CITA).
  2. Petroleum Profits Tax Act.
  3. Personal Income Tax Act (PITA).
  4. Capital Gains Tax Act.
  5. Value Added Tax Act.
  6. Stamp Duty Act
  7. Taxes and Levies (Approved List for Collection)

In Nigeria, CITA is applicable to companies registered under Part A of Companies and Allied Matters Act 1990, while PITA is applicable to individuals and Business Names. For this discourse, our focus will be on PITA.

PITA is the tax payable by all individuals, registered businesses and partnerships which are not companies. Part II of the Taxes and Levies (Approved list for collection) Decree No. 21 of 1998, LFN which is incorporated into the 2007 Act, provides that it shall be the sole responsibility of the states to collect all personal income tax in respect of ‘Pay As You Earn’ (PAYE) and Direct Assessment. The PAYE model is applicable to those in paid employment, while those in businesses carry out Direct Assessment and remit their taxes to the state.

In effect, reading both legislation together ({Approved List of Collection} Decree No. 21 of 1998 and Federal Inland Revenue (FIRS) Establishment Act 2007), the FIRS have no authority to collect taxes from individuals, registered businesses and partnerships which are not registered companies, these fall under the remit of the state tax authorities.

Legal personality of a company VS a business name

The position under the tax legislation on Business Name taxation finds ready support in case law treatment of Business Names. In Nigerian Law following the common law tradition, a company has a legal entity which is distinct from that of its proprietors and can act, sue or be sued in its registered name without recourse or liabilities to its proprietors. However, a Business Name is not considered as a distinct entity with legal personality and can only act through its proprietors. Hence, in law, the proprietor(s) of a Business Name is personally liable for any acts of the Business Name and can only sue and be sued through its proprietors.

The Court of Appeal, Abuja Division, in 2014, in the case ofFederal Capital Development Authority & Ors v. Unique Future Leaders International Limited, following the decision inBankole & Ors v. Emi Industries Limited(2012) (C.A.), held that a registered Business Name is not a Juristic Person and so cannot enter into any contract or transaction in its Business Name. The Court of Appeal also held that a registered Business Name can enter into contracts through its trustees or in the individual names of the Proprietor or Proprietors of the Business Name.

In company law, the law sees no distinction between the Business Name and its proprietor(s), therefore it follows, that categorising them along with individuals in matters of taxation is the correct position of the law. It also means that the state tax authorities, not the FIRS, are the proper regulator to oversee Business Name taxation.

Recent action of the FIRS 

Recently, the Federal Inland Revenue Service intensified its efforts to collect taxes from default payers by appointing banks and other financial institutions as collection agents. Many account holders woke up to restricted access to their accounts as a large number of accounts were restricted by Banks between the months of August 2018 and February 2019 causing hardship, consternation and disrupting business transactions.

The legality of this action has already been questioned in different forum. Some legal colleagues have given their opinions on appointment of 3rd parties as collection agents as part of tax substitution and have concluded that although section 31 of the Federal Inland Revenue Service (Establishment) Act, 2007 (“FIRS Act”) which also embodies Section 49 of the Companies Income Tax Act (“CITA”), 1990 and Section 50 of the Personal Income Tax Act (“PITA”) does empower the FIRS to appoint 3rd parties as collection agents, the said power can only be exercised where the tax has become payable

While the debate subsists on limitations imposed on this power; such as the definition of when a “tax is payable” and if an Agent is obligated to accept such appointment by the FIRS, there is a salient point which the process has thrown up which is being overlooked. This point is: does a Tax Identification Number (TIN) subvert legal personality as recognised by Law with regards to Business Names? This point is of importance as the freeze was not only imposed on Companies but also on Business Names, simply because the banks have mandated Business Names to obtain a TIN. Does this mean that Business Name holders should now pay their taxes to the Federal Government instead of the State Government? And for those who might feel that this move was to capture Value Added Tax (VAT) regarding Business Names, then why was this not also imposed on business individuals who run their businesses under their birth names?

Though Value Added Tax (VAT) is within the remit of the FIRS, the Value Added Tax Act 2004 stipulates certain goods and services such as medical goods and services, sales of books and educational materials, sales of basic food items and baby products, and all exports goods and services which are exempted from VAT, meaning any business involved in such goods and services do not pay VAT. The current action by the FIRS through the banks did not seek to distinguish Business Names operating within the exempted space.

Also, the only mention of a recognised number for the payment of VAT is in section 6 of the Value Added Tax (Amendment) Act 2007, which refers to the VAT registration number. This clearly shows that upon registering with the FIRS, one is automatically issued with a VAT registration number. So, why do the Banks insist on Business Names acquiring a TIN from FIRS, rather than a VAT registration number? Why does the FIRS issue TIN number to Business Names, instead of VAT registration numbers knowing it has no power to administer tax on Business Names?


The Central Bank of Nigeria (CBN) is saddled with the responsibility of making policies and guidelines which regulates the banking sector of Nigeria and stipulates the various requirements for opening an account with any bank in Nigeria. After the implementation of the AML/CFT Regulation of 2009 and given that financial inclusion is of high importance to the CBN; bearing in mind the need to ease the opening of bank accounts by socially and financially disadvantaged persons, the CBN in a circular FPR/DIR/CIR/GEN/02/001 of 18th January 2013 published its three-tiered KYC requirements for opening various bank accounts in Nigeria. This document makes no mention of TIN as one of those requirements.

However, in its circular with ref no. FPR/DIR/GEN/CIR/01/004 dated 24th February 2014, the CBN felt the need to harmonise the forms used by banks for customer due diligence, so introduced a Form B (Account Opening Form for Incorporated and Non-Incorporated Entities). It was this Form B which introduced TIN amongst other new requirements. 

It is not clear if the inclusion of TIN in the form was a request from the FIRS, as one is quite uncertain why the CBN proposed same forms for both Companies and Business Names knowing that both have different legal personalities and that the income taxes of Business Names are paid by the proprietors through Direct Assessment. It was this Form B which lead to the one size fits all approach of the banks, as a more useful approach would have been to request for TINs for companies and VAT Reg. numbers for Business Names.

Interestingly, Form A which was also issued by the CBN for opening accounts for Individuals, also contains a provision for TIN, but the banks have never insisted on having individual tax numbers before opening a bank account for an individual, making it obvious that the Tax Identification Number requested by the banks in Form A are those issued by FIRS.


It is obvious that the legal personalities created by law cannot be subverted by the Banks, CBN or the FIRS. Regulatory action must stay within the confine of established laws. The practice of requesting that Business Names obtain TIN from the FIRS is wrong. If identification is required for tax purposes by banks, the Payer ID issued to Business Name proprietor(s) for purposes of Direct Assessment by State revenue authorities should suffice. If the CBN is interested in capturing the appropriate taxes due from Business Names to FIRS, then Form B should be amended to include VAT registration number, as that is the only tax due to FIRS from a Business Name.

In 2017, the CBN in its circular with ref number: BPS/DIR/GEN/CIR/04/005 dated 3 July 2017, introduced the Bank Verification Number (BVN) which collects identification data from all banks on their customers, thereby ensuring the effectiveness of Know Your Customer (KYC). This rather elaborate verification is sufficient customer due diligence or KYC identification and unless there are other peculiar reasons why TINs are required to open a bank account, they should be removed from the CBN Form B, as the Bank is not a tax authority.

While the action of restricting accounts without proper legal authorisation flies in the face of due process and should be challenged with heavy damages imposed on banks allowing themselves to be so used, it is important that the regulatory bodies clarify the position on Business Names. This category allows many small and medium scale businesses to enter the formal sector. This group require protection and not to be used as battered ram in double taxation. 

The FIRS and the CBN as a matter of importance should stop issuing TIN to Business Names or requiring that they have one to open bank accounts. The dichotomy this creates, where Business Name accounts are restricted and subject to double taxation while proprietors conducting businesses with accounts bearing their birth names are spared, will only force more business out of the formal sector and it does no good to the tax base of the states or inclusive financial services.

Omuli Iwere is a seasoned legal practitioner, with a great understanding of the corporate climates in both Nigeria and beyond and currently serves as the General Counsel at TechAdvance Limited. He obtained his post-graduate degree in law and policy from the prestigious Centre for Energy, Petroleum, Mineral Law and Policy at the University of Dundee in 2008 and has since then, served in various capacities with the Dundee City Council UK, Scottish Environment Protection Agency UK, the EU Network for the Implementation and Enforcement of Environmental Law, Pentagon Partners Legal Practitioner and Joots Attorneys.

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