July 17, 2018
One of the easy means deployed by tax and regulatory authorities to remediate default is the imposition of penalty and interest on unremitted taxes or levies as stipulated by relevant laws. Needless to say, penalties are sacrosanct for defaults such as failure to send a tax return or pay tax liabilities as and when due even in developed economies such as the United Kingdom and the United States of America.
This article seeks to provide some salient perspectives on the imposition of penalty and interest and the associated controversies and uncertainties.
Timeline for Application of Penalty and Interest
The Nigerian Tax Acts are replete with various provisions that support the imposition of penalty and interest for varying tax defaults. Amongst several other sections, the Personal Income Tax Act (PITA, Sections 74, 76, 77, 94 to 97); the Companies Income Tax Act (CITA, Sections 82, 92, 94 and 95); the Petroleum Profits Tax Act (PPTA, Sections 46, 51 to 55); the Federal Inland Revenue Service (Establishment) Act (FIRSA, Sections 40 to 49); and the Value Added Tax Act (VAT Act, Sections 25 to 37) contain provisions on one form of tax penalty or the other for differing tax defaults.
However, one controversial issue with the application of penalty and interest is when they should begin to apply to overdue tax payments. While the revenue authorities typically compute penalty and interest when issuing assessment notices for audit assessments and overdue tax payments, the relevant tax laws contain provisions that suggest that penalty and interest would only apply to overdue tax payments after the liabilities are deemed final and conclusive. The latter position is also supported by case law as detailed below.
In a Tax Appeal Tribunal (TAT) case between Weatherford Services S.D.E.R.L and the Federal Inland Revenue Service (FIRS), the FIRS had imposed penalty and interest on additional CIT assessments arising from a tax audit.