ARE RELIGIOUS BODIES AND THEIR EMPLOYEES TAXABLE IN NIGERIA?

ARE RELIGIOUS BODIES AND THEIR EMPLOYEES TAXABLE IN NIGERIA?



By
*M. T. Abdulrazaq

Two years ago and in an animated but friendly discussion with a state tax official I had mischievously challenged him to seal the Temple of any of the tax defaulting African traditional religions in exercise of the powers of the tax authorities to distrain the premises of tax defaulters. I also encouraged him to collect sales tax on the provision of traditional amulets, fetish waist bands, local gourds, cowry necklaces and black soap made with vulture heads or that he should test the waters and cart away the divination objects and shrine of any of the gods of African traditional worship. The tax official, luckily, ignored the challenge and I was happy for him.

The recently reported disputations and alleged physical aggressions between a religious body institution and a State Internal Revenue must attract due attention. Tax collection is serious business and could be a dangerous venture as lessons from other lands show, for example, in Russia in 1996, 26 tax collectors were killed and 74 injured in the course of their work, six were kidnapped and 41 had their homes burned down. Nigerian history also tells us about the Aba tax riots of 1929.

However, there is absolutely no justification to physically attack tax officials and such attacks are unacceptable in a civilised society and must be heavily punished.

We all know that paying tax is not a favourite past time of anyone and tax officials are not our beloved persons but the law must be obeyed. We need to put sentiments aside and respond to the question whether religious bodies and their employees are taxable in Nigeria?

There are five issues to consider in this matter. What are those five issues?

The first issue is the need to determine the legal status of the religious body and the state legislative provisions. In other words, what is the nature of the religious body? Is it registered by the Corporate Affairs Commission? Is it registered under the various individual constituent states legal provisions? Is there a Charity Commission or a body in the nature of a Charity Commission, as we have in the United Kingdom, to which all religious bodies must file their annual accounts and financial statements? What governmental organ regulates religious bodies? Is there no obligation for religious bodies to file their statement of affairs to a state authority? Are the religious bodies free to roam the Nigerian field with no control on the rendering of their tax affairs? Indeed, what is the nature of religion in Nigeria and what are the answers to these posers?

The second issue is whether the religious body, however legally constituted, is carrying on a trading activity? Who is taxable assuming that the religious body is not legally constituted? Would they be regarded as belonging to the informal sector and therefore asked to pay a flat sum as tax without any proper assessment? How do we know if a religious body is trading and what is a trade for tax purposes? Whether or not an activity is a trade is a mixed question of law and fact. A person does not trade if he simply procures others to trade, he must be involved in the buying and selling or rendering of services. If there is regular buying and selling, or rendering of services, this is clearly trading and the profits or gains are taxable. An isolated or casual transaction which is in the nature of trade and of a commercial nature are taxable. These assertions are supported by the cases of Arbico Ltd v. Federal Board of Inland Revenue 1 NTC 146, Reverend M. F. Shodipo v. Federal Board of Inland Revenue 1 NTC 273 and Offshore International S. A. v. Federal Board of Inland Revenue.



Where it is established that the religious body is carrying on trade it is taxable under section 9(1)(a) of the companies Income Tax Act, LFN, Cap C21 of 2004 or under section 3(1)(a) of the Personal Income Tax Act, LFN, Cap P8 of 2004 on gains or profits of the trade.

The third more interesting issue is the taxation of the employees of religious bodies. Who is their employer and to whom do they do they render their services? Are they able to provide physical evidence of a contract for service or a contract of service? Are they in employment or carrying on a profession or a vocation?

The term employment indicates the existence of an "office" and signifies something in the nature of a "post".

In the English case of Inland Revenue Commissioners v. Maxse (1919) 1 KB 647, Scrutton L. J. said a profession "involves the idea of an occupation requiring either purely intellectual skill, or manual skill controlled by the intellectual skill of the operator" and a vocation is stated in the case of Partridge v. Mallandaine (1886) 18 QBD 276 at p. 278 to mean "the way a person passes his life".

Under section 3(1)(b) of PITA 2004 "any salary, wage, fee, allowance or other gain or profit from employment including compensations, bonuses, premiums, benefits or other perquisites allowed, given or granted by any person to an employee are taxable" and in section 3(2)(a) of the same Act it is stated that "employment" "includes any service rendered by any person in return for any gains or profits".



An employee of a religious body is taxable if it is shown that the salary or any other pay is derived from the employment with the religious body and the religious body is under obligation to withhold the tax and remit it to the relevant tax authority under sections 81 and 82 of PITA and the it may be penalized for non-deduction of tax under section 82 of PITA.

The fourth issue is that the religious body may be exempted from tax on profits if it "engages in ecclesiastical, charitable or educational activities of a public character in so far as such profits are not derived from a trade or business carried on" under section 23(1)(c) of CITA or in a Presidential exemption under section 23(2) and (3) of CITA 2004. The donations to ecclesiastical or religious bodies are also not taxable under section 25 of CITA but the bodies must be listed as approved by the tax law and some evidence of the donation must be provided. Does this mean that receipts should be collected for tithes, offerings and zakat?



The fifth issue is, what should the tax authorities do where a religious body has not delivered a return and it is of the reasonable opinion that it is taxable? The tax authority may use its power to enter the premises of the religious body and require information under section 103 of PITA or use the best of judgment to determine the taxable sum under section 54(3) of PITA.

The factor to consider in making the best of judgment assessment against a tax payer who failed to supply information was provided in the case of Federal Board of Inland Revenue v. Omotesho 1 NTC 257 citing the decision in Income Tax Commissioners v. Badridas Ramrai Shop, Akola (1937) L. R. 64; Indian Appeal 102, A. I. R. 1937 P. C. 133 that the tax officer "must not act dishonestly, or vindictively or capriciously, because he must exercise judgment in the matter. He must make what he honestly believes to be a fair estimate of the proper figure of assessment, and for this purpose he must be able to take into consideration local knowledge and repute in regards to the assessee’s circumstances, and his own knowledge of previous returns by and assessments of the assessee, and all other matters which he thinks will assist him in arriving at a fair and proper value".



Where all attempts fail to collect the tax from the religious body, the relevant tax authority may proceed under section 105 of PITA which provides that an offence is committed if a tax collector is willfully obstructed in the performance of his duties as in where there is a physical assault.

The relevant tax authority also has the power to distrain for non-payment of tax under section 104 of PITA. The wisdom required to distrain the goods or premises of a religious body is a matter for discussion on another day.

Finally, our tax officials must adhere to the admonition in the Board of Customs and Excise v. Bolarinwa (1968) 1 N. T. L. R. 350 at 354 and not give an inhuman interpretation of the fiscal laws which would cause hardship to fellow citizens of our country.

The tax officials must understand that religion is not taxable but the commercial activities of religious bodies and the income of their employees.

Tax officials must always exercise diligence and caution and not be over zealous or seek what Ilorin indigenes call "fitina" in this matter of the taxation of religious bodies in Nigeria. May we all be blessed.




*M. T. Abdulrazaq is a Professor of Taxation, Faculty of Law, Lagos State University and former Registrar/Chief Executive, Chartered Institute of Taxation of Nigeria.