Issues and Challenges With The Nigerian Taxation System - Chemiron Ltd vs LIRS Revisited


Friday, August 03, 2018     06:25PM / By Lilian Hart  

There is now, a long overdue realization and recognition of taxation as a veritable instrument for national development. This has led to a renewed focus on and reforms/modifications of tax laws and practice all designed to expand the tax base, enhance the process of tax collection and administration as well as meet terms needed for the ease of doing business in Nigeria case. 

Aside from being a major source of revenue for government to provide goods and services needed by the people, tax policies can and do stimulate economic growth and job creation through its impact on investment and capital formation in the economy. In this respect, reform of the tax system that ensures effectiveness, equity and efficiency are necessary conditions for a healthy public finance. The Nigerian tax system, like any tax system is a tripartite structure which comprises of Tax policy, Tax legislation and Tax administration. 

The tax policy which sets broad parameters connected with taxation (set of guidelines, rules and modus operandi that would regulate taxation in Nigeria). 

The tax legislation refers to the whole body of enacted acts of legislation in the context of taxation, its is codified system of order that describes the legal implications of taxation i.e government levies on economic transaction. This provides a well-defined legal backing to the administration 

Tax Administration: the administration of taxation in Nigeria is vested in the various tax authorities depending on the type of tax under consideration. Broadly there are 3 categories of tax authorities namely:

1.          Federal Inland Revenue Service

2.         State Inland Revenue Service, and

3.         Local Government Revenue Committee


The enabling laws as stated in the tax policy in respect of each type of tax will normally contain a provision as to the body charged with the administration of the tax. 

Simply put, the tax policy forms the basis for tax laws while the tax administration speaks to the implementation of the tax laws. 

The Nigerian taxation system having gone through series of reforms and modification in recent times, following the approval of two (2) Executive orders and Five (5) amendment bills by the Federal executive council one would say this is highly commendable as the changes should encourage better tax compliance and improve Nigeria’s business climate. But despite this movements, there are some contentions issues that require urgent attention and among them are:


Non-Payment of Tax Refunds: diverse tax laws provides for tax laws provides for tax refunds to taxpayers who with unreserved claims files for refunds. Sec 63 (7) of CITA 2004 provides that any excess withholding tax, shall be refunded by the FIRS within 90 days of the application, if duly filed with the option to off-set against future taxes. But this isn’t the case in real practice especially on Value Added Tax and With-holding tax. 

Complex Nature of Tax Laws: the tax laws are codified in languages that sometimes it is very difficult for even the educated individuals in the society finds it difficult to understand. It is therefore, not easy for the ordinary tax payers and sometimes even the learned officials to understand due to the problematic nature of our laws. Thanks to PwC tax card and Andersen Tax who have helped eased the difficulty in understanding these laws. 

Conflicts between the Jurisdiction of the Tax Authorities and the Judiciary on Tax Payers matters Arising: lack of clarity in the constitution and the National Tax policy has been a major problem in the Nigerian Tax system. There are cases where the constitution supersedes the tax laws and policies and stated in the National Tax policy and has robbed the tax authorities to administer tax laws on a tax payer and vice visa.


Case Study 

Following the case between Chemiron International Limited vs the Lagos State Board of Internal Revenue Service, according to Andersen Tax, on June 20, 2018, the Lagos State High Court (the Court) ruled that it had jurisdiction to hear and determine matters relating to Personal Income Tax (PIT) as a court of first instance. In reaching its decision, the Court relied on the provisions of Section 272 of the 1999 Constitution which grants the High Court of a State an unlimited jurisdiction over civil and criminal proceedings. 

LIRS objected to the jurisdiction of the Court to hear and determine the matter at first instance on the grounds that Chemiron instituted the action in contravention of Section 58 and Section 60 of the PIT Act by failing to comply with the internal dispute resolution mechanisms stipulated therein. Section 58, PIT Act requires an aggrieved taxpayer to object to a disputed assessment within 30 days of receipt of the notice of assessment and Section 60 empowers the Tax Appeal Tribunal (TAT) to entertain all cases arising from the operations of the PIT Act. 

The Court ruled in favour of Chemiron upholding the jurisdiction of the State High Court to hear matters relating to PIT as a court of first instance. In reaching this decision, the Court held that Section 272 of the 1999 Constitution grants the High Court of a State an unlimited jurisdiction over civil and criminal proceedings. 

In addition, the Court, while taking note of the procedure for dispute resolution under the PIT Act, held that every citizen has the right to approach the courts of law to air his/her grievances. Relying on a dictum of the Supreme Court, the Court further held that a court of law should not allow the provisions of an enactment to be read in such a way as to deny citizens direct access to courts.


This ruling upholds the jurisdiction of the Lagos State High Court to determine state tax disputes without first recourse to the TAT. This ruling gives aggrieved taxpayers in respect of PIT issues an option to seek redress directly from State High Courts as opposed to the TAT. 

It also robs the Tax authority the power to fully administer the tax assessment on a tax payer and apply penalties and interests where deemed as stated in the National tax policy 

It is instructive to note that the Court of Appeal (CoA) had, in 2017, in a similar case relating to Federal taxes  - Federal Inland Revenue Service (FIRS) vs TSKJ Construcoes Internacional Sociadade Unipersoal, held that the TAT is a condition precedent to the jurisdiction of the Federal High Court to entertain matters relating to taxation. In that case, the Court of Appeal, relying on a dictum of the Supreme Court, held that where a statute prescribes a legal line of action for determination of an issue, the aggrieved party must exhaust all the remedies in that law before going to court. 

Based on the foregoing, it is uncertain whether the decision in the Chemiron case will be upheld upon appeal given the inconsistencies in the provisions of the PIT Act and FIRS (Establishment) Act vis-à-vis the Constitution, especially as the Federal High Court is empowered to exercise appellate jurisdiction over matters arising from the TAT. 

Nonetheless, if the LIRS’ argument is upheld, and appeals relating to state tax disputes are held to lie directly to the TAT, the State High Court may, in effect, be robbed of its original jurisdiction to hear and determine matters relating state tax disputes as provided for under the Constitution. 

This would result into an anomaly as it would imply that PIT disputes would rarely be heard at the State High Court. It is, however, hoped that the CoA will resolve the apparent inconsistencies. 



Lilian HART| B&M | 07065576343 |



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References and Footnotes

1.             Federal Inland Revenue Service (FIRS) vs TSKJ Construcoes Internacional Sociadade Unipersoal

2.            Chemiron International Limited vs the Lagos State Board of Internal Revenue Service - Tax Alerts Archives - Andersen Tax Nigeria

3.            Lagos State High Court Rules on Power to Determine Matters Relating .. AndersenTax. Jul 20, 2018

4.            LAGS High Court Upholds The Right Of A Taxpayer To Challenge Any .

5.            FIRS Establishment Act 2007 - Federal Inland Revenue Service

6.            Federal Inland Revenue Service (Establishment) Act 2007 - LawPàdí

7.            The Federal Capital Territory Internal Revenue Service Act, 2015 - PwC

8.           Taxes and Levies (Approved list for collection) Decree No 21 of 1998

9.            Lagos State Revenue Administration Law - LIRS

10.        Centralization of Tax Administration in Nigeria ... - ICMA Services

11.         Taxes and Levies (Approved list for collection) Decree - CommonLII

12.        Nigerian Tax Journal 2017 - KPMG [PDF] Feb 22, 2017

13.        Court And Tribunal Tax Cases In Nigeria: Vodacom Vs FIRS ... May 12, 2016

14.        Court And Tribunal Tax Cases In Nigeria: SHELL v FIRS Judgement ... Jun 5, 2016

15.         taxation and revenue law judgments of the courts of ... - Law Nigeria


17.         FHC Ruling on Vodacom v. FIRS on Supply of Bandwidth Capacities  AndersenTax Feb 13, 2018

18.        FIRS – Tax law compendium - Federal Inland Revenue Service [PDF]

19.        Nigeria - Top 50 Tax Issues [PDF]



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