Article | Imposition of Best of Judgment Assessment.


By Sogo Akinola @sogo_akinola

The relevant legislation which regulates taxation matters for individuals
in Nigeria is the Personal Income Tax Act (“PITA”).A Nigerian employer is required to deduct and account for the personal income tax on the employment of its employee through the Pay-As-You-Earn (PAYE) system, the employer serves as an agent for the tax authority. ​
Despite the role of the employer in the assessment of the emoluments of the employee, section 54 (2)(b) of the PITA provides that the relevant tax authority can reject the returns filed by a taxable person and determine the amount of the assessable, total or chargeable income of the person (employee) based on its “best of judgment” and make an assessment.
Section 17(1) and 58 (3) of PITA also empowers the tax payer to raise objection to the revised assessment by the tax authority which further reiterates the power of the tax authorities to use their discretion to determine on a best of judgment basis, what is the tax liability where none or insufficient tax has been paid by the employer who act as its agent.
The recent case of Group 4 Securicor Nigeria Limited (“COMPANY”) and Lagos State Internal Revenue Service (“LIRS”) at the tax appeal tribunal, where the employer raised an objection to the assessment of its expatriate employees based on deemed income and penalties imposed by the “LIRS”.
At the Tax Appeal Tribunal, LIRS contended that the company had no locus standi because it is not a taxable person under the PITA being only an agent of the tax authority therefore it is only the employee who has the right to protest.
The company claimed that the deemed income was computed based on tax remitted by employees of a subsidiary company, Outsourcing Services Ltd (“OSL’”) which was operating an entirely different line of business although they are both owned by the same parent company, the company claimed that the subsidiary company protested the deemed income imposed on it by the tax authority but could not provide appropriate documents to substantiate its position. Unlike OSL, the COMPANY provided relevant documents to the LIRS to confirm the actual income earned by the expatriate employees.
The TAT asserted that it was legitimate for the tax authority to rely on the positions of section 54(2)(b), 17 and 58 (3) of PITA to make an assessment based on the deemed income but the following has to be considered:
1. The best of judgment assessment cannot be established on a prior best of judgment assessment i.e. it must originate from actual industry results or the parameter must be realistic within industry context.

2. Best of judgment must bear semblance to the normal tax assessment of identical or closely related companies in similar or identical circumstances.
The TAT concluded that the company had the right to appeal against the demand notice where there are claims by the tax authority that the emoluments were understated and not only the case of under deduction and non remittance.
The question this case raises actually is that, in the cases where the Federal Inland Revenue Service (FIRS) issues a best of Judgment assessment has provided in the companies income tax act where a company has not filed its returns, will the principle in the case of Group 4 Securicor Nigeria Limited v Lagos State Internal Revenue Service (“LIRS”) be applicable?

Sogo Akinola is a Transnational Lawyer based in Lagos. He has special interest in Taxation and Socio-economic development of Nigeria

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