18 Jan



:: Nobody pays tax with a smile.

:: In an attempt to reduce (or possibly escape) tax liability, the issues of tax evasion and avoidance arise.

:: The dividing line between evasion and avoidance is thin[1].

:: The court in 7up Bottling Companhy Plc V LIRS noted that tax avoidance is legal while tax evasion is illegal.

:: Tax avoidance entails, legally arranging one’s activities and transactions in a tax effective way, maybe by taking advantages of bonus or loopholes in the provisions. The courts in IRC V Duke of Westminster, and in the case of Levene V IRC have accepted that a man is entitled to reorder his affairs and fall outside the scope of a taxing statute.

:: Tax Evasion involves utilising dishonest, deceptive, fraudulent and other illegal means to circumvent tax liability[2]. For example refusing to file returns, filing false returns, refusing to remit tax, and so on[3].

:: Professor Abiola Sanni,[4] stated that the tax avoider is one who arranges his affairs in such a way that he pays little or no tax at all while the tax evader is one who for a number of reasons refuses to fulfil his civic responsibilities under the law.

:: Tax avoidance usually comes to play when a particular provision of the tax statute requires interpretation.

:: The general rule is that ambiguity in taxing statute is resolved in favour of the taxpayer.

:: Certain activities may not be taxed due to their nature or circumstances… however, the FBIR can disregard any artificial/ficitious arrangements and adjust a person’s tax liability to reflect the truth-Section 17 of the PITAct, 22 CITAct, 23 and 24 of CGTAct.

In Latilla V IRC, the company paid its members in form of debentures rather than in form of dividends (because the dividends would be taxed). The court held that the transaction was artificial and merely done to escape tax liability. Further noted that for a transaction to be fictitious:

  • The companies or persons involved must be related in control.
  • The dealing is not at arm’s-length.

:: On the issue of inspecting the transactions of the company to determine its taxability: Lord Wilberforce noted in W.T Ramsay V IRC that the court shall accept genuine documents or transactions and would not scrutinise the substance of the transaction. Same position was maintained by lord Tomlin in IRC V  Duke of Westminster.

However majority adhere to the view that the courts are meant to look closely into each transaction. In Nigeria, the argument is not necessarily between form or substance. The argument is whether the transaction is acceptable or unacceptable. Where the transaction was “obviously” conducted in a tax-evasive manner, the courts would frown at it.


  • Absence of quid pro quo: because there is no value for what is paid. Some people posit that the government is not giving them any benefit in return for what is being paid… therefore why should they pay?
  • Mismanagement of funds: people resist paying taxes where they believe that the funds would be embezzled rather than utilized for the greater good.
  • Unfair Imposition: People may evade tax because the law is too strict/the proportion imposed is inequitable. For example a company is charged up to 30 percent of profit and the shareholders are still charged under the Personal Income Tax Act.
  • Unpatriotic attitude: some citizens and companies just like to evade tax.
  • Ineffective administration of tax: people would most likely evade tax if they would not be caught.
  • The rigid and cumbersome procedure for calculating and remitting tax liabilities often discourage people from being tax compliant.


[1] I.A. Ayua, supra note 3, Ch. 15 p. 245

[2] O.O.  Farayole, Guide to Nigerian Taxes, Lagos: All Crowns Nig. Ltd. 1987

[3] D.K.  Ewoma,  The Tax Manual, Principles and Practice of Taxation in Nigeria, The Nitty-Gritty Practice, 2014

[4] A.A. Sanni, “Contentious Issues in Tax Administration and Policy in Nigeria: A state Governor’s Perspective” (a paper presented at the 1st National Retreat on Taxation Organised by the Joint Tax Board, 2005)


Quite eccentric really

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