On 5 July 2019, the Tax Appeal Tribunal (TAT or Tribunal) held that where a company pays out dividends that exceeds its taxable profits in a given year of assessment, such dividends would be subject to Companies Income Tax (CIT) at 30%, regardless of whether the earnings from which the dividends are paid have been previously taxed. This decision was reached in the case between Actis Africa (Nigeria) Limited (Actis or the company) v Federal Inland Revenue Service (FIRS).


Actis recorded no taxable profits during its 2014 financial year (FY). However, in 2014, Actis paid out dividends to its shareholders from its prior year (2013) profits, which had already been subjected to tax.

Subsequently, the Federal Inland Revenue Service (FIRS), relying on Section 19 of the CIT Act, issued a notice of assessment to the Company, subjecting the dividends paid out in 2014 to CIT at 30%. The Company objected to the said assessment and subsequently appealed to the TAT.

The main issue for determination before the Tribunal was whether Actis was liable to CIT on dividends paid out in the 2014 FY based on the provisions of Section 19 of the CIT Act.

According to Section 19 of the CIT Act, where a Nigerian Company distributes dividends out of profits on which no tax is payable due to no total profit or total profits less than the dividends distributed, such Company would be liable to pay CIT at 30% on the amount by which the dividends exceed its taxable profits for the year.

The FIRS contended that the Company was liable to CIT based on Section 19 because it distributed dividends, which exceeded its total profits in 2014. Thus, it argued that the dividends in 2014 FY should be subjected to CIT at 30%.

On the other hand, the Company posited that having paid tax on its profits in 2013, any dividends distributed from its after-tax profit of 2013 should not be subjected to further tax as this would amount to double taxation.

The TAT, however, ruled in favour of the FIRS, holding that Actis was liable to CIT on the dividends paid out in 2014 by virtue of Section 19 of the CIT Act. In reaching its decision, the TAT relied on the previous decisions of the Federal High Court and Court of Appeal in Oando v FIRS and Oando v Federal Board of Inland Revenue (FBIR). Specifically, the TAT stated that Section 19 of the CIT Act provides for when and how a company becomes liable to pay CIT on dividends paid out and has no regard to the source of the dividends paid. The TAT further held that the absence of taxable profit or the existence of taxable profit less than dividend paid is a justification for the FIRS to deem the dividends paid out as the company's taxable profit for the relevant year.


The TAT's decision implies that whenever a company distributes dividends in excess of its profits in any year, the excess dividends distributed would be subject to CIT at 30% even if paid from already taxed earnings. This decision is in line with the previous decisions of the FHC and COA in the cases of Oando v FIRS and Oando v FBIR.

The issue of Excess Dividends Tax (EDT) has been a lingering problem in Nigerian taxation. Not only does it subject retained earnings to further tax, it also discourages companies to retain profits in Nigeria. Given the impact of EDT on holding company structures, and capital retention in the Nigerian financial system, it had been expected that the issue would have been addressed by legislative amendments or more purposive judicial interpretations. Although there is currently a proposed amendment of Section 19 of the CIT Act by the National Assembly, its passage into law in the near future is uncertain given the persistent delay.

We hope that the proposed amendments would be passed into law soon to address the issue of the applicability of Section 19 of the CIT Act. Until then, it is imperative for taxpayers to obtain professional guidance from their tax consultants, particularly with respect to payment of dividends, to avoid undue tax liabilities.

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