The Nigerian tax system is primarily run on self-assessment basis. This implies that taxpayers are required to account for their taxes by reviewing their financial records, quantify their tax liabilities based on the provision of the relevant tax law(s), file the applicable returns and remit the tax due to the relevant authority as and when due. In order to ensure compliance, the tax laws stipulate different penalties for taxable persons who default in fulfilling their civic obligation as enshrined in the tax laws.

Now, it is one thing to pay tax and it is another thing to pay the right amount of tax. Thus, one of the cardinal duties of the tax authorities is to ensure that taxpayers remit the right amount of taxes to the coffers of the government. This is achieved through periodic and comprehensive review of the tax and financial records of taxpayers to ascertain the accuracy of their tax filings and payments. Considering the close handshake between tax and accounting, the work of the taxman is not limited to checking tax records; they also verify the basis of the financial records from which tax is computed. However, the type of review conducted by the tax authority determines the degree of scrutiny that will be involved.

For obvious reasons, the tax laws are replete with provisions that empower the tax authority to ascertain the compliance level of taxpayers through query, audit and/or investigation. Typically, desk query is the first level of check which involves the review of filed tax returns and documents. The tax authority raises query on the returns and documents filed by the taxpayer. As the name implies, desk query is done from the "desk' of the taxman and it is not done often.

Another check carried out by the tax authorities is tax audit exercise. This is a detailed review of the records of the taxpayer to ascertain the level of compliance with relevant tax laws. It is a routine exercise which is expected to be done for every financial year. Until the recent pandemic when virtual audit exercises were conducted, the field phase of the exercise is conducted at the office of the taxpayer where the tax authority has access to the documents, staff and/or systems of the taxpayer. Based on the provisions of the tax law, tax authorities are required to carry out this exercise within six years from the end of a tax year.

Closely related to audit exercise is tax investigation. However, it is not a routine exercise but a very detailed and rigorous review of taxpayer's records. The tax laws clearly stipulate the basis under which an investigation can be initiated. However, in practice, there has been a clear departure from these provisions of the law. This article is an attempt to compare the practice of the tax authorities with the provisions of the enabling statutes.

Summary of the provisions of the law

Section 66 of the Companies Income Tax Act (CITA) and Section 55 of the Personal Income Tax Act (PITA) provide that where the relevant tax authority (RTA) discovers or is of the opinion at any time that a taxable person has not been assessed or has been assessed at a less amount than that which ought to have been charged, the RTA may within six years from the end of the year of assessment, assess the taxpayer at an amount or additional amount as ought to have been charged. However, "...where any form of fraud, willful default or neglect has been committed by or on behalf of..." a taxpayer, the RTA may at any time and as often as may be necessary, assess the taxpayer " such amount or additional amount as may be necessary for the purpose of making good any loss of tax attributable to the fraud, willful default or neglect."(emphasis mine)

From the above, we can establish that:

  • A tax authority may, on suspicion of non-compliance or incomplete compliance, assess a taxpayer to additional liability by the RTA. However, this must be done within six years from the end of the year of assessment via a desk query or tax audit exercise. If this is not done within the stipulated timeline, that year of assessment becomes statute barred.
  • Notwithstanding the above, the statute of limitation becomes null and void where a taxpayer committed fraud, willful neglect or default. In this instance, the tax authority can go beyond six years, via tax investigation exercise, to recover the tax attributable to the fraud, willful neglect or default. It is very clear from the law that any of these events must be established to have occurred (not based on assumption) for investigation to be triggered, and the exercise will be done with the intention of recovering the tax loss associated with the committed crime. Therefore, tax investigation is not a random exercise to seek for unestablished tax revenue, but an attempt to recover what has been lost.


To be fair to the tax authorities, tax investigation has proven to be a useful revenue recovery tool. Considering its detailed nature, it has been used to promote tax compliance among taxpayers and deter tax evasion. However, there has been instances where a taxpayer is clueless about the reason for the exercise. Upon enquiry, the usual response from the tax authority is that they have "confidential intelligence" on the taxpayer. There have also been cases where the tax authorities have conducted tax investigation on years which has been conclusively audited, without providing any reasonable reason for the exercise. Also, any attempt to further engage the tax authority on the legal basis for the tax investigation exercise results in the tax authority either issuing an arbitrary assessment or going ahead with the exercise anyway. Often, the taxpayer cowers under the power wielded by the tax authority, except for few cases that resulted in legal appeal for judicial intervention.

According to the National Tax Policy, some of the guiding principles of the Nigeria tax system are equity and fairness, and certainty and clarity. The relationship between taxpayer and tax authority should be based on mutual respect as partners in progress, and not one governed by unlawful exertion of power. It is expected that a taxpayer should be informed about the reason(s) why its financial and tax records are being subjected to investigation. If promoting willful compliance is the goal, then tax authority ought to be more concerned about informing and educating taxpayers about their shortcomings, and not the current practice of imposing the exercise on taxpayers under the guise of having "confidential intelligence" on the taxpayer.

What is the view of the judiciary on this?

In recent times, there has been judicial pronouncements on the basis for instituting an investigation exercise on the tax and financial records of a taxpayer. Some of the recent judgements are:

  • Delta Afrik Engineering vs Akwa Ibom State Board of Internal Revenue (AKBIR)1 – The AKBIR conducted a Pay-As-You-Earn (PAYE) tax investigation exercise on the taxpayer for 2007 to 2016 and this resulted in a liability of over NGN14billion. Dissatisfied with the position of the tax authority, the Company filed an appeal at the Tax Appeal Tribunal (TAT or "the Tribunal") and obtained a ruling in its favour. In delivering its judgement, the TAT relied on the provision of section 54(5) of PITA which limits the period of recovery of PAYE tax to six years after the end of the relevant year of assessment. According to the Tribunal, the only exception to the limitation is where it is proved that the taxpayer committed fraud, willful default or neglect. This implies that the onus is on the tax authority to prove the allegation that the taxpayer committed fraud, neglect or willful default. The TAT held that fraud can only be proven before it or a court of competent jurisdiction if a taxpayer evades tax. Also, to the extent that the Company has been filing its returns with, and paying taxes to, the tax authority, the applicability of section 55(2) of CITA is void, as the only contentious issue is the adequacy of the taxes paid by the taxpayer.
  • Ecobank Nigeria Limited ("the Bank") vs Delta State Board of Internal Revenue (DSBIR)2 – The DSBIR issued a best-of-judgement (BOJ) assessment of over NGN2billion to the Bank for 2000 to 2010. The Bank appealed the assessment to the Tribunal on the grounds that the assessment period is beyond the statute of limitation set by the law, and the tax authority has not established a case of fraud, willful default or neglect against the Bank. The TAT acknowledged the right of the tax authority to conduct tax audit and investigation exercise to recover under-assessed taxes. However, the window for conducting audit is within six years of the end of the year of assessment while the relevant triggers must be established before tax investigation exercise will become valid. The Tribunal also reminded the tax authority of the provisions of section 332 of the Companies and Allied Matters Act (CAMA) which provided for companies to keep documents for only six years, after which it is within the discretion of the company to continue the retention, or otherwise, of the documents. Thus, the TAT ruled in favour of the Bank and dismissed the BOJ assessment raised by the tax authority.
  • Citibank Nigeria Limited (Citibank) vs Rivers State Board of Internal Revenue (RSBIR)3 RSBIR notified Citibank of its intention to conduct tax investigation with respect to PAYE tax for 1999 to 2017 financial years. Thereafter, the tax authority raised a BOJ assessment of NGN303.9million (inclusive of interest and penalty) on Citibank for 2006 to 2017 financial years. Following the submission of Citibank's objection within the timeline stipulated in PITA, the tax authority re-issued the BOJ assessment as final and conclusive. Consequently, Citibank appealed the assessment at the Tribunal. In its judgement, the TAT held that it is outside the rights of RSBIR to establish that Citibank committed fraud, willful default or neglect, as such can only be determined by the Tribunal or any court of competent jurisdiction. The TAT noted that since RSBIR was unable to prove that Citibank committed fraud, willful default or neglect, the tax authority was barred from conducting audit or investigation on Citibank for years beyond the statute of limitation.

One critical point noted by the Tribunal is the issue of document retention. The crux of desk query, tax audit or investigation is the ability of taxpayers to use relevant support documents to substantiate the self-assessment position submitted to the tax authority. The difference between the outcome of these exercises lies in the availability of support documents. On the other hand, document retention is both labour and cost intensive. Thus, it is understandable why the CAMA instructs companies to keep documents for six years, after which they are at liberty to dispose them. Likewise, it can be said that the draftsmen of the tax laws understood this fact and therefore, limited the period of tax audit to six year from the end of the relevant year. Consequently, any attempt to go beyond this limit must not be at the whims of the tax authority. Rather, it must be determined by an independent body (in this case, the Tribunal or a court of competent jurisdiction) who will ensure that the necessary conditions have been met and there is a justified reason to investigate a taxpayer. Otherwise, a noble tool will become an aggressive and punitive means of subjecting taxpayers to unnecessary scrutiny for statute-barred years for which documents may have been disposed. In this case, any unjustified investigation conducted on the taxpayer will result in tax liabilities due to unavailability of relevant documents. This is worse in situations where the tax authority uses tax investigation to open years that have been audited and concluded.


In view of the economic situation of Nigeria, it is expected that the revenue drive of the tax authorities will continue to increase, and one key area of focus will be recovery of unpaid or underpaid taxes through desk queries, tax audit and tax investigation exercises. While it is within the rights of tax authorities to carry out these exercises, it is important to ensure that they are done within the remits of the law. As an authority operating under statutory power, tax authorities must exemplify conformity to rule of law through their actions.

As noted by the Tribunal in case Delta Afrik vs AKBIR, the tax authority cannot slack in conducting audit exercise within six year and then decide to use "tax investigation" to ambush the taxpayer, as equity aids the vigilant and not the indolent. This was clearly articulated by the Supreme Court in its judgement in the case between AG. Rivers State and Ude & Ors (2006) where the court held that "it is elementary law that the rules or principles of equity help only the vigilant and they do not assist the indolent party who fails to pursue his right diligently and within a reasonable time. Where this happens, the court regards such delay or indolence of the party either as fatal to his case or indolence of the party or amounting to waiver of his right."


1. TAT/SSZ/001/2007

2. TAT/SSZ/005/2020

3. TAT/SSZ/017/2018

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.