Best Of Judgement Assessment vs. Presumptive Taxation: A Comparative Lens On Nigeria's Evolving Personal Income Tax Regime

Introduction

Across the globe, taxation remains a fundamental instrument for governments to generate revenue, fulfill their obligations, and provide essential services to citizens. Despite its critical role in economic development, achieving effective tax administration, particularly one that fosters voluntary compliance among individual taxpayers, remains a complex challenge, especially within the African context.

In Nigeria, personal income tax (PIT), which applies to wages, salaries, and other forms of individual earnings is governed by the Personal Income Tax Act (PITA), Cap P8 LFN 2011, along with other relevant legislation. The administration of PIT has largely relied on the formal sector through the Pay-As-You-Earn (PAYE) system, which places the responsibility for tax deduction and remittance on employers.

However, the Nigerian tax system continues to face significant hurdles in integrating the expansive informal sector into the formal tax net. With a substantial portion of economic activity occurring outside structured frameworks, conventional tax assessment methods often fall short in capturing taxable income from informal workers. While PITA introduced mechanisms such as the Best of Judgement (BOJ) assessment to address these gaps, the newly enacted Nigeria Tax Act, 2025 introduces a more streamlined approach, Presumptive Taxation, designed specifically for small and informal businesses.

This article examines the administration of BOJ assessments within Nigeria's personal income tax framework and explores how it aligns with and differs from the Presumptive Taxation regime introduced under the Nigeria Tax Act, 2025.

Best Of Judgment (BOJ) Assessment

The Best of Judgment (BOJ) assessment has long served as a critical instrument in Nigeria's tax administration. It enables tax authorities to estimate a taxpayer's liability when reliable financial records or accounting information are unavailable or insufficient.

Under Section 47 of the PITA, tax authorities are empowered to request a wide range of documentation, including annual PAYE tax returns, books, documents, accounts, and other relevant records to verify the income earned by individuals, whether employed or self-employed, within a given tax year.

In addition, Section 54(2)(b) of PITA authorizes the Relevant Tax Authority (RTA) to reject the submitted returns and instead issue an assessment based on its own judgment. This typically occurs when the filed returns are found to be inaccurate, incomplete or inadequate for determining the correct tax liability.

BOJ Assessment Process

• Rejection of Returns
  If the RTA identifies discrepancies, errors, or insufficient documentation in the taxpayer's submitted returns, it may reject them outrightly.
• Estimation of Income and Tax Liability
  Following the rejection, the RTA estimates the taxpayer's income and corresponding tax liability using available financial data, industry benchmarks, or other relevant information.
• Issuance of BOJ Assessment
  The tax authority then issues an assessment based on its best judgement which often results in a higher tax liability than what was originally declared by the taxpayer.

Implications of BOJ Assessment for Taxpayers

The BOJ provision highlights the critical importance of accurately reporting all income, deductions, and relevant financial details in tax returns. Failure to file complete or correct returns may result in the tax authority issuing an estimated assessment, which could significantly increase the taxpayer's liability through additional taxes and penalties.

Many taxpayers perceive BOJ assessment as punitive, largely because it often led to higher tax obligations. In addition, Nigerian tax laws contain numerous provisions that empower tax authorities to assess taxpayer compliance through queries, audits, and investigations.

While BOJ assessments grant considerable discretion to tax authorities, the process is not intended to be arbitrary or punitive. Statutory provisions and judicial precedents offer guidance to ensure fairness and accountability in the administration of such assessments. Key considerations include:

• Estimation of Taxable Income
  Tax authorities may rely on available records such as bank statements, industry averages, or comparisons with similar businesses to estimate income.
• Reasonableness of the Assessment
  Judicial rulings often focus on whether the estimation made by the tax authority is reasonable. If the BOJ assessment is deemed arbitrary or excessively high without a sound basis, the taxpayer may have grounds to challenge it.
• Transparency and fairness
  The BOJ process must adhere to principles of fairness and transparency. Nigerian courts have consistently emphasized that taxpayers should be provided with adequate information and a fair opportunity to challenge any assessment before it is finalized.
• A notable judicial precedent is Nigerian Breweries Plc v. Lagos State Internal Revenue Board (2002) 5 NWLR (Pt. 759) 1, where the court underscored the importance of reasonableness and due process in the issuance of BOJ assessments.
• Evidence requirements
  Legal precedents help clarify the types of evidence that may be used in BOJ assessments, ensuring that the process is grounded in verifiable data.
• Appeals and Dispute Resolution;
  Taxpayers have the right to appeal BOJ assessments. Judicial guidance has shaped the appeals process, including the burden of proof, whether it lies with the taxpayer to justify a lower assessment or with the tax authority to substantiate its estimate.

These legal and procedural safeguards help promote consistency in the administration of BOJ assessments and provide a structured framework for resolving disputes between taxpayers and tax authorities.

Presumptive Taxation

Nigeria has historically recorded a low tax-to-GDP ratio, partly due to the limited tax contributions from the informal sector, which accounts for a substantial portion of employment and economic activity.

Recognizing that traditional tax systems, built around formal accounting, audits, and complex filings are not well-suited to Nigeria's demographic and economic realities, the Nigeria Tax Act, 2025 introduces a formal framework for taxing the informal sector. This framework is known asPresumptive Taxation.

Section 29 of the Nigeria Tax Act, 2025 provides that "where for all practical purposes, the income of a person chargeable to tax under this Act cannot be ascertained or records are not kept in such a manner as to enable proper assessment of income, then such person shall be assessed on such terms and conditions as may be prescribed by the Minister on the advice of the Joint Revenue Board in a regulation under a presumptive tax regime".

The above provision implies that, where the tax authority is of the opinion that a chargeable person does not keep or has not kept proper records of his financial position, the tax authority is now empowered to make an estimate of the income earned for the period, using parameters which include business type and location, estimated daily or monthly turnover, asset ownership, industry profit margin etc. These estimates must align with guidelines issued by the Minister and the Joint Tax Board to ensure consistency and fairness.

The presumptive tax regime introduces simplified schemes such as flat rates, layered assessments based on business scale, and negotiated settlements for irregular income earners. The primary goal of this regime is to promote equity in taxation, reduce enforcement and compliance costs, and expand the tax net to include micro and small enterprises, informal traders, transport operators, freelance and gig workers, and seasonal earners with fluctuating income patterns.

Comparison of Presumptive Tax Regime and Best of Judgement (BOJ) Assessment

Summary and Conclusion

Presumptive taxation represents a proactive and inclusive approach to simplifying tax compliance for small businesses and informal sector operators. It offers a standardized and predictable framework designed to encourage voluntary participation and broaden the tax base.

In contrast, BOJ assessments serve as reactive enforcement mechanisms, typically applied when taxpayers fail to comply with statutory requirements. These assessments rely heavily on the discretion of tax authorities and, if not administered transparently, may lead to disputes.

While both regimes serve important but distinct roles in Nigeria's tax landscape, they share a common objective: to enhance compliance and ensure that all eligible taxpayers, whether in the formal or informal sector, contribute their fair share.

To support this goal, taxpayers are encouraged to adopt sound compliance practices. Key steps include:

1. Accurate Record-Keeping
   Maintain comprehensive and organized records of all financial transactions, including receipts, invoices, and bank statements.
2. Meticulous Preparation
   Carefully complete all required tax forms and ensure that entries are accurate and complete.
3. Timely Filing
   Submit tax returns within the stipulated deadlines to avoid penalties and interest charges.
4. Regular Reviews
   Periodically review financial records and tax filings to identify and correct discrepancies early.

By following these practices, taxpayers can reduce the risk of errors and remain compliant with applicable tax laws and regulations.

The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.