A Step Forward, Two Steps Unclear: The Legal Vacuum Around Temporary Cessation Of Business

Business cessation, whether temporary or permanent, represents a critical point in a company's life cycle, often carrying significant legal and tax consequences. In tax administration, cessation of business generally triggers compliance obligations relating to the final assessment of income, the disposition of assets, and the settlement of outstanding tax liabilities. Traditionally, Nigeria's tax and regulatory framework has recognised and provided clear rules for permanent cessation of business; that is, when a business winds up, dissolves, or permanently discontinues operations. The law outlines the procedures for final tax returns, determination of basis periods, and cessation year assessments in such cases.

Particularly, both the existing tax law and the Reform Acts provides for permanent cessation of a business, that the basis period rules for assessment change: profits are assessed up to the actual date of cessation (not the usual accounting year-end). Other tax compliance provisions for a permanent business cessation includes:

• Filing a final tax return covering the period up to cessation.
• Payment of any taxes due within six months of the cessation date.
• Tax authority's right to continue a tax clearance process post cessation, to ensure all tax liabilities are duly settled.
• Folding back post-cessation receipts/payments into the cessation year, to ensure completeness.

Thus, for permanent cessation, the rules are relatively clear: leaving little or no gaps for uncertainty in the obligation of a concerned taxpayer.

However, the notion of temporary cessation of business, where a business suspends operations with the intent to resume at a later date, has long remained unaddressed or ambiguously treated within Nigeria's tax system. This lack of clarity has led to interpretational challenges, particularly regarding whether tax filing obligations continue during the business halt period, how assets and other income should be treated while operations are paused and the tax profile status of a business in a temporary cessation.

A Step Forward

Encouragingly, this long-standing oversight appears to be changing, with the advent of the Nigeria Tax Reform Acts, notably the Nigeria Tax Act (NTA) and the Nigeria Tax Administration Act (NTAA). There is now a formal recognition of temporary cessation as a distinct business circumstance, which marks a significant policy milestone, signalling an effort to align Nigeria's tax framework with the practical realities of modern business operations.

Specifically, Section 10 of the NTAA provides that:

"(1) Where a taxable person temporarily ceases to carry on a trade or business in Nigeria, the taxable person shall notify the relevant tax authority of its intention to suspend its registration for tax purposes within 30 days of such temporary cessation of trade or business.

(2) The relevant tax authority shall classify the Tax ID as dormant and place it on suspension."

This development formalises a long-overdue mechanism for managing non-permanent business halts.

The Vacuum

Despite this positive development, important questions remain unanswered, and chief among them being the specific tax compliance and filing obligations applicable during the period of temporary cessation, and the treatment of passive income earned during the tax ID suspension period.

This article examines the evolving concept of cessation of business in Nigeria, commends the legislative recognition of temporary cessation, and critically explores the gaps that persist in defining its tax obligations and compliance requirements.

For illustrative purpose, consider a Special Purpose Vehicle (SPV) incorporated to execute a risk service contract with the NNPC for oilfield operations. Upon contract expiry, if NNPC awards the field to another operator, the SPV loses its primary revenue source. Rather than liquidate, it may suspend operations while sourcing new contracts. During this period, the SPV has temporarily ceased business; a pause, not an exit. In essence, temporary cessation occurs when a business suspends its operations for weeks, months, or even years, with the clear intention to resume at a future date. Accordingly, based on the introduction by the NTAA, such SPV must notify the tax authority of the temporary cessation, after which the tax authority will classify its tax ID as dormant and place it on suspension.

Two Steps Unclear

While the Tax Reform Law now provides a clear guidance on how the tax ID of a temporarily ceased business should be treated, it remains silent on other tax compliance obligations for a temporary cessation, unlike the clear obligations provided for a permanent business cessation. However, no corresponding clarity exists for temporary cessation, other than that the tax ID of such business will be classified as dormant and placed on suspension. This gap runs contrary to the NTAA's underlying objective of simplifying tax administration and ensuring that taxpayers can clearly understand and comply with their obligations. With no clear guidance, interpretation has become a free-for-all, from the taxpayers and his consultant, as well as the tax authority.

In making provisions for tax filing obligations, Section 11 of the NTAA provides guideline in this regard and stipulates that:

"Every company, including a company granted exemption from Income tax, whether or not it is liable to pay tax under Nigeria Tax Act, 2025 or any other tax law, for a year of assessment, with or without notice from the Service, shall file a self-assessment return with the Service in the prescribed form at least once a year..."

The Section further grants exemption to certain businesses such as non-resident companies only earning passive income in Nigeria on which WHT has been deducted; and a business which has permanently ceased operations in Nigeria.

Accordingly, the law is clear on the exemptions from tax filing obligations and the modalities for same, and clearly did not exempt a business under temporary cessation. Hence, technically, filing obligations continues to subsist for a temporarily ceased business. However, once a taxpayer's tax ID is flagged as dormant pursuant to a suspension request, a practical dilemma arises. In such case, the tax filing portal should typically restrict access for suspended or locked accounts, rendering it technically impossible for the taxpayer to submit returns. This creates a paradox; the taxpayer remains legally obligated to file but is systemically prevented from doing so. Consequently, the taxpayer is left in uncertainty, questioning whether they are indeed expected to file returns during the suspension period, and if so, how to do so when their tax ID is dormant/suspended. With no clear guidance, interpretation has become a free-for-all, from the taxpayers and his consultant, as well as the tax authority.

Are taxpayers now meant to perform an annual tax tango; reactivating a dormant TIN to file returns, then quickly suspending it again until the next cycle, to repeat the same process?

Furthermore, since Nigerian tax operates on a preceding-year basis, it remains unclear whether temporary cessation will trigger an actual-year basis filing approach?

Rules of interpretation

To properly situate the discussion, it is essential to consider the guiding judicial principles that govern the interpretation of statutory provisions, as there exist a legal dilemma on the interpretation and application of the provisions of Section 11 vis-à-vis the provisions of Section 10(1-2) of the NTAA for a temporary suspended Tax ID.

The latin maxim "Ut res magis valeat quam pereat" (the law must be construed so that all its provisions are given effect and none rendered redundant or absurd) is instructive in this regard. Whenever the words used in a provision are imprecise, uncertain and ambiguous, thereby leading to the possibility of alternative constructions, then the court is expected to construe the provisions in such a manner that none of the provisions of the statute is turned inoperative. A court will not adopt an interpretation that causes one part of the law to defeat or nullify another, unless absolutely necessary.

The Court of Appeal held in the case of Imoh V Imoh (2021) LCN/14939 (CA) that:

"In interpreting the provisions of the Constitution and indeed any statute, one of the important considerations is the intention of the lawmaker. In addition to giving the words used, their clear and ordinary meaning (unless such construction would lead to absurdity), it is also settled that it is not the duty of the Court to construe any of the provisions of the Constitution in such a way as to defeat the obvious ends it was designed to serve where another construction equally in accord and consistent with the words and sense of such provisions will serve to enforce and protect such ends".

Also, In Savannah Bank of Nigeria Ltd & Anor v. Ammel O. Ajilo & Anor (1989) 1 NWLR (Pt. 97) 305 (Supreme Court).

The SC held that a statute should not be given a construction that will defeat its purpose.

Furthermore, in OLUBUKOLA ABUBAKAR SARAKI V. FEDERAL REPUBLIC OF NIGERIA SC.852/2015. The Supreme Court held that:

"A narrow interpretation that would do violence to the provisions of the Constitution and fail to achieve its goal must be avoided. Thus, where alternative constructions are equally open, the construction that is consistent with the smooth working of the system, which the Constitution read as a whole, has set out to regulate, is to be preferred"

Similarly, in Attorney General of Bendel State v. Attorney-General Federation and Ors. 21, (2001) F.W.L.R. (Pt. 65) 448 at p. 548-549 the Supreme Court held that the plain and literal construction of the constitution or statute will only be rejected if such interpretation or construction will lead to some absurdity or defeat the obvious intention of the makers of the constitution or make nonsense of other provisions of the constitution.

Applying these principles to Sections 10 and 11 of the NTAA, it becomes evident that the recognition of the suspension of a temporarily ceased business for tax purposes, under Section 10(1) and (2) of the NTAA, must be interpreted in a manner that gives meaningful effect to that provision without being negated by the general filing obligation in Section 11. A contrary interpretation construed in a way that requires a business under temporary cessation, to continue filing annual would defeat the purpose of placing the tax ID of such business under suspension in Section 10 of the NTAA and render the provision meaningless.

Therefore, Section 11 of the NTAA should be construed purposively in line with Section 10 of the NTAA, to imply that a taxpayer who has notified the tax authority of a suspended registration for tax purposes, is not under the same filing obligation as an active taxpayer during the suspension period. This will ensure that the interpretation aligns with the law's intent to reduce compliance burdens for inactive businesses, rather than nullifying it through rigid technical interpretation.

Conclusion

The NTA/NTAA reforms wisely introduce a formal mechanism for temporary cessation of business by allowing suspension of a Tax ID and classifying it as dormant. This is a welcome improvement over the older regime. However, there is need for additional clarification to the framework.

Without prejudice to the settled principle that tax statutes must be strictly construed, there is nothing in Section 10 or 11 of the NTAA that suggests that a suspended tax ID is automatically exempt from the obligation to file returns. However, on purposive reading, it is evident that the rationale for introducing the suspension regime was to ease the compliance burden for businesses that are not trading. Otherwise, a company with no active operations would be forced to expend its capital on consultants and compliance costs simply to file nil returns, an outcome that would undermine the very purpose of the reform.

It remains to be seen (a) the modality for filing returns in the period immediately preceding the suspension, (b) the treatment of other income earned during the suspension period, and (c) the procedure for resuming compliance once the suspension is lifted.

To resolve this gap, the implementing regulations or further legislative amendments should expressly provide practical modalities prior, during, and immediately after the suspension of Tax ID as a result of temporary cessation of business.

Accordingly, there is a pressing need for the Minister of Finance and the Nigeria Revenue Service (NRS) to provide clarifications on several issues:

• how will the digital tax filing portal handle a suspended tax ID, given that all tax filings are now conducted electronically? Can a taxpayer with a suspended tax ID still access the TaxPro Max portal? And if access is possible, will the system simply display a "suspended" status, and a prompt for the user to reactivate its account?
• in the same vein, where the taxpayer with a suspended tax ID earns other income (passive income) and WHT is paid on its income, will the WHT credit be pending from being posted to the suspended tax ID account until the suspension is lifted?
• the administrative mechanism for tax filing just before suspension of Tax ID and during suspension, specifically as it relates to the period of filing and payment of any taxes due (temporary reactivation, special portal module, or prescribed form);
• the process for filing tax return after reactivation of tax ID following the resumption of business.

Only through such administrative clarity can this welcomed introduction by the tax reform law truly align with the realities of modern business, such that operations may pause, but compliance obligations would not become a maze.

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.