Nigeria: No retroactive application of tax law changes unless expressly stated (court decision)

A court decision concerning retroactive application of tax law changes

A court decision concerning retroactive application of tax law changes

The Federal High Court (Abuja) held that the Federal Inland Revenue Service (FIRS) acted unlawfully by retroactively applying the provisions of Finance Act, 2019 to transactions, activities, and periods that occurred before 13 January 2020 (the effective date of the legislation).

The court further held that a statute is not to be given a retroactive (retrospective) application, except when its language intends for the statute to operate retroactively. Therefore, since the provisions of the legislation did not expressly provide for a retroactive application of the legislative amendments, the FIRS acted unlawfully by extending its scope to matters that had occurred before the effective date.

The case is: Accugas Ltd. v. Federal Inland Revenue Service (27 June 2022) 


Prior to the enactment of the Finance Act, 2019, Section 33(3)(b) of the Companies Income Tax Act exempted companies with at least 25% imported equity capital from paying a minimum tax. However, a provision of the Finance Act, 2019 repealed this provision and replaced it with a new provision exempting small companies with an annual gross turnover of less than ₦25 million from tax.

The taxpayer—a Nigerian company with 99.9% imported equity capital held by a company incorporated in the Netherlands—wrote to the FIRS after the legislation’s enactment to clarify whether the repeal of Section 33(3)(b) would affect its exemption from minimum tax on its 2020 year of assessment tax return (that is, return is based on income earned from 1 January through 31 December 2019).

The FIRS replied that the taxpayer was ineligible to claim the exemption based on the 2019 legislative amendment.

To avoid imposition of penalty and interest for non-payment of minimum tax, the taxpayer filed its tax return for 2020 and settled the minimum tax liability of approximately U.S. $609,000 using its available withholding tax credits. The taxpayer then filed an appeal before the Federal High Court seeking, among other items, a declaration that it was entitled to a refund of the US$609,000 used to offset its alleged minimum tax liability for 2020.

The court held:

  • The applicable tax measures for taxation of the company’s income earned between 1 January 2019 through 31 December 2019 was the law that was in effect when the taxpayer earned the income—that is, repealed Section 33(3)(b).
  • A legislative change will not affect a taxpayer’s rights and obligations except when the law is clearly intended to apply retroactively and that this must be expressly stated, in clear terms, by the enacted legislation. Therefore, to the extent that the 2019 legislation did not expressly provide for retroactive application, the court held that it was not the intention of the legislature to make the amendment regarding Section 33(3)(b) to apply retroactively.

Read an August 2022 report prepared by the KPMG member firm in Nigeria


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