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TAT affirms the applicability of excess dividend tax on dividend paid from tax-exempt incomes

TAT affirms the applicability of excess dividend tax...

The Tax Appeal Tribunal (TAT or “the Tribunal”) recently delivered judgement in the case between Ecobank Nigeria Limited (“Ecobank” or “the Company”) and the Federal Inland Revenue Service (“FIRS”).

Wole Obayomi

Partner & Head, Tax, Regulatory & People Services

KPMG in Nigeria


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TAT affirms the applicability of excess dividend tax on dividend paid from tax-exempt incomes

The judgement was to the effect that Section 19 of the Companies Income Tax Act (CITA) on taxation of dividends, otherwise known as the Excess Dividend Tax (EDT), is applicable to income derived from bonds, treasury bills and other short-term government securities which are tax-exempt by virtue of the Companies Income Tax (Exemption of Bonds and Short-Term  Government Securities) Order, 2011 (“Exemption Order”).

Facts of the case

Ecobank invests in the Federal Government’s bonds, treasury bills and other short-term securities alongside its core banking services. The Company reported a tax loss in 2015 financial year after excluding its tax-exempt  income from its companies income tax (CIT) computations. However, the Company declared and paid a total dividend of N5,545,000,000.00 in that year as detailed below:

  • N4,372,244,556.00 being income earned from tax-exempt income (i.e., investment in government securities such as treasury bills, bonds etc.); and
  • N1,172,753,444.00 being income earned from taxable sources (i.e., core banking activities).

In 2016, the FIRS conducted a tax audit exercise on the Company’s records and subjected the entire dividend to EDT. The Company contended the FIRS’ position on the portion of its dividend that was sourced from tax-exempt income, based on the Exemption Order. However, the Company accepted the EDT liability associated with the  income from other sources.

The Company posited that Section 19 should not be applied strictly, in isolation from similar statutory provisions such as Section 23 of CITA, which birthed the Exemption Order. The Company also argued that while the EDT provision served as an anti-tax avoidance rule, in applying the mischief rule of legal interpretation, the combined reading of Sections 19, 23(2) and 84 of CITA was certainly to exclude the application of EDT to income that is expressly exempt from CIT. Otherwise, this will amount to approbation and reprobation by the law at the same time, which is inequitable.

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