THE RELEVANCE OF TAX CLEARANCE CERTIFICATE (TCC) IN NIGERIANDEMOCRACY

BY:

*DR. D. ASADA LL.J3, B.L, LL.M, Ph.D AND

*ZUMKA SEKOP LL.B (HONS)

INTRODUCTION

Prior to the advent of the white man in Nigeria, Nigerians cheerfully paid taxes in

kind by rendering free services such as clearing the bush, digging pit toilets, wells,

etc. for the benefit of the community as a whole. Failure to render such services

usually resulted in seizure of property, which might be reclaimed on payment of

money. Manor house, a Western State Government V.I.P Rest House at Iseyin, now

inherited by Oyo State, was built between 1916 and 1932 after the Iseyin Rising of

1916 by tax defaulters under the supervision of Captain W. V. Rose.'

Historically and at present therefore, Taxation constitutes one of the liveliest

domains in revenue and democratic relations both at the structural, institutional and

processual dimensions. Although this development is ultimately related to the

accumulated experiences in our nation's history, it is equally important to analyse

the way and manner citizens respond to payment of tax in our contemporary society

and the democratic relevance of Tax Clearance Certificate.

Today, few taxpayers enjoy paying taxes voluntarily, although many regard it as a

public duty to pay tax as required by government and Law, which of course comes

back to them in the form of social services. Some citizens admit this duty, but do not

view what they may benefit from it; others still have the simple mentality that the

tax collector is a public enemy to be outsmarted by all possible means. It is in

attempt to ensure that taxpayers pay their taxes as and when due that Tax

clearance Certificate was introduced as a weapon of revenue collection in 1978/9.

This document has got several legislative backinq' and is equally relevant today in

the Nigerian democracy.

1931Page

MEANING OF TAX AND TAX CLEARANCE CERTIFICATE

In the realm of law, definition is always a Herculean task. However, for an adequate

comprehension of the subject matter under review, it is only appropriate to have a

working definition. Perusing through the Nigerian tax Legislations revealed that no

effort his been made to define Tax. However, in the case of MATHEW V. CHICORY

MARKETING BOARD3 taxation was defined as.

... a compulsory exaction of money by a public authority for public

purpose, or taxation is raising money for the purpose of government

by means of contributing from individual persons'

It can be deduce from this definition that the basic and elementary purpose of tax is

revenue generation for the support of government expenditures.

Tax clearance Certificate on the other hand is a written confirmation from revenue

that person's tax affairs are in order at the date of issue of certificate. In some

instances a certificate may be issued to a customer who has tax arrears provided

such arrears are covered by an installment arrangement that has been agreed by

revenue.s

TAX LAW ENFORCEMENT AUTHORITIES

It is now trite that taxation is an involuntary payment by a citizen for the support of

his government. Also trite is the fact that the citizen will not pay if the tax is not

demanded from him. Even where there is a demand, he still will not pay if he knows

that by so doing he will lose nothinq." These statements therefore underscore the

relevance of tax law enforcement authorities.

Accordingly therefore, taxation in Nigeria is enforced by the three tiers of

government, that is, Federal, State and Local Governments, each with its spheres

clearly spelt out in the taxes Legislations. In this regard, section 108of the Personal

Income Tax Ace defines "Tax Authority" to mean the Federal Board of inland

Revenue,8 the State Board or the Local Government Revenue Committee. These

1941 P age

bodies are charged with the duty of ensuring compliance with legal obligation of

payment of tax. The Federal Inland Revenue and the State Board of Inland

Revenues issue Tax Clearance Certificate at both the Federal and State level

respectively.

ISSUANCE OF TAX CLEARANCE CERTIFICATE

A Tax ClearanceCertificate shall be issued whenever the relevant tax authority is of

opinion that tax assessedon the income of a person for the three years immediately

preceding the current year of assessment has been fully paid, or that no tax is due

on the income, or that the person is not liable to tax for any of those three years, it

shall issue a Tax ClearanceCertificate to the person within two weeks of demand for

the certificate by that person or give reasons for the denial, however, that the

payment of current year tax shall not be made a condition for the issuance of the

certificate unless the applicant is leaving the country flnallv." This provision means

that it is not only persons who are liable to tax as taxable persons, and have equally

paid are entitled to Tax Clearance Certificate, but it also includes persons who are

exempted from tax for the three years immediately preceding the current year of

assessment.

Accordingly, where a person is able to produce evidence that he has suffered tax

deduction at source and that the year of assessment to which the tax relates falls'

within the period covered by the Tax ClearanceCertificate, the person shall not be

denied a Tax ClearanceCertificate provided that any balance of tax after credit for

the tax so deducted has been fully paid."

More still, when a person who has deducted any tax pursuant to the provision of the

Act fails to pay the tax so deducted to the relevant tax authority, no tax clearance

certificate may be issued to that person even if he has fully discharged his own tax

liability under the Act."

A Tax Clearance Certificate shall disclose in respect of the last three years of

assessment:

1951Page

a) Chargeable income;

b) Tax payable;

c) Tax paid, and

d) Tax outstanding or alternatively a statement to the effect that no tax is

due."

WHEN TAX CLEARNACE CERTIFICATE MUST BE PRODUCED

A Ministry, Department or an Agency of Government or a Commercial Bank with

whom a person has any dealing shall demand from the person a tax clearance

certificate for the three years immediately preceding the current year of assessment.

This shall apply in relation to the followlnq.':'

a) Application for Government loan for industry or business;

b) Registration of motor vehicle;

c) Application for firearms licence:

d) Application for foreign exchange or exchange control permission to remit

funds outside Nigeria;

e) Application for certificate of occupancy;

f) Application for award of contracts by Government, its agencies and registered

companies;

g) Application for approval of building plans;

h) Application for trade licence.

i) Application for transfer of real property;

j) Application for import or export licence;

k) Application for agent licence;

I) Application for gaming licence;

m) Application for registration as a contractor;

n) Application for distributorship;

0) Confirmation of appointment by Government as Chairman or member of a

196 I P age

public board, institution, commission, company or to any other similar position

made by the Government;

p) Stamping of guarantor's form for a Nigerian passport;

q) Application for registration of a limited liability company or of a business

name;

r) Application for allocation of market stalls.

s) Appointment or election into public offices

The CITA, 2004 also captures vividly the circumstances, the nature and types of tax

clearance certificates that are usually granted in pursuance of the Tax authority drive

for revenue generation. The introduction of Tax Clearance Certificate as a tax

collection tool was part of the recommendations of the 1978 Tax Force on Tax

Administration.

There are basically two types of certificates: the remittance certificates and the

general certificates.

In the case of Remittance certificates, section 101 of CITA provides:

An applicant for exchange control permission to remit funds to a non-

resident recipient in respect of income accruing from rent, dividend,

interest, royalty, fees or any other similar income shall be required to

the effect that tax has been paid on funds in respect of which the

application is sought

The above provision deals specifically with remittance certificates, which is outside

the scope of this write up. Of more relevance to our present discourse is the

general-purpose certificate. Section 101 provides in this respect.

Where the Board is of the opinion that tax assessed on the profit or

income of a person has been fully paid or that no tax is due on such

profit or income, it shall issue a tax clearance certificate within two

weeks on the request for such certificate by that person or if not, give

197 I P age

reasons for the denial.

The implication of the above provision is that Tax Clearance Certificate still

outstanding for any of the three years preceding the current year of assessment:

That is, for 2007 year of assessment, all taxes for 2004, 2005 and 2006 years of

assessmentmust have been settled in full except where the following events occur.

i. Assessment is under objection or appeal;

ii. The Board has granted installment payment concession covering more than

the current year and the company has not defaulted;

iii. Withholding tax credits are available as set-offs; and

iv. The late or non-remittance of withholding tax is due to no fault of the

taxpayer.

Tax clearancecertificate may be denied a prospective applicant where:

i. The applicant fails to answer queries on returns files.

ii. The applicant fails to supply additional information, keep books or attend

interview as requested by the tax office in respect of returns filed;

iii. The applicant fails to file returns

iv. There are unresolved tax-avoidance or evasion cases against the tax-

payer,

v. The applicant has not settled arrears of taxes for which he/she is liable.

vi. The applicant fails to remit withholding taxes of the company in which he is a

director or is an agent of tax collection.

TAX CLEARANCE CERTIFICATE IN ELECTORAL PROCESS

With reference to the relevance of taxation in any given society, it is pertinent that

1981Page

all persons seeking elective offices at Local, State and Federal Governments level

must comply with all relevant tax laws. Political office seekers in all political parties,

seeking to manage public funds must comply, and must be seen to have complied

with the laws of the land, by demonstrating to all that they have dutifully contributed

to public purse, by regular and correct payment of taxes. Otherwise, they lack the

moral right to preside over public treasury."

The provision of section 24(f) of the Constitution of the Federal Republic of Nigeria,

1999 shows that "it shall be the duty of every citizen to declare his income honestly

to appropriate and lawful agencies and pay his tax promptly". Meanwhile, a

community reading of Sections 65, 66, 106, 107, 131, 137, 177, and 182 of the

same Constitution as well as Sections 109 - 110 of the Electoral Act, 2006 (All

dealing with the qualifications and disqualifications of persons contesting for public

offices in Nigeria) do not in anyway make a Tax ClearanceCertificate a condition for

qualification or disqualification of persons seeking political offices. No wonder, Prof.

Maurice Iwu through his Chief PressSecretary, Andy Ezeani) during the face-off

between FIRS and INEC prior to the 2007 elections over the latter's refusal to

release the Tax Clearance Certificate submitted it by political offices seekers

establish its genuineness or otherwise by the former, said "INEC had no business

inquiring into the tax status of political office seekers". He stressed that tax

clearance certificate was not part of the requirements needed by the candidates to

contest election.15

The Chairman of the Joint Tax Board (JTB) and Federal Inland Revenue Service

(FIRS), Mrs Ifueko Omoigui, at a press briefing in Abuja, said the Independent

National Electoral Commissionwould be seen to be aiding and abetting tax evaders

and errant politicians if it fails to involve the JTB in ascertaining the genuineness of

Tax ClearanceCertificate submitted by political office seekers. The JTB, through its

Acting Secretary, Mr. Femi Edgal, called for the outright disqualification of

candidates with fake clearance papers." His argument is predicated upon the fact

that presentation of forged certificates in one of the grounds listed for the

disqualification of candidates for political office, as stated in Section 137(j) of the

1999 Constitution.

199 I P age

More still, section 85 (2) (4) (s) supra, provides that - a Ministry, Department or any

agency of Government with whom a person has any dealing with respect to -

appointment or election into public office - shall demand from the person a tax

clearance certificate for the three years immediately preceding the current year of

assessment.

From the foregoing, therefore, the position of INEC that it has no business inquiring

into the tax status of political office seekers, and that tax clearance certificate was

not part of the requirements needed by candidates to contest election is a serious

mistake or grave oversight on the part of the leadership of the electoral body. It is

very surprising and questionable, indeed that the JTB and FIRS, have not been

involved in the processof checking the tax papers of political office seekers.

PROBLEMS OF TAX CLEARANCE CERTIFICATE

With the use of Tax Clearance Certificate more problems existed than estimated

when the device was introduced. Obviously, here is a good example of how a good

device of improving tax collection has been abused. Someof these abusesare."?

a) Unnecessarydelays in the process of issuing the certificates leading to bribe

taking.

b) Large scale forging of the certificates by organized syndicates.

c) The production of the certificate itself does not ensure that adequate tax is

paid. Token amounts of tax are sometimes paid to obtain this certificate

consequently; the problem of evasion still lingers on.

d) Further problem associated with the use of tax clearance certificate is that it

has not been possible to apply it to the private sector of the economy.

Whereas the private sector is predominantly the area where much tax should

accrue to the government.

e) Problems of Political Influence. One very important example is the

cancellation of the production of Tax Clearance Certificate by candidates

contesting election into political offices. This was one of the first acts of the

200 I P age

politicians immediately after coming into power in 1979. The Joint Tax board

protested vehemently, but it was never restored. The Face-off between INEC

& JTBover ascertaining the genuinenessof the Tax ClearanceCertificate prior

to the 2007 elections also confirms political influence.

f) The Joint Tax Board and other tax authorities lack the mechanism for the

enforcement of their decisions, thereby qualifying them as a toothless

bulldog.

RECOMMENDATIONS

Towards the need to ensure the relevance of Tax Clearance Certificate in the

Nigerian democracy, the following suggestions are made as recommendations.

1) It is suggested that the phenomenon of Tax Clearance Certificate can be

employed to great advantage by complying with the legal provision making

the possession of Tax Clearance Certificate requirement for transacting any

form of business with government and any of its agencies. This would

increasethe attitude of taxpayers in filing returns.

2) In place of the prevalent practice of applying for Tax ClearanceCertificate as

and when needed by a taxpayer, the Revenuemay make the filing of a return

a precondition to the issuance of the certificate. Furthermore, it may be

stipulated that a failure to file returns in a year of assessment should attract

some penalty. It should be requirements for every taxpayer to file his return

latest say by 31st March in any year of assessment.Where a taxpayer delays

in filing his return he should be made to pay some penalty, say 5% of the

taxable amount for each month the delay occurs. To ensure compliance,

there should be an audit of total number of returns received as at 31st March

say within the first week of April. This figure should correspond with the

number of Tax Clearance Certificates to be issued, so however, it is

understood that any additional Tax Clearance Certificate issued shall reflect

the fact that penalties to the amount of additional Tax clearance Certificate

issued had been paid.18

2011 P age

3) Adequate and skilled manpower should be employed so as to avoid the delay

in the processof issuing the certificates.

4) Staff allowances, salaries and perquisites of offices should be promptly

attended to so as to avoid the temptation of collecting meager as bribe from

taxpayers thereby eradicating corruption.

5) In this age of Information Communication Technology (lCT) the tax authority

should have a data base system where it can assessall records of all taxes

filled by all applicable individuals and corporate bodies in the country. This will

enhance efficiency.

6) The INEC and JTB should collaborate and work harmoniously for the

screening of candidates seeking political offices. Since INEC is not a tax

regulatory office, it has no way at all of determining the genuineness or

otherwise of any tax paper without recourse to the JTB. Accordingly, the

provisions relating to qualification and disqualification of persons seeking

political offices as contained in the Constitution and the Electoral Act should

be amended to include Tax Clearance Certificate IV a condition for political

aspirants.

CONCLUSION

This work has exposed the fact that taxation as supported by a Tax Clearance

Certificate is indeed the fulcrum and main leverage sustaining modem democracy.

However, the Nigerian tax system is far from being satisfactory. In this regard, the

tax policies of government and the responds of taxpayers have left us with no option

but to analyse the relevanceof Tax ClearanceCertificate in Nigerian Democracy.

Accordingly, in the spirit of an in-depth analysis, an attempt has been made to

understand the meaning of tax and tax clearance certificate, tax law enforcement

authorities, issuanceof tax clearance certificate, when tax clearance certificate must

be produced; tax clearance certificate in electoral process, problems of tax clearance

certificate and recommendations.

In the light of the above, it is important to note that Tax Clearance Certificate is a

2021 P age

classified document (official secret and available only to particular people) and

should be treated as such. Taxpayers are advised to apply for their Tax Clearance

Certificates well in advance of the time when the certificates are required, for any of

the purposes for which the certificates may be demand. Note also that students as

well as other person exempted from tax can as well apply for Tax Clearance

Certificate.

As it relates to electoral process, the tax papers verification should be conducted for

all candidates, and should be devoid of sentiments and political victimization. Where

Tax ClearanceCertificates are suspected to be forged, reference should be made to

the relevant tax authority, but a Tax Clearance Certificate issued by any tax

authority of a State in Nigeria is tenable for all the selected transactions through the

country. There is therefore no reason for any state not to honour a Tax Clearance

Certificate issued by another state tax authority of competent jurisdiction.

Conclusively, as observed above, the demand for Tax Clearance Certificate for a

number of purposes by various organizations throughout the country was introduced

by the federal government as a measure to reduce tax evasion and improve tax

collection, as well as ensure that political office seekers comply with tax laws and

contribute to public purse. Therefore, the relevance of Tax Clearance Certificate in

Nigerian democracy cannot be overemphasized.

203 I P age

REFERENCES

Why Restorative Justice? Repairing the Harm Caused By Crime: By Roger Graff;Chapter IV, P.23

Ibid

Ibid

Philip Priestly: An Article Titled, "Victims: Key To Penal Reform" Published In 1977

Ibid

Probation of Offenders Act 1907

Criminal Justice Act 1999 And The Crime (Sentences) Act 1997

Why Restorative Justice? Repairing The Harm Caused By Crime; Roher Graff P. 23And 25

Ibid

Criminal Justice Act, 1972 The Compensation Order 1982

A Further Compensation Order of 1988

A Guide to The Criminal Justice System In England And Wales, P. 41

M.s. Yusufu Wakilin Da Jahilci & Anor. V. Zaria N.A. (1963) NNLR 82 (1968) NNLR38

Unreported JD/15CA/78 High Court of Plateau State (1981) 1 NNLR 103

Evidence Act Cap. Laws Of The Federation Of Nigeria 1990 S. 365 (2) Of The c.P.C

S. 304-306 c.P.C

Muhammadu Galadima V. Abdul Mohammed Tunga (1971) NNLR 84

A Further Compensation Act of 1988

Alh. Ganiyu Martins V. C.O.P (2005) 3 F.W.L.R (Pt 375)

2041 P age

ENDNOTES

* Dr. Dominic Asada is a senior lecturer in the Faculty of law, University of Jos.He is an erudite scholar and a visiting lecturer at the Kogi State University. Hehas contributed many articles for both the advocate journal and otherinternational journal of high repute.

* Zumka Sekop is a graduate of law (llB. Hons). He was the Editor in Chief,law Students' Society, University of Jos in the 200512006session. He is indeeda young upcoming writer. As part of his intellectual achievement, he has bothpublished and unpublished work to his academic arsenal.

1 Oghuma, R.I. Nigerian Personal Income Taxation (Benin: New EraPublications; 2002) P. 1

2 See The 1999 Constitution, Personal Income Tax Act, 2004, NationalAssembly (Basic Constitutional & Transitional Provisions) Act, 1999. etc.

3 (1938) 60. ClR, 263.

4 Per Justice letham

5 www.revenue.ie/leaflets/tax clearance

6 Akanle, O. "A New Framework for Tax Administration in Nigeria" in Akanlie, O.ed. Tax Law and Administration in Nigeria (Ibadan, Intec Printers Ltd., 1991)p.1l8

7 Personal Income Tax Act, Cap. P8. lFN, 2004.

8 On the 16th day of April 2007, the National Assembly of the Federal Republicof Nigeria enacted the Federal Inland Revenue Service (Establishment) Act,2007, and charged it with powers of assessment, collection of and accountingfor revenues accruable to the Government of the Federation and for relatedmatters. In the light of the above, the Federal Inland Revenue Servicereplaced the erstwhile Federal Board of Inland Revenue.

9 Section 85(1) PITA

10 Section 85(8) PITA

11 Section 85(6) PITA

Section 85 ( 6) PITA12

13 Section 85 (2) & (4) PITA

14 Zumka Sekop, The Legal and Administrative Mechanism for the Administration

205 I P age

of Personal Income Tax in Nigeria. (Unpublished LL.B Hans Project, Uni Jos,Jos, 2008) P. 87

15 Paul Mumeh, et al,. Tax clearance certificate: FIRS may Sue INEC sourcedfrom www.nigeriavillagesguare.com

16 Wale Sokunbi, Between INEC and Joint Tax Board. (2007) Sourced from SunNews on-line.

17 Oladunjoye, O. "Tax Administration: The problems of Assessment andCollection" in Akanle, o. Ed. Op cit. P. 101.

18 Akanle, O. op. cit. p. 114.

2061 P age