Federal High Court Holds That Dividend Paid From Profits Derived From Exported Goods Are Subject To Section 19 Of CITA (Excess Dividend)


On 4th May 2018 the Federal High Court (FHC) sitting in Lagos, Nigeria in Olokun Pisces Limited v. Federal Inland Revenue Service (FHC/L/5A/2016), delivered a judgment affirming the application of Section 19 of CITA (on excess dividend) to profits the tax payer claimed was exempted from tax under Section 23(1)(q) of CITA.

Facts of the Case

Olokun Pisces Limited (the appellant) declared and paid dividends to its shareholders for the years 2008 – 2013 from profits it derived from goods exported from Nigeria. The appellant declared nil profit in the said years. After conducting a tax audit, FIRS acting pursuant to Section 19 CITA, treated the dividends paid for years 2008 – 2012 as total profit for the period and subjected same to company income tax.

The appellant unsuccessfully challenged the decision of FIRS at the Tax Appeal Tribunal and consequently appealed the decision at the FHC.

Position of the Parties

In summary, the position of the appellant is as follows:

The appellant claimed that its profits for the years 2008 – 20012 was exempt from tax because it satisfied the requirements of Section 23(1)(q) of CITA which provides that profits shall be exempt from tax if it satisfies the following requirements:

  1. The profit is derived from goods exported goods from Nigeria; and
  2. The profit from the export was repatriated to Nigeria; and
  3. The repatriated profit was used exclusively for the purchase of raw materials, plants and equipment.

On its part, FIRS argued that the appellant did not provide adequate evidence to show the following:

  1. That the appellant’s profit for the years 2008 – 2012 was actually repatriated; and;
  2. That the repatriated profits (if any) was used exclusively for the purchase of raw materials, plant and equipment.

Decision of the Court

The court ruled in favour of the FIRS and held that to claim the tax exemption set out in Section 23(1)(q) of CITA, the appellant must show that the profit was derived from the export of goods, the profit was repatriated, and the repatriated profit was used exclusively for the purchase of raw materials, plant and equipment. According to the court, the appellant had not provided adequate evidence to satisfy the requirements of Section 23(1)(q) of CITA therefore tax assessment was upheld.

Implications of this Decision

Although the court held that the dividend paid in the years of assessment is subject to tax under Section 19 of CITA because the appellant did not meet the requirements of Section 23(1)(q) of CITA, the court did not categorically rule on whether the position would have been different if the profits the dividend was paid from qualifies as an exempted income under Section 23(1) of CITA. We have therefore not gone beyond the principle in Oando v FIRS- where the court held that dividend paid from retained earnings of profits that suffered tax in prior years, is taxable under Section 19 of CITA as profits on which no tax is payable. This is because the exempted profits set out under Section 19 of CITA can literally be described as profits on which no tax is payable.

Based on the above, Section 19 of CITA remains a problematic provision capable of being imposed on any source from which dividend is paid when total profit is less than the dividend declared. Efforts should be intensified to amend Section 19 of CITA so that dividends paid from exempted profits; retained earnings of taxed profits or profits made by a company during tax holidays etc are not affected by Section 19 of CITA.

For more information, contact:

Maxwell Ukpebor, Samuel Esuga, Olumayowa Oluwole
Adebiyi Tax & Legal
House 20 Wema Terrace
Udi Street Ikoyi


+234 803 960 0520

This Legal Alert contains information on tax /legal issues. It does not constitute legal or professional advice on such issues. Where specific legal advice is needed, the services of a solicitor/tax adviser should be sought.

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