On 14th May 2019, the Tax Appeal Tribunal (TAT), Lagos (in Appeal Number: TAT/LZ/PIT/084/2014 – SNEPCO v. Lagos State Board of Internal Revenue – held that where withholding tax (WHT) or PAYE tax is not remitted within the time prescribed by statute, penalty and interest become due and payable on the unremitted tax from the very moment the time prescribed by statute for the payment expires.
In the appeal, the appellant challenged an assessment imposed by the Lagos State Internal Revenue Service (LIRS) in respect of WHT, PAYE and Development Levy plus interest and penalty on the amount assessed. The appellant and LIRS later reached an agreement to pay a reduced tax which was entered as judgment of the TAT. However, parties could not agree on whether interest and penalty should apply on the agreed sum.
The appellant contended that since it objected and appealed against the assessment within the time prescribed by law, interest and penalty cannot be imposed on the agreed sum because the assessment has not become final and conclusive. LIRS on its part contended that penalty and interest are due and payable on the unremitted tax from the very moment the tax payer fails to pay the tax within the time prescribed by statute and that it is entitled to charged interest and penalty because the agreed liability and the fact the appellant objected to the initial assessment does not affect LIRS’ right to charge interest and penalty on the agreed tax liability against the year of assessment it relates.
Issues for determination
In delivering its judgment, the TAT examined the following issues:
(i) When does an assessment become final and conclusive;
(ii) Whether interest and penalty apply to an assessment which has not become final and conclusive;
(iii) Whether interest and penalty can apply to unremitted tax and the period for calculating such interest.
The TAT held as follows:
(i) Where a taxpayer objects to a tax assessment within the time limited by law, the tax assessment cannot become final and conclusive. In this case, the assessment had not become final and conclusive because the appellant objected/filed its appeal within the time prescribed by the relevant statute.
(ii) Interest and penalty will only apply when a tax assessment is final and conclusive. Thus where a tax assessment is being challenged via the applicable legal procedure, interest and penalty cannot be computed on the assessment thus reaffirming the decision in Weatherford Services S.D.E.R.L. v. FIRS (2016) 26 TLRN 44.
(iii) However, the TAT seems to have overruled its earlier decision in Weatherford in respect of how interest and penalty should be calculated once a tax assessment is established. The TAT relied on section 32(1) of the FIRS (Establishment) Act which provides that where tax is not paid within the time limited by law, interest and penalty shall be calculated and imposed thereon from the date the tax
becomes payable until it is paid. The TAT noted that pursuant to section 74(1) of PITA, WHT must be remitted within 30 days from the date the amount was deducted or the duty to deduct arose. Also, pursuant to Paragraph 8 of the PAYE Regulations, PAYE must be remitted 10 days after the end of any month. Where the collecting agent does not remit WHT or PAYE within the above stated periods, penalty and interest becomes due on the unremitted tax from the very moment the time prescribed by statute expires. The TAT held that the collecting agents have both a legal and moral duty to remit WHT and PAYE collected by them. Thus, once the taxpayer concedes to a tax assessment, the tax authority has the right to impose interest and penalty on the tax amount agreed upon.
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