TAT Reinforces Statute Of Limitation, Rules That Tax Authority Cannot Carry Out Repetitive Tax Audits Without Credible Basis

Section 55 of the Personal Income Tax Act (PITA) 2011 (as amended) contains a limitation period within which additional assessments must be raised. The section allows tax authorities to raise additional assessments as often as necessary where they are of the opinion that, in any given year, a taxable person has not paid the correct amount of tax. However, such assessments must be raised within six years of the given year.

S.55(2), however provides an exception. The section allows a tax authority to carry out audits and investigations beyond six years where the taxpayer has committed any form of fraud, willful default or neglect (FWDN). However, the law does not specify how the FWDN is to be proven by the tax authority.

Tax authorities have routinely relied on this FWDN exception to conduct audits and investigations beyond the six-year limitation period, leading to disputes with taxpayers. The Tax Appeal Tribunal has ruled that to re-open an audit or go beyond the 6-years statute of limitation, the tax authority must provide specific particulars of the alleged FWDN and credible evidence to support the claim.

Credit: Taiwo Oyedele

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