The Lagos zone tax appeal tribunal has ruled that Ecobank must pay the Federal Inland Revenue Service (FIRS) N1.66 billion as company income tax for 2016.
According to a statement released by Abdullahi Ismaila Ahmad, FIRS’ director of communications, the tribunal delivered its judgement on Thursday, February 20.
Ecobank had reportedly claimed that it made no taxable profit in 2016, declaring losses from its banking operations.
“Ecobank had dragged the FIRS to court over the insistence of the service that the bank must pay in full its excess dividend tax liability of N2,079,375,000, inclusive of interest and penalty for the year of assessment (YOA) 2016,” the statement read.
“Ecobank argued that the dividend it paid out was tax-exempt as N4,372,244,556 out of the total sum was profit from bonds and treasury bills, which was not taxable based on the provisions of the company income tax (exemption of bonds and short-term government securities) order, 2011.
“Admitting to only making N1,172755,444 trading profits from other business sources, Ecobank decided that it would only pay N351,826,663 tax to the FIRS, which it paid the service after some months of delay.”
The FIRS said it demanded the payment of an outstanding excess dividend tax liability of N1,311,673,367 from the bank which led to the suit.
In its argument before the court, Ecobank presented three issues for determination, namely whether the FIRS “was correct to assess the appellant to tax under Section 19 of CITA” when the income earned was “from bonds, treasury bills and other government securities”; whether the FIRS “misdirected itself by failing to take account the CIT paid by the appellant”; and “whether by the rules of interpretation of statutes, the respondent has erred in law in its application of section 19 of CITA”.
In its consideration of the three issues raised, the tax tribunal held that “companies that invest in bonds will, by virtue of the tax exemption, become liable to pay excess dividend tax on their profits”.
The court averred that if the tax exemption granted by the order (company income tax (exemption of bonds and short-term government securities) Order, 2011) creates an excess dividend situation, Ecobank or any other company “should be liable to pay excess dividend tax on the same income that otherwise would have been exempted from tax”.
The tribunal stressed that “a liability to pay excess dividend tax arises where a company that seeks to pay dividend has no taxable profit as in the instant case but has a distributable profit that is higher than the taxable profit”.
In the year of dispute (2016), Ecobank paid N5,545,000,000 as dividends to its shareholders.