By M.T. Abdulrazaq
The argument behind the removal of the fuel subsidy is simple. It is that the barrels of crude oil for domestic consumption which is not even part of the OPEC quota should be bought at the international market price and the “bridging payment” between the international price and what ought to be the “domestic pricing” to allow for the sale of petrol or premium motor spirit at a lower price called “subsidy” should be removed.
Two tax principles are embedded in this argument. The first principle is that of discounts. The taxation of discounts in Nigeria is provided for in both sections 9 (c) of CITA 2004 and section 3 (d) of PITA 2004 as amended.
The meaning of discounts is explained in the English case of BROWN v. NATIONAL PROVIDENT INSTITUTION [1921] 2 A.C. 222 (H.L.) at pp 251-252. The discount must be an income profit and not a capital profit such as the discount between the cash and credit price of an article allowed by a seller.
The subsidy in the petrol pricing is the discount granted for the difference between the international pricing and what is supposed to be the domestic pricing of crude oil.
The second principle is the rule in the English case of SHARKEY v WERNHER [1955] 3 AII ER 493 where Lady Zia Wernher carried on the business of a stud farm; she also rode horses for pleasure. She transferred a horse reared at the farm to her personal use and entered the costs incurred in respect of the horse until the date of its transfer as a credit item in the account of the stud farm. There was thus no attempt to take tax advantage of the deductions she has already been allowed. The UK Revenue successfully contended that the horses should be entered not at cost but at market value. The rule is that where a trader disposes of trading stock otherwise than in the course of trade, he is deemed to dispose of it at market value and that figure must be entered as a credit in his accounts. This principle
applies whether he supplies the goods to himself or to some other person unless the disposal is a genuine commercial transaction. The value entered in the books of the transferor is also entered in the books of any trade acquiring the stock. Hence, this would appear to be the justification for the same pricing of the barrels of crude oil for both the international markets and those for domestic consumption.
The most serious criticism of the SHARKEY v. WERNHER rule is that of the uncertainty as to the scope of the notional income. It would appear that the rule is confined to trading income thus landlords who allow themselves to occupy their houses would not be treated as owing themselves an economic rent for the purposes of a property business. The third relevant issue is not a tax principle but a predictable application of section 76 of CITA 2004 with respect to final and conclusive assessments. The case of WESTERN SOUDAN EXPORTERS v. FEDERAL BOARD OF INLAND REVENUE 1 NTC 240 is instructive to the effect that the finality and conclusiveness of an assessment should not work against the taxpayer alone as the tax authority is also within the ambit of finality. Indeed, the case of FEDERAL BOARD OF INLAND REVENUE. v. IBADAN BUS SERVICE I NTC 165 laid down the rules that before the plaintiff or any tax authority could declare an assessment to be final and conclusive; it had to prove that it had complied with the procedure laid down by law culminating in the assessment and that once this was done the Supreme Court of Nigeria held in FEDERAL BOARD OF INLAND REVENUE v. NIGERIAN GENERAL INSURANCE COMPANY LIMITED 1 NTC 176, that the assessment as computed would become final and conclusive.
An application of this issue to the fuel subsidy matter is to be located in the statements of the various groups that the Government reverts back to the former price. Can we the people say that the increase in petrol price is advisory and not enforceable? Can a taxpayer insist that where the tax authorities do not conclude a matter within a reasonable time then the tax payer can regard his position as final and conclusive and appeal to the Tax Appeal Tribunal for confirmation.
Now, the oil cabal, who exactly are they? No one seems to know. Perhaps help should be sought in the tax field using the methodology enunciated in section 65 (3) of CITA 2004 and section 54 (3) of PITA 2004 which allows the use of the best of judgment in a situation where information is scanty. The case of FEDERAL BOARD OF INLAND REVENUE v. OMOTESHO INTC 257 explains the methodology in the use of best of judgment to include local knowledge and repute, local circumstances and other matters which would assist in arriving at a fair and proper resolution and possibly help in removing the mask of the elusive cabal. In any case, what exactly is the offence committed by these so called cabals?
Ask the majority of Nigerians whether they support libraries, schools, housing and health care and they will say ”yes”. However, ask if they are in favour of fuel subsidy removal, they will say “no”. This is because they are unable to make a connection between the two to understand that the subsidy payments removed can be channeled towards the provision of those things they support. All governments must provide information for their actions and have regard not only for what the people are able to bear but what they are willing to pay, and the manner in which they are willing to pay, without being provoked to a resistance.
M.T. Abdulrazaq is a Professor of Taxation and a Member of the NaijaTimes Editorial Advisory Board
