Tax Education: What the Tax Laws say about Tax Clearance Certificate (TCC)

Tax Clearance Certificate (TCC) is a document issued by a Relevant Tax Authority (RTA), upon application by a taxpayer, confirming that the holder of the certificate has settled all its tax liabilities (both self-assessments & additional tax assessments) up to the immediate past year of assessment as at the date of the certificate.

The RTAs, Governments agencies, corporate entities and individuals are all guided by the provisions of the extant tax laws. This piece will highlight the provisions of three (3) tax laws namely:

i. Companies Income Tax Act Cap C21 LFN 2004 (as amended); herein referred to as CITA

ii. Personal Income Tax Act Cap P8 LFN 2004 (as amended); herein referred to PITA

iii. Capital Gains Tax Act Cap C1 LFN 2004 (as amended); herein referred to as CGTA

The provisions of CITA and PITA are similar with a few differences. Section 101 of CITA and Section 85 of PITA provide the following:

i. Issuance of a tax clearance certificate by a RTA is on demand by a taxpayer. The TCC must be issued within two (2) weeks of demand or the RTA gives reasons for denial.

ii. The taxpayer must have fully paid tax assessed for the three years of assessments immediately preceding the current year of assessment.

iii. Payment of the current year tax is not a condition for the issuance of the certificate, unless the applicant is leaving the country finally. S. 85 (1)

iv. A Ministry, Department or an Agency of Government and a commercial bank with whom a taxpayer has a dealing in respect of specific transactions listed in the extant laws, must demand from the taxpayer a TCC for the three (3) years immediately preceding the current year of assessments. These institutions also have the responsibility to verify the genuineness of the certificate by referring same to the issued Tax Authority.

v. A Government organization or a commercial bank who fails to demand for TCC from a taxpayer it is having a dealing with, is liable upon conviction to a fine of N5,000,000 or to an imprisonment for 3 years or both fine and imprisonment – S. 85 (9) of PITA

vi. The provision in (iv) above applies to about twenty-two (22) transactions listed in both CITA and PPTA. Section 44 (3) of CGTA also provides that TCC is a pre-condition for the stamping of documents relating to the sale of landed properties and other assets

vii. Any taxpayer who deducted tax at source and failed to remit same to the RTA will be denied TCC, even if the taxpayer has fully discharged its own tax liabilities.

vii. A taxpayer whom tax has been deducted at source for the period covered by the TCC, must provide an evidence to support such claim, before a TCC can be issued.

viii. A TCC contains the following information for the last three (3) years of assessment:

a. Total/Chargeable profits

b. Tax Payable

c. Tax Paid

d. Tax Outstanding or a statement of no tax due

e. Tax Identification Number. S. 85 (3e) of PITA

ix. A person who obtains a TCC through misrepresentation or giving of incorrect information, falsification of records in relation to matters having effect his tax liability, is liable upon conviction to a fine of N50,000 plus double of tax payable by him or imprisonment for three (3) years or both fine and imprisonment. S. 85 (7b) of PITA

x. Other than the tax liabilities for the relevant years of assessment, there is no fee to be paid by a taxpayer to obtain a TCC. Prior to the signing of the Finance Act (2019) into law by President Muhammadu Buhari earlier in 2020, Section 40 of CITA provided that any company which is yet to commence business after at least six (6) months of incorporation shall pay the following levies for each year of assessment before a TCC is issued:

  • N20,000 for the first year
  • N25,000 for every subsequent year

The above had since been deleted from CITA following the substitution of S. 40 with a new S. 40 in the Finance Act (2019).

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