by Adedayo Ademuwagun

This year, there was a mixed public reaction when delegates at the National Conference proposed that churches should be taxed. Some people were pleased about the tax exemption that the church enjoys. However, some people expressed cynicism about this tax benefit.

According to the Companies Income Tax Act (CITA) of 2004, churches are classified as non-governmental organisations, NGOs, on the principle that they render humanitarian services. Therefore, as an incentive, they are exempted from paying tax on the money they make, provided that they do not make this money by carrying out any business or trade.

The law considers trade in this context to be any form of transaction that brings in profit for the church.

This means that churches registered under the NGO status are not required to pay tax on offerings, tithes and other donations they receive, because the law considers such income to be for humanitarian work.

However, many churches use their income to produce goods and services for profit and they carry out activities that amount to trade.

For example, some churches sell books, tapes and other materials at a profit. Some also own schools, real estate and other establishments. These are all taxable under the law.

The Companies Income Tax Act says that, when churches trade in any way, they must pay the appropriate tax on that transaction as laid down in the Act.

The Act also says that churches must file a tax report to the tax authority every year. This report must state the amounts of the church’s income “from each and every source computed in accordance with the provisions of CITA.” That way, the tax authority can track their finances and enforce taxes where they are mandatory by law.

In their circular published in 2010 and titled Guidelines on the Tax Exemption Status of NGOs, the FIRS state, The relevant (tax office) shall monitor the activities of NGOs within its jurisdiction regularly to ensure compliance with provisions of the tax laws. Monitoring shall be through NGO desk set up for that purpose.”

Despite that, the FIRS as well as state and local tax authorities do not effectively monitor the NGOs, including churches, to ensure that they continue to comply with the obligations of their non-profit status. Also, the tax bodies often neglect to follow up to check how much humanitarian work the churches are really doing and ensure that they are not abusing their tax exempt privileges. There have also been allegations of corruption among tax officers. Consequently, churches are able to run businesses and amass wealth by breaking the tax laws.

One senior FIRS official says discreetly, “It is true that there are loopholes, and churches today have digressed from the ways in which churches were being run when these tax laws were made in the past. But there is nothing we can do at FIRS. We’re just a body that enforces tax regulations.”

Steven Debo is a lawyer with over 20 years of experience in company law. He says that enforcement of the laws is the problem, and not the lack of laws.

“The government has not taken steps to ensure that those who are to enforce the laws and supervise the bodies are doing the job efficiently. Organisations can evade tax and exploit the slack system because there is no monitoring. Churches may not file a tax report for years, or they may forge one. And most times, the tax authorities don’t inspect their books and follow up on the defaulting cases.”

In developed countries, the government takes tax enforcement seriously because taxes are a major source of government revenue. But here in Nigeria, the government depends on oil and not taxes.

State governments in Nigeria have poorly managed tax systems, and so they depend heavily on regular allocations from the federal government, which gets over 70% of its revenue from oil.

By virtue of the staggering expanse of wealth belonging to churches and church leaders in the country today, people often think that churches do not pay any tax. So they call for churches to be taxed.

However, to be fair, many churches already pay tax as stipulated by the law. They pay personal income taxes deductible from their employees’ salary. They pay value added taxes when they purchase goods and services, and when some of them provide goods and services for a profit, they pay applicable taxes.

According to the FIRS, the role of the tax authority is to ensure that churches do not abuse these tax incentives, and also ensure that they comply with the obligations associated with the tax benefits in full course.

It is believed that churches and other NGOs contribute to the welfare of the society, and this is why they get tax incentives.