Dikio Fortune and Jeremiah Precious: Should religious institutions be taxed??

AN ARTICLE ON WHETHER RELIGIOUS

INSTITUTIONS(CHURCHES) SHOULD BE
TAXED?

By
DIKIO FORTUNE NKEMAKOLA

400l student

Department of Private and property law

Faculty of Law

Rivers State University

AND

JEREMIAH, NNENNA PRECIOUS

400l student

Department of Jurisprudence and international Law

Faculty of Law

Rivers State University.

TABLE OF CONTENT

I. Abstract

ii. Introduction

III. Concept of Taxation

iv. Legal framework of religious institutions as regards taxation

v. Religious Institutions and Taxation

vi. An appraisal on whether religious Institutions should be taxed

a. The rationale, justiciability and objectivity

vii. Conclusion

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 Dikio Fortune and Jeremiah Precious: Should religious institutions be taxed??

ABSTRACT:

For centuries, religious institutions have held a revered position in the society serving as
bastions of faith and spiritual guidance for individuals and society. Howevers,modern world
grappling with evolving notion of taxation and equality,a pivotal question arises: should religious
institutions including churches be subject to tax?.

This article delves into the fundamental concept of Taxation, it's intricate relationship with
religious institutions,it also explores the legal framework governing the financial obligations of
these religious institutions. The debates sorrounding the tax status of these institutions have
ignited controversies and ethical questions,all of which are throughly examined in this work.

INTRODUCTION:

The concept of Taxation holds immense significance because for any nation to function
efficiently,taxing authorities must ensure that taxable individuals and organisations contribute
their fair share.Taxation is an aspect of revenue law pertains to the means by which the
government generate revenue. The government as an institution cannot solely perform all
necessary functions including charitable activities and good will efforts. Religious institutions
play pivotal role in filling this gap,facilitating effective governance. The federal,state, and local
government through it's law making body imposes tax on individuals, companies and entities
within their jurisdiction. Tax is subject to law and as such must be backed by law,this means
that any imposition outside the provisions of a written law is not a tax.

CONCEPT OF TAXATION:

Taxation has consistently been a critical aspect of government operations. This is because of
the enormous increase in cost of running the economy and the extent to which wealth is
represented by intangibles are putting public finance to it's severest test1. The tax
administration of any modern state has the main objective of maximization of governmental
revenue yields,the attainment of equity and promotion of economic development2.

Taxation refers to a compulsory levy imposed on a subject of upon his property by the
government having authority over the property.3It also refers to a charge usually monetary
imposed by the government on persons, entities, transactions,or property to yield public
revenue4.These various definitions encompasses certain key attributes which include:

1
Ervin.H. Pollock, The brandies reader,oceans Docket senes, Vol.7,(1965) pg 38, Mr. Justice Branders and the
Constitution
2
Tax law and tax administration in Nigeria, the Nigerian institute of advanced legal studies (1991) edited by Prof.
M.A. Ajomo
3
The government and the Constitution and the tax payer by O. Akunle
4
Blacks law Dictionary, 9th edition

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 Dikio Fortune and Jeremiah Precious: Should religious institutions be taxed??

 That taxation is compulsory, and not subject to conferment of any benefit on the payer

 It is an imposition by the government thought the exercise of it's sovereign power

 It is for the achievement of certain governmental objectives such as social justice,

economic development for the purpose of the general public.

Over the years,various tax laws in Nigeria has made provisions for different taxes5. This
includes: the company income tax6 which is imposed on the profit of a company from all
sources and usually collected by the federal inland Revenue service (FIRS) or income of
incorporated companies. Personal income tax7 which is imposed on the income of individuals,
corporation or body of individuals, communities,trustees or executors of any settlement. The
value added tax8 which is taxed on sale of specifed goods and services. It is also called a
consumption tax which is mostly borned by the final consumer. Capital Gains tax9 which is
charged,where there is a disposal of assets,where any sum is derived from a lease,sale or
transfer or any disposition of property classified as chargeable assets. Withholding tax10 which
is an advance tax payment deduction made on any income or disbursement due to taxable
persons for onward remittance to the relevant authority. Stamp Duties11 This is dues paid from
individuals to the respective state government while corporate bodies remit to the federal
government. Etc.

LEGAL FRAME WORK OF RELIGIOUS INSTITUTIONS AS REGARDS TAXATION

The companies and Allied Matters Act (202012 introduced certain innovations that are aimed at
ensuring effective regulation of not-for-profit organizations in Nigeria. These non-for- profit
organizations are governed by the provisions of the Constitution of the federal republic of
Nigeria13 and the companies and Allied Matters Act. The Constitution provides the foundation
on the existence of not-for-profit organizations. CAMA provide the statutory grounds of
activities and routine operation of these not-for-profit organizations.

s.15(3)(d) of CFRN as ammended imposes a duty on government to encourage and promote

the formation of Associations that boost ethnic, linguistic, religious and other sectional

5
http/www.mondaq.com/Nigeria/tax/authorities/870372/-basic principles of Taxation in Nigeria, 02, December,2019
by Serah Sani
6
Regulated by company income tax Act (CITA) Cap c 21, LFN 2004 as ammended
7
Regulated by personal Income Tax Act Cap p8 LFN (2004) as ammended
8
Regulated by VAT Act and VAT ammended Act (2007)
9
Regulated by Capital Gains Act, LFN, Cap C1 LFN (2004) as ammended
10
s.78 of CITA as ammended
11
Regulated by stamp Duties Act Cap S8 LFN (2004) as ammended
12
Company and Allied Matters Act,2020 (Act No. 3 of 2020)
13
CFRN 1999 as ammended

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 Dikio Fortune and Jeremiah Precious: Should religious institutions be taxed??

frontiers in a bid to Foster national integration,ensure cohesion of all persons and foster
Development in the country. These institutions such as churches, mosques are association of
persons who share similar objectives and bound by common interest.

Part B and F of CAMA 14 makes room for the incorporation and registration of non governmental
organizations , although it is not not mandatory in Nigeria unlike in countries like Uganda15and
Kenya. They may be incorporated as companies limited by guarantee16.

RELIGIOUS INSTITUTIONS AND TAXATION:

Religious Institutions are organizations whose identity and mission are derived from a religious
or spiritual tradition which operate as registered or unregistered, non-profit,voluntary entities.
Religious Institutions are exempt from tax and this is provided for under s.23(c) of Company
Income Tax Act (CITA)17para 13 of 3rd schedule of Personal Income Tax Act (PITA)18 but
however,there is an exception to this which is to the extent that the institution does not derive
profit or income from any trade or business.

The company income tax did not define what tax exempt means but the court in Northern Nig
investment Ltd V FBIR19 PER Beljore.J defined exempt income as "exempt income is income
primarily subject to tax but exempt under another provision of the law" This means being
exempt such is not subject to tax; subject to law only by virtue of a certain provisions in law but
taken out by relevant exemption sections. It is pertinent to note that the Nigerian Tax laws do
not exempt employees of religious Institutions and their leader from payment of taxes on their
income. However,it is only the institution that enjoy tax exemption.

AN APPRAISAL ON WHETHER RELIGIOUS INSTITUTIONS SHOULD BE TAXED- The Rationale,

Justifiability and objectivity:

The question of whether or not religious Institutions should be subject to tax has raised some
argument amongst scholars while some argue in favour of taxing religious institutions some
contend that they should. Remain tax exempt due to their not-for-profit status.Whether or not an
institution should be taxed boils down to whether or not the law makes them taxable.

Over the years in Nigeria, religious Institutions has been accused of being used as facade
organization for espionage and other subversive tendencies which are sometimes cloaked in
activities that are ostensibly beneficial to the people. The importance of Taxation to the
government cannot be over emphasized.These churches make huge profit regardless of their

14
Companies and Allied Matters Act 2020(Act No. 3 2020)
15
s.29(1) of NGO's Act of Uganda 2016
16
Part B and F of CAMA 2020(Act No.3 2020)
17
Company Income Tax Act Cap C21 LFN 2004 as ammended
18
Personal income Tax Act Cap p8,LFN 2004 as ammended
19
(1976) FRCR 93

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 Dikio Fortune and Jeremiah Precious: Should religious institutions be taxed??

not-for-profit status,imagine the substantial amount which could accrue to the government if
they are taxed! Religious organizations by virtue of s.23 of CITA are tax exempt and the
rationale for this is to the extent that they are non-profit making organizations and they engage
in charitable and Ecclesiastical activities which cannot be carried out by the state. In Sodipo and
Macaulay v FBIR20 the court held that's the 3rd plaintiff who was owed by the Methodist Church
mission in Nigeria is liable to be taxed on the income derived from the use of the building
(Wesley house in Lagos). The reason was that it was used for commercial activity and it is
outside the scope of the exemption granted under s.23. Despite the exemption,there are tax
liablities imposed on NGO's, s.78(3) of CITA21 and s.69(5) of PITA22 the taxing statutes impose
withholding tax on all Institutions irrespective of whether they are subject to tax or not. The
essence of exempting religious Institutions and not-for-profit organizations is that they carry out
Ecclesiastical, charitable and other welfare activities that the state cannot readily meet. The
question is have these organizations been abiding by their charitable and welfare activities to
continue enjoying the status of tax exempt? The increasing flamboyant lifestyle of certain clergy
men is an indication of their increasing wealth. The various organizations they preside over to
get such huge amount of wealth must be taxed. Some of these organizations rent their
properties for use and as such the income derived from the rents must be taxed in accordance
with the provisions of the taxation statutes. CITA and PITA imposes an obligation on them as
tenants to deduct tax from the rent which is paid to the landlord for the premises rented.

Employees of religious Institutions are taxable if the salary is derived from employment with
religious body.such body is expected to withhold such tax and remit to the relevant authorities
as provided under s.81 and 82 of PITA23. Some religious enjoy the basic amenities provided by
the income of other tax payers wouldn't that be inequitable by robbing Peter to pay Paul? Even
Jesus in the Bible Mark 12:17 "and Jesus answering said unto them, render to ceaser the things
that are ceasers...". Most of these religious institutions fail to imbibe in their members the need
to pay tax to the relevant authorities but encourage "tithing"(10% of yields to God) this has led to
apathy and non challant attitude towards taxation.

The importance of Taxation was highlighted by Felix Frankfurter where he stated:

To balance budget ,pay for the cost of progressively civilized social standard,to safeguard the
future and divide these burdens with substantial fairness to different Interest in the
community...24.

Therefore, institutions are not taxed but the commercial activities for which they carry out
should and must be taxed.Religious institutions Should be treated similarly with non profit and
other charitable organizations,where some income generating activities are taxed while others
may be exempt.

20
NTCLR, p.273

21
Ibid

22
Ibid

23
Ibid
24
Mr.justice Branders and the Constitution,45, Harvard law review 33,reproduced in H.Pollock, The Branders Readers,Oceans Docket
Senes,vol.7(1965)p.38

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 Dikio Fortune and Jeremiah Precious: Should religious institutions be taxed??

CONCLUSION:

The taxation of religious Institutions is a complex topic with a range of argument. Some
advocate for tax exemption emphasizing the role of religious Institutions in promoting fairness.
Churches and mosques are usually tax-exempt by virtue of statutory provisions which classify
them as not-for-profit organizations,but however this is not absolute because they must refrain
from engaging in commercial activities such as operating schools,leasing properties for
personal purposes,etc the income derivable from these trade must not be for personal
purposes. While religious institutions play vital roles in society,their financial practices and
compliance with tax obligations require scrutiny to ensure equitable treatment and the
fulfilment of their charitable objectives. Ultimately,the question whether religious institutions
should be taxed hinges on their adherence to tax law and their commitment to charitable and
welfare activities rather than profit driven ventures.