Effects of Multiple Interpretation of Commencement Provisions in the Nigerian Income Tax Laws on Assessable Profits of Taxpayers.

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J U. Ihendinihu
O E. Alpheaus
S N. Onyekachi


Nigerian Tax legislations are typically complex and are sometimes presumed to be ambiguous; and attempts to interpret the provisions or even apply them in practice, have often met with divergent outcomes. A typical case relates to the provisions in Nigerian Income Tax Laws for computing assessable profits in the third tax year of a new business which have been subject to multiple interpretations among tax experts culminating in different amounts of assessable profits in practice. This paper discussed the various interpretations to the provisions relating to the third tax year. Simulated adjusted profits of twelve new businesses were generated for the first four years of existence and the assessable profits for the third year of assessment computed using three interpretational approaches under different scenarios of dates of commencement and accounting year-ends. Paired Sample t-test and Analysis of Variance were used to test for differences in mean assessable profits. With F-ratio of 10.924 being significant at 1% level, the study indicates that assessable profits for the third tax year significantly differed among the approaches. The paper concludes that multiple interpretation to the commencement provisions for calculating assessable profits in the third tax year leads to significant disparity in computed assessable profits and promotes inequity in the distribution of tax burden among taxpayers. The study propounds the Clear Letters Theory and recommends for uniform adoption of the preceding fiscal year of government in computing assessable profits in the third tax years of new businesses in Nigeria.

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