Are Religious Bodies Taxed?

Ask almost anyone who runs a religious body in Nigeria whether it pays tax and the answer arrives immediately: no, we are exempt. It is said the way one states a fact of nature. It is not quite wrong. It is nowhere near right, and the distance between the two has widened considerably since the reform statutes took effect.

Three corrections do most of the work. Exemption attaches to income, not to institutions — a body is not exempt; certain of its receipts are. Exemption is conditional, and the conditions are about registration, purpose and application. And exemption from a tax on income has never touched the obligations a body carries as an employer, a payer, and a holder of property.

This essay sets out the structure: what the exemption actually covers, six activities and how each is treated, why the phrase public character carries most of the weight, and what a body has to be able to show.

The old framework exempted the profits of bodies engaged in ecclesiastical, charitable or educational activities of a public character, provided those profits were not derived from a trade or business carried on by the body. That formula did a great deal of work for a very long time, and its weak point was always the same: nobody had settled what public character meant, and the phrase was carrying the entire distinction between a religious institution and a business wearing one's clothes.

The reform legislation keeps the underlying principle and tightens the conditions around it. The direction of travel is unmistakable and worth stating plainly: exemption is now something a body demonstrates rather than something it possesses. Registration matters. Recognition by the revenue authority matters. And the application of income to the body's approved objects is not a background assumption but a condition capable of being examined.

Two consequences follow immediately. The first is that record-keeping has moved from good practice to the thing exemption rests on — a body that cannot show where its income went cannot show that it was applied to its objects. The second is that the question is no longer asked once, at registration. It is capable of being asked at any time, about any year.

Exemption used to be a category a body belonged to. It is becoming a case a body makes.

If one phrase has decided more in this area than any other, it is public character, and the reason it matters is worth understanding rather than merely noting.

The phrase is doing the work of separating an institution that exists for a public purpose from an arrangement that exists to enrich the people running it. That is not a test of size, or of sincerity, or of how many attend. It is a test of who the benefit runs to.

Read that way, the tax question turns out to be the same question the whole of this sub-cluster has been asking in other forms. A body whose income and property are dedicated to its objects and not distributable to its members has public character in the relevant sense. A body whose assets are indistinguishable from its founder's, whose accounts pay his household's expenses, and whose ventures are owned by his family, has a public-character problem that no amount of religious activity resolves.

Which means the corporate governance work described throughout this sub-cluster is not separate from the tax position. It is the tax position, seen from another angle.

The dedication of assets and the exemption from tax are two views of one question: who does this institution exist for?

It would be evasive to set out the technical position without acknowledging that the underlying question is contested. Both cases are stated here; the publication takes neither.

Those who argue for broader taxation point out that religious bodies use roads, courts, policing and public infrastructure funded by other people's taxes; that some of them hold very substantial commercial interests; that an undefined exemption operating without effective scrutiny is capable of subsidising private accumulation under a religious description; and that competitive neutrality requires a business to be taxed as a business whoever owns it.

Those who argue against point to the constitutional protection of religious freedom and to the historic reluctance of the state to place itself in a position to assess, audit and potentially penalise religious institutions; to the substantial welfare, educational and medical provision religious bodies supply in places where the state does not; to the fact that offerings are made from income already taxed in the hands of the giver; and to the real risk that a discretionary power to examine a religious body's affairs becomes a lever for reasons unconnected with revenue.

Both cases have force and neither is answered by the other. What is not in dispute — and what this essay is actually about — is that a body which keeps proper records, separates its commercial activity, and can show that its income went where it said it would, is in a strong position under any version of the argument. The bodies with something to fear from a tightening regime are the ones that could not have answered the question under the old one either.

The list is unremarkable, which is the point. Nothing on it requires a lawyer, a confrontation, or a change of doctrine. All of it is ordinary institutional practice of a kind that a body of any size can maintain, and all of it becomes very difficult to assemble retrospectively under enquiry.

A body that can show where the money went has answered the tax question, the governance question and the succession question with the same file.