RE-APPRAISING THE TAX EXEMPTION OF RELIGIOUS INSTITUTIONS IN NIGERIA: THEORETICAL PERSPECTIVE

Abstract

Taxation is basically the imposition of compulsory levies on individuals or entities by government. Taxes are levied primarily to raise revenue for government expenditures and realization of the obligations of government. Tax exemption is the removal of tax liability of an organisation etc. by an enabling provision of the law. Thus, tax exemption excludes certain income, revenue or even the tax payers from payment of tax. Under the Nigerian tax regime, religious institutions of a public character are exempt from tax; both under Section 23(c) of the Companies Income Tax Act and Paragraph 13 of the Third Schedule of the Personal Income Tax Act. However, the exemption applies only to the extent that the profit does not relate to a trade or business carried on by such institution. Notwithstanding the obvious exemption of religious institutions and others from tax liability, there have been criticisms regarding the very basis for this exemption. This paper examines the theoretical justification for the extant tax exemption granted to religious institutions. Different theories were x-rayed in a bid to establish the rationale for the tax exempt status granted to religious institutions. The paper also makes a finding that both tax exemption and tax deductibility are a form of subsidy that are administered through the tax system.