CIT Obligations of Nigerian Educational Institutions


  • Mary Adekugbe
  • Mosope Ige
  • Niyi-Soola Oluwadara
  • Tony Onunkwo
  • Oluwayansola Jeje
  • Dare Onamakinde
  • Tomide Adeoye
  • Bonire Gracia

The Tax Appeal Tribunal (TAT), in Lagos on 29th July 2015 ruled that the income of a Company Limited whose object is the provision of educational services is not taxable under the Companies Income Tax Act (CITA). This premised on Section 23 of CITA which exempts companies engaged in specific activities from CIT; for example: Companies engaged in ecclesiastical, charitable or educational activities of a public character to stimulate the growth and development of the society by their operations.

In American International School of Lagos (AIS) v Federal Inland Revenue Service (FIRS). AIS in this instance, contended that by virtue of Section 23 it is exempted from paying CIT on the grounds that it is an Educational Institution. The final Decision of the TAT was that the appellant(AIS) qualified as an Educational Institution as defined by Section 23(1)(c) CITA.

In light of the foregoing, the following questions immediately become relevant – What qualifies an ‘educational’ institution for CIT exemption? Should educational institutions be subject to CIT in its attempt to bridge the gap in infrastructure? What qualifies an ‘educational’ Institution for tax exemptions?

On December 11th 2018, the Court of Appeal in Best Children International Schools Limited (BCISL) v. FIRS affirmed the decision of the Federal High Court that BCISL is liable to Companies Income Tax notwithstanding its status as an ‘educational institute’. It should be recalled that Section 23(1)(c) of the CITA exempts organizations such as educational institutes from paying taxes. In reaching its decision, the following criteria were laid down by the court in determining whether a company qualifies to be exempt from tax as an educational institution:

i. Mode of Registration: A company limited by shares cannot be regarded as an institution of ‘public character’ due to its nature as a profit-making company. Hence, an educational institute can only be exempted from taxes where it is registered as a company limited by guarantee in line with Section 26 of the CITA.

ii. Nature of activities of the institute: The company must have an outlook of purely educational intents. The promotion of education must be its primary objective.

iii. It must be of ‘Public Character’: This particular criterion seems to be the most controversial, owing to the fact that the term ‘public character’ is not defined by the CITA. However, in AIS v FIRS, the court quipped that an educational institution is of public character where it has not been shown to exclude any segment of the populace from attending the institution.

Tax or aid educational institutions? The case of AIS v FIRS raised a formidable question as regards the corporate tax liability of educational institutions as opposed to the exclusion clause as provided in Section 23(1) of the CITA. The settled view in the aforementioned case is that educational institutions are not subject to corporate taxes because of the public character of the services they provide. As revealed above.

However, in BCISL v FIRS the Court Appeal reached a different decision and thus held that BCISL is liable to CIT. Perhaps, the material difference between the two cases is that BCISL is not a company limited by guarantee which as stated by the court, is the only entity eligible for income tax exemption under CITA.

While the decisions of the courts are welcomed as they contribute to the advancement of the law as regards public character of educational institutions, it is difficult to understand where the issue of ‘public character’ emerged from. It is noteworthy to state that in the literal interpretation of Section 23(1)(c), there is no presumption of ‘public character’ relating to educational, ecclesiastical or charitable institutions. Thus, our courts must exercise caution in assuming the existence of such presumption. The consequent effect of this judicial decision is that educational institutions and other companies as provided under Section 23 of CITA that are registered as a company limited by shares may be liable to Company Income Tax.

The Government recognizes the important role played by the educational Organizations in advancing the cause of humanity and complementing the efforts to its citizens. For example, educational organizations attempt to mold, build, ensure and protect the future of the society. Educational institutions are of national importance; Tony Blair said: “…three main priorities for government and I tell you, education, education, education”. It would be unwise with the high level of infrastructural deficit already existing in schools for the government to tax educational Institutions. Quoting Taiwo Oyedele, the sad reality is that without education the cycle of ignorance and poverty may continue for yet another generation.


The Federal government should ensure that besides the existing laws focusing more on charitable companies with “Public Character”, more detailed explanation should be given about what “Public Character is all about, so that there can be a universal meaning and full understanding of what public character entails to all companies.

Furthermore, there should be a benchmark for the annual income of an educational institution earned from the services provided to the society, before it can be totally exempt from tax, this is to reduce the high level of disputes between companies and the FIRS, this doesn’t mean not having surplus above their cost, but the benchmark should be based on the different sizes of the institutions in the education sector and it should be reasonable, that is, their charges for services should not be too high for an average citizen to afford.

Conclusively, there should be withdrawal of tax exemption for educational institution, where conditions that are unreasonable occur such as earning an income as high as a private company profit for the year, Therefore, this does not portray “Public Character” and penalty should be introduced for that, even though it is an educational institution registered as a limited by guarantee for ‘Public Character’.