UNIVERSITY OF LAGOS

FACULTY OF LAW

DEPARTMENT OF COMMERCIAL AND INTERNATIONAL LAW

CIL 421

LAW OF BUSINESS TAXATION

MATRIC NO: 140104013

TOPIC: EDUCATION TAX IN NIGERIA: AN APPRAISAL OF THE TETFUND ACT

2011

Assignment

Submitted to

Professor Abiola Sanni

 Abstract

After gaining independence from the colonial masters, the first-generation universities were
furnished to a standard level to cater to the enthusiastic Nigerians aiming to pursue their
education at a tertiary level. However, the country experienced military incursions which
resulted in neglect of universities, leaving it a deplorable state and undermining the integrity of
subsequent graduates. In a bid to ensure that quality education is granted to Nigerians even at a
subsidized rate, the Longe Commission came about to address this issue and it recommended
inter alia the taxing of private companies at a 2% tax rate on their assessable profit.
Consequently, the Education Tax Act was enacted. Due to its shortcomings, it was repealed by
the TETFUND Act. This paper aims to critically analyze the TETFUND Act while highlighting
its success and failures. This paper gave several recommendations which include the inclusion
of private universities into the scheme.

Keywords: Education Tax, TETFUND Act,

1. Introduction

Following the independence of Nigeria from Britain in 1960, the first-generation universities,
extant and subsequently established, were quite minuscule in student capacity, massively funded
and furnished to a high-quality standard by the indigenous government of Nigeria in
collaboration with international organizations and other bodies, religious and secular, which
managed these institutions.

However, the overthrow of the civilian government and the introduction of military juntas
resulted in the neglect of tertiary institutions, thereby placing the quality of graduates in a state of
uncertainty. Furthermore, as formal tertiary education became the standard for job placement,
student enrolment surged at federal and state universities. Tuition fees were levied at a
subsidized rate in a bid by the government to ensure that quality education is accessible to all. As
a result, the existing universities, polytechnics, and tertiary colleges struggled to accommodate
the influx of undergraduates and to maintain educational standards with minimal resources. To
address these challenges, the 1990 Longe Commission was constituted by the Ibrahim Babangida
military administration and it suggested inter alia that higher education in Nigeria be funded
through tax imposed upon companies operating in the country. An implementation committee
chaired by Professor Olu O. Akinkughe was formed to implement the recommendations.
Moreover, on 3rd of Septermber, 1992, the Federal Government and the Academic Staff Union of
Universities had a pact signed on university funding. After this, the Education Tax Decree No. 7
of 1993 was promulgated taking on January 1 st, 1993. Five years later, it was amended by the
Education Tax (Amendment) Act No. 40 of 1998. These legislations were also contained in the
Laws of the Federation of Nigeria, 2004. However, its inability to achieve the goals set out to
enhance education quality resulted in its repeal and replacement by the Tertiary Education Trust
Fund (Establishment) Act No. 16 of 2011.

The following legislations as it affect Nigeria have been introduced to foster academic
development of the nation, Education Ordinance 1882, Nigerian Education Ordinance 1887, the
1916 Education Ordinance1, Education Tax Act LFN 2004, and the TETFUND Act 2011.

2. TETFUND Act 2011: Historical Context and Objectives

The TETFUND Act was enacted by the Federal Government of Nigeria under Goodluck
Jonathan’s tenure in 2011. It came into force on the June 3 rd, of the same year as the repealing
and replacement Act of the Education Tax Act with the objective of imposing education tax on
companies operating in Nigeria.

The TETFUND Act came about due to the shortcomings of the Education Tax Act. Originally
promulgated, this decree established the Educational Tax Fund as a regulatory body and imposed
a 2% tax on the assessable profits of all companies in Nigeria. This measure was a local solution
aimed at addressing funding issues to rehabilitate the deteriorating infrastructure, restore the
education system and amplify progress made. The ETA required the Fund to intervene for all
levels of public education, Federal, state and local, universities, polytechnics and colleges.
Nonetheless, the Education Tax Fund was challenged as it was overburdened and overstretched,
providing only minimal support to all levels of public educational institutions in Nigeria,
duplication of function with other agencies established such as Universal Basic Education (UBE)
and Millennium Development Goals (MDGs), issues of decay, rot and dilapidation of facilities in
tertiary education as the funds were thinly spread.

1
A. F, Adeago, “A Critical Examination of Tax in the Nigerian Education Sector” (2021)
Consequently, the Tertiary Education Trust Fund (TETFUND) was established by the
TETFUND Act to, among other things, distribute intervention funds to various public tertiary
institutions in Nigeria. Like the ETA, the TETFUND Act, by virtue of section 1(2) imposed a
2% tax on the assessible profits of all companies registered in Nigeria. Section 3(1) of the Act
also specifies that the purpose of TETFUND is to rehabilitate, restore, and consolidate tertiary
education in Nigeria, a role which it has been fulfilling since its inception 2. As outlined in
section 7, TETFUND is expected to support public tertiary institutions in the following areas,
staff training and development, instructional materials and equipment, research and publication,
essential physical infrastructure for teaching and learning, any other needs deemed critical and
essential for the improvement and maintenance of standards in higher educational institutions as
determined by the Board of Trustees.3

3. Key Provisions of the TETFUND Act

The Act under review contains salient provisions which shall be critically analysed under this
section.

Imposition of Tertiary Education Tax (Section 1)

This provision stipulate that an annual tertiary education tax shall be “assessed, collected, and
administered” and charged at a 2% tax rate from the “assessable profit of a company registered
in Nigeria”. The assessable profit of a company shall be determined in the mode set out in either
the Companies Income Tax Act or the Petroleum Profits Tax Act. The provision also excluded
section 60 of the Petroleum Profit Tax Act on assessment and payment of tertiary education tax.
While this provision has been lauded for making it compulsory for all companies in the Oil and
gas sector to be liable to pay tertiary education tax, it has been criticised on this grounds that
taxing only companies registered in Nigeria exempts foreign companies from the tax4.

Tax Assessment and Collection (Section 2)

2
A. P Folarin, “Tax and Financing Tertiary Education in Nigeria: The Need For a Stronger Bridge on Troubled
Water. “
3
ibid
4
ibid
The body responsible for assessing and collecting the imposed tax is the Federal Inland Revenue
Service (FIRS). Once the Service serves notice of assessment on a company, the latter shall pay
the tax imposed within 60 days.

TETFUND Establishment Section (Section 3)

This section establishes the Tertiary Education Trust Fund to rehabilitate, restore, and
consolidate tertiary education in Nigeria. The board is vested with a legal personality, it has
perpetual succession and a common and may sue and be sued in its corporate name. FIRS shall
pay the tax collects to the TETFUND including such information as the name of the company
making the payment, amount collected, the assessable profit of the company and any other
information that TETFUND may require. Before disbursing the fund, TETFUND shall set aside
an amount not above 5% of the total monies accrued to them in the preceding year for the cost of
administration and management of the fund, maintenance of property acquired, project
monitoring and appurtenant demand of TETFUND. This latter provision has been described as a
novelty5.

Board of Trustees (Section 4 & 5)

This section establishes a Board of Trustees for TETFUND consisting of a chairman, 6 persons
representing each Geo-political Zones in Nigeria, a representative each of Ministry of Education
and Finance not below the rank of a Director, a representative each from Universities,
Polytechnics and College of Education, and an Executive Secretary. The following provisions in
the section have been stated to be a novelty compared to the ETA 6, the requirement that the
Chairman has knowledge in finance and administrative matters, the 6 representatives for the six
geo-political zones which was 8 persons under the ETA, representatives from Universities,
Polytechnic and College of Education. However, as a form of criticism, the Colleges of
Agriculture are excluded.

The Board are to meet 4 times annually, but they may convene more than that provided that
exigency demands it. By section 5, a member of the board shall have his membership terminated
if he becomes of unsound mind, insolvent, convicted of a felony or any offence relating to
dishonesty, or is guilty of gross misconduct in his official duties. A member of the Board may
5
ibid
6
ibid
also be removed by the President if he is satisfied that the interest of TETFUND or the public
does not allow for his continual membership.

Functions of the Board (Section 6)

This section provides for 12 duties of the Board listed from (a) – (l). These functions are;
monitoring and ensuring collection of education tax, liaising with appropriate ministries or
bodies responsible for collecting and keeping the tax safe, management and disbursement of tax,
receiving requests and approving admissible projects after due consideration, disbursement of
funds to public tertiary academic institutions in Nigeria, monitoring and evaluation of the
execution of projects, investment of funds in appropriate and safe securities, updating the federal
government on its progress, reviewing of progress and suggestion of improvement, do all
activities that are consequential or required for the fulfilment of the objectives of the Fund under
the Act or as the Federal Government may direct, issuing guidelines to all beneficiaries of the
fund on its use, regulating the administration, application and allocation of monies from the
Fund. The last two functions are new inclusions that are absent in the ETA.

Management and Administration of the Fund (Section 7)

The Board administers Tax imposed and disburse the amount in the fund to federal and state
higher institutions for the maintenance of physical infrastructures for learning, teaching
materials, research, training and development of academic staff, and any other need as the Board
of Trustees may opine as critical for the quality improvement and maintenance of tertiary
institutions.

The basis for administering, managing and disbursing tax imposed is for the funding of all public
tertiary educational institutions, equality among the 6 geopolitical zones, and equality amongst
the states of the federation. Funds are to be distributed in the ratio of 2:1:1 for Universities,
Polytechnics and Colleges of Education meaning that 50% of the funds are allocated to
universities, while both polytechnics and colleges of education are to share the remaining 50% in
equal shares.

Offences (section 10 & 11)

A company in default of its tax imposition would be liable to the unpaid sum including the
punitive sum of 5% of the tax unpaid and FIRS shall serve him such demand note. If the
company further defaults its obligation to pay the unpaid tax, its commit an offence. The alter
ego of the firms will be liable to punishment for such an offence. A first offender is liable to
imprisonment for six months or a N1million fine or both imprisonment and fine. An
imprisonment term of one year or a fine of two million or both is imposed upon a second or
subsequent offender. Nonetheless, the company, after the imposition of this penalty is not
discharged from paying the tax due.

Jurisdiction (section 12)

The Superior court of record statutorily empowered to have the jurisdiction to try offenders
under the Act is the Federal High Court.

4. Turning Tax into Triumph: Implementation and Achievements

TETFUND has intervened in upgrading facilities in many tertiary institutions in Nigeria, with the
label “TETFUND INTERVENTION” commonly placed upon the places they have made such
improvements, particularly in the University of Lagos, and Federal College of Education Akoka.
The body has immensely aided in the enhancement of the standard of hostels, libraries,
administrative blocks, classes, Information Communication Technology (ICT), provision of
standby generators to bolster the supply of electricity etc.

Abdullahi Baffa, the Executive Secretary of TETFund from 2016-2019, stated that in July 2016,
TETFund distributed research grants under the Institution Based Research (IBR) initiative, which
supports academic staff with quality research proposals. Out of 152 universities in Nigeria, only
four universities received grants, with a maximum award of ₦2 million per proposal. These
universities—Enugu State University of Science and Technology, Ladoke Akintola University,
Abubakar Tafawa Balewa University, and Federal University Oye-Ekiti—secured 31 proposals
worth ₦25 million out of ₦75 million. Additionally, Federal Polytechnic Mubi and Institute of
Management and Technology, Enugu, with 22 proposals, received over ₦10 million, while nine
colleges of education received nearly ₦40 million for 82 proposals. Institutions like Kaduna
State College of Education and Federal College of Education, among others, were beneficiaries.

5. Taxing Tasks: Challenges and Criticism.

Like many other organizations of the Federal Government, the agency, TETFUND is rife with
corruption practices which pervades the entirety of the Nigerian situation. On the strength of a
report, the then Executive Secretary of TETFUND, Abdullahi Bichi Baffa asserted in 2015 that
the yearly allocation for the year was only 20% while special intervention was pegged at 80%.
Reports indicate that approximately 1.36 trillion has accrued to TETFUND from the Federal
Government for the advancement of education in higher institutions of learning for a decade 7.
Unfortunately, NEITI reports suggests that the agency lacks a robust auditing practice guide that
would admit to the veracity of their financial statement.

Consequently, there have been no transparency in the reports of projects executed by TETFUND
and its impact on higher institutions. The International Centre for Investigative Reporting (ICIR)
averred that the organization has maintained secrecy and lack of accountability in awarding
contracts resulting in a staggering implementation of projects. There are also backlogs accrued to
universities which have not been disbursed to them8.

Significantly, the TETFUND Act have faced the same criticism has its predecessor because it
excludes private universities from its area of interest despite imposing tax on the private sphere.

TETFUND has also been influenced by political activities and manipulations which hinder them
from attaining the specific objectives and mandates of their creation.

6. Recommendation

Having examined the TETFUND Act, its scope, achievements, and delimitations, the following
has been suggested; firstly, there is an urgent need to amend the Education Tax Fund Act to
include private tertiary institutions, allowing them, along with their staff and students, to benefit
from TETFund like public institutions. Furthermore, the TETFUND Act needs updating,
particularly the 2% tax on corporate profits, which is insufficient to support the growing number
of tertiary institutions and necessary educational materials and facilities.

Additionally, this paper recommends that TETFUND should undergo an audit to ensure
transparent accounting and use of funds since its inception, promoting clear accountability.
TETFUND should enhance infrastructure in public tertiary institutions, ensuring new
7
Ademola A. T., Adekunbi I., & Adesoji K. A, “Education Tax Act/Fund: Meeting the Tertiary Institutions
Yearnings in Nigeria”, Babcock University of Journal of Education (BUJED), 7(2), pp 167 – 176.
8
Ibid
constructions and periodic renovations every three years. Also, Funds collected by TETFUND
should be used efficiently to improve the quality of education in Nigeria's tertiary institutions,
boosting morale among teachers and students9.

Finally, TETFUND should partner with Nigerian Education Loan Fund (NELFUND), an agency
established in June 12, 2024 by the Student Loan (Access to Higher Education) Act, to ensure
that loans are effectively disbursed to finance students’ academic sojourn.

7. Conclusion

This paper has given the historical overview behind the TETFUND Act and has analysed
relevant sections of the Act to elucidate upon the role of TETFUND in financing and
maintaining the quality of Nigerian universities and making sure it remains affordable to the
average Nigerian student. It has also highlighted the achievements and failures of the body since
its inceptions. This paper recommended among other things, the inclusion of private schools and
partnership with the newly established NELFUND to ensure that the Nigerian students are not
frustrated out of tertiary institutions.

9
Ibid. Note 8