Federal Inland Revenue Service (FIRS) issued a Public Notice on 19 August 2019, notifying companies whose bank accounts are currently placed under lien by the FIRS for alleged tax default, to regularize their tax status within 30 days of the Notice.
The FIRS noted that it will proceed to enforce payment of the alleged tax liabilities against directors, managers, secretaries and other principal officers of the affected companies without further notice, following expiration of the 30-day window. The Public Notice was issued pursuant to the provisions of Section 31 and 49(2)(a-d) of the FIRS Establishment Act (FIRSEA).
The FIRS had, in 2018, commenced issuance of letters to Nigerian banks directing them to “freeze” the bank accounts of several corporate customers on account of alleged tax defaults. However, the FIRS suspended the directive via its letter of 15 February 2019, for a period of 30 days during which tax payers with frozen bank accounts were expected to regularize their tax positions. Following expiration of the 30-day window, the FIRS issued another Public Notice in March 2019 to notify taxpayers of resumption of its freeze order on the bank accounts of alleged tax defaulters.
Section 31 of the FIRSEA empowers the FIRS to appoint any person as an agent for recovery of tax due from monies kept by the agent on behalf of a taxpayer, and Section 49(2) imposes liability on principal officers of companies where their companies commit tax offences.
However, for the purposes of Section 31 of the FIRSEA, the FIRS must first demonstrate that each company that is the target of such regulatory action has outstanding taxes to pay in definite amounts validly assessed and that the tax assessments had become final and conclusive against such taxpayer, as provided in the extant legislation. The powers granted to the FIRS in Section 31 of the FIRSEA, and indeed, any other tax legislation is not absolute and is not to be exercised arbitrarily. Such powers do not extend to imposition of freeze order on taxpayers’ bank accounts beyond the amounts of tax proven to be due and payable by that taxpayer.
In the case of Section 49(2) of the FIRSEA, the power to convict a company or person or to impose liability on them for tax offences lies in competent courts of jurisdiction and NOT in the FIRS. We hope that the warning in the FIRS Public Notice will not lead to derogation of the rights of taxpayers in Nigeria and we urge the FIRS to follow due process in relation to these matters.
Without prejudice to the foregoing, we join the FIRS in encouraging taxpayers to take responsibility for understanding their obligations to the National Treasury from all economic activities being undertaken and to discharge their civic responsibilities in a timely manner as required by tax legislation. The task of compliance with tax responsibilities should be discharged on a voluntary basis so that the FIRS should not have to resort to its powers to compel performance. At the same time, we encourage the FIRS to exercise its power of compulsion only as a last resort and in strict compliance with the checks and safeguards provided in the tax legislation.