Mixed reactions have continued to trail a recent practice direction that tax defaulters who plan to institute legal cases against the Federal Inland Revenue Service (FIRS) now have to pay 50 per cent of the assessed amount in dispute into an interest-yielding account of the Federal High Court before the court can hear such matters.
While business practitioners say the directive is counterproductive to businesses and could deter foreign investments, tax practitioners say it will ensure that only people with genuine grievances seek redress from the court of law rather than the practice of clogging up the judiciary system.
FIRS executive chairman, Mr Muhammad Nami, last weekend noted that the new rule is contained in a recent Practice Direction issued by the Chief Judge of the Federal High Court, Abuja, Hon. Justice John Terhemba Tsoho, under Order 57 rule 3 of the Federal High Court (Civil Procedure) Rules, 2019 and took effect from May 31, 2021.
Commenting on the rule, the immediate past president of the Chartered Institute of Taxation of Nigeria (CITN), Dame Jumoke Simplice, said asking for a 50 per cent upfront payment will discourage companies with no real case from crowding up the judiciary system.
According to her, it will be a deterrent to those without real case and who just want to use the slow justice system in the country to delay paying taxes.
“If the law says you have to pay 50 per cent of the disputed amount, in my opinion it just a way of not allowing companies to go to court unnecessarily. People will want to go to court but unless you have a genuine case, you will not attempt to go to court.
“If FIRS does audit and they find that from the audit, this is what is due, it is your right as a tax payer to say ‘no I have documents to back up the issues raised’. Then there is reconciliation, but if after reconciliation the taxpayer feels he has not been dealt with fairly and he knows he has documents to support the issues in question, it is his right to also bring those documents to the fore.”
However, the chief executive of Maxifund, Mazi Okechukwu Unegbu described the directive as “financial terrorism”.
He said, “What they are doing is financial terrorism, and it is not right. The government is trying to prevent people from having access to courts, which is what it means. What is the assurance that the person who is supposed to pay the 50 per cent
“I do not think the court can deprive anyone access to justice. The businesses would have probably died before the end of the case because the justice system in this country is usually very slow. If it was a situation where the judiciary system is fast, and cases resolved in a matter of weeks, then this can be done, but not when cases can drag for years. When you do this, you will be hurting businesses.
On his part, the managing director of Lancelot Ventures Limited, Mr Adebayo Adeleke said, “The legal system in Nigeria puts the onus of proof on anyone making an allegation. Presumed tax defaulters have rights to approach the courts to seek redress.”
According to Adeleke, to ask for a 50 per cent upfront deposit before a case is heard is putting a stumbling block on the road of justice. “Since when has justice become a cash and carry business?” he asked.
“How long will this cash be escrowed in a legal system that moves at a speed less than that of a snail?
“This will discourage investors. It will surely affect the cash flow of individuals and companies who may want to seek justice. The other side is that it may encourage high and arbitrary tax assessment regime in Nigeria.”
Meanwhile, the FIRS chief executive said the management of the revenue collecting agency “has initiated a process for a Memorandum of Understanding (MoU) with critical stakeholders as far as information sharing and amendments to the relevant laws are concerned.
“We have gotten several amendments to our tax laws which require companies operating in the Free Trade Zones to file tax returns on their operations to the FIRS. “These amendments are aimed at checking the activities of taxpayers currently taking advantage of some gaps in our tax laws and fiscal policy by establishing businesses in the nation’s tax-free zones.”
He said “such companies produce goods that are meant for export and then sell the goods to our custom’s zone, thereby making it impossible for the companies operating in our custom’s zone to operate competitively with them.”
However, as part of efforts to attract investment and raise revenue for the government, Nami also hinted that as a first step, “FIRS has set up a high-powered committee made up of senior officials of FIRS and the National Investment Promotion Commission (NIPC) to look into issues patterning to tax waivers and granting of pioneer status.”
Mr Nami, who maintained that tax evasion and tax avoidance were global phenomena, also said that such practices were equally fiscal policy issues.
He then urged the National Assembly to, as a second step, “amend the relevant tax laws that would make it almost impossible for these companies to exploit loopholes in our tax laws to shift both profits and taxes to their countries of origin.”