The Federal Inland Revenue Service (FIRS) and some State Internal Revenue Service (SIRS), in recent times, have been issuing letters to Nigerian banks, appointing them as agents of collection of taxes due from alleged tax defaulters.
Based on the letters, the banks were instructed to:
- Set aside the tax amount due from the bank accounts of the alleged defaulting taxpayers.
- Remit same to the accounts of the relevant tax authorities (RTAs) (to the credit of the taxpayers, in full or partial settlement of the tax debts).
- Inform the RTA of any transaction (i.e. transfer of funds offshore or locally) on the tax defaulter’s account and obtain the RTA’s approval prior to execution of such transaction.
Based on the provisions of Section 31 of the FIRS (Establishment) Act (FIRSEA), Section 49 of the Companies Income Tax Act (CITA) and Section 50 of the Personal Income Tax Act (PITA), RTAs have the powers to appoint any person to be the agent of a taxable person for the purpose of recovering tax debts or tax payable from such taxable person. The agent appointed may be required to pay any tax payable by the taxable person from any money held by the agent on behalf of or due to the taxable person. The RTA may also require an agent to give information on assets/funds held by the defaulting taxpayer.
The above directive and the underlying legal bases seem to permit RTA to appoint an agent and request for payment; however, these raise a myriad of concerns, especially from banks and taxpayers with respect to the following:
- Potential violation of banks’ privacy and confidentiality obligations – where the directives of the RTAs are affected by banks, it may lead to a breach of confidentiality obligation to the customers. Understandably, this obligation is to the exception of valid legal requirements, thus it becomes important to ascertain the extent of the RTAs’ powers in this regard.
- Confirmation of the validity of the alleged tax liabilities – Under the relevant legislation, the right to appoint an agent crystallises where there is “tax payable” or “tax debt”. Considering that taxpayers are permitted to object to assessments or decision of RTAs (and taxes may not be due until such assessment is final and conclusive), it may be difficult for the banks to ascertain that tax is payable.
- Implications of the directives on business operations of the banks and taxpayers – This may result in disruption of businesses, consequential damages for businesses, other regulatory backlashes and perhaps lawsuits. This is more so as the alleged defaulting taxpayer may be unaware of any pending liability prior to the appointment of the bank as an agent of the collection.
The above notwithstanding, the relevant legislation also provides that the general rules guiding objections and appeals, apply to any notice/directive issued by the RTA to the collection agent as if such notice/directive were an assessment. This may imply that banks and taxpayers have the right to object to such notices/appointments, except in situations where the tax debt is based on a final and conclusive assessment raised by the RTA.
In view of the above, taxpayers are encouraged to review their records and settle all outstanding tax liabilities timely. Taxpayers should also ensure that all notices of assessment issued to them by RTAs are either settled timely or adequately objected to, to avoid any disruption to their business operations. Banks are also expected to confirm the allegations against their customers and seek appropriate advice on the appropriate course of action in order to avoid any violation of their obligations to customers and unnecessary lawsuits.