The year 2019 has an eventful one in Nigerian taxation as the nation has taken huge strides towards becoming more dependent on internally generated revenue as against proceeds from oil exploration. The year commenced with the Government’s Executive Order No. 007 OF 2019. Road Infrastructure Development and Refurbishment Investment Tax Credit. The Scheme was projected to be a public-private partnership, which would enable private companies to finance the construction and refurbishment of eligible roads in Nigeria. In return, participants in the Scheme were entitled to recover the project funds by way of tax credits, claimable against Companies Income Tax (CIT) payable by them.
This was one of the ways the Government and the tax authorities demonstrated readiness to grant tax incentives and to drive revenue growth ingeniously. Also, the 2nd Quarter of 2019 witnessed the release of a circular which notified banks of the plan of the FIRS to appoint them as agents for taxpayers who held accounts with such banks – the power of substitution. The same period witnessed the widespread freezing of bank accounts by the FIRS as well as a plethora of lawsuits challenging the powers of the FIRS to substitute or to freeze accounts arbitrarily.
Many saw these are enormous disincentives for prospective investors. The approach of the FIRS seemed controversial and appeared to put taxpayers and bankers alike under enormous pressure and fear of imminent tax liabilities. It would seem that the wide protests which met the “substitution and freezing activities” were responsible for an ostensible suspension of the exercise—a development which seemed to bring colossal respite to the general public. Importantly, in October 2019, the Federal High Court of Nigeria made a pronouncement of the legality of the powers of the FIRS to freeze accounts and to substitute; albeit in the context of the facts of the case – RE: SUIT NO. FHC/WR/CS/17/2019 – Ama Etuwewe V FIRS & Anor. Conclusively, the Court found that the appointment of a bank as a taxpayer’s agent is not outrightly unlawful. Instead, it clarified that the appointment must be made by the FIRS (the service) or the FIRS Board and not by the Chairman of the FIRS. The Court also held that Section 28 of the FIRSEA gives the FIRS the power to mandate a bank to forward Customers’ information to the FIRS and the bank is not compelled to inform the Customer’s prior to furnishing the FIRS with the relevant information.
Furthermore, the FHC held that the power of the FIRS to freeze accounts as provided for under section 8 (1) (g) of the FIRSEA requires that such funds sought to be frozen are established proceeds of tax fraud or tax evasion. The FIRS must also obtain a Court Order to freeze an account.
According to the Court, a Bank cannot freeze a customer’s account or obey a directive by FIRS to freeze any account without ensuring that such freezing was done under a Court Order. Where a bank fails to comply with this, it may be liable for breach of fiduciary duty. Besides the sizzling debates that followed the account freezing drama, the Finance Bill[1] of 2019 passed second reading at the legislature. Most notable amongst the changes proposed in the finance bill has been the planned increase in the rate of VAT. The VAT is projected to be increased from 5 – 7.5%. This has been met with mixed feelings. The Finance Bill also proposes Companies Income Tax Exemption for Small businesses with turnover less than N25, 000,000. The Bill also recommends the amendment of the extant Section 19 of CITA by including subsection (2) which essentially translates to an amendment of the excess dividend tax rule that results in double taxation. Undoubtedly, this is an amendment which seeks to cure the burden of double taxation that appears to be foisted on companies; and will improve investor confidence/ Foreign Direct Investment.
The initiative proposed changes to our fiscal regime will undoubtedly create a friendlier business environment, improve FDI and hopefully plug some existing tax loopholes. As the new decade approaches, It remains to be seen if the legislature approves all the suggested changes, and if the FIRS and other relevant parastatals will rise up to their responsibilities to effectively and efficiently administer and enforce the provisions of the laws to achieve the set objectives. Just at the close of the year, as part of its oversight functions, the Federal Inland Revenue Service (FIRS) on Tuesday, December 17, 2019, issued a Seven (7) day ultimate via a public notice stating that the FIRS will commence a nationwide Tax Enforcement Exercise from Wednesday, December 18, 2019, to prosecute defaulters and recover outstanding tax liabilities. The Notice is targeted to defaulters concerning several taxes and portends the very intense enforcement of taxes that will be witnessed in the new decade.
Like most nations, Nigeria recognises that fact that its sustenance lies (amongst other things) in a vibrant and well-structured tax regime; and some of the policies formulated by the Government portray recognition of the need to balance tax drive and the enablement of businesses. This must be sustained.
