On 15 February 2019, the Federal Inland Revenue Service (“FIRS”) announced the suspension of its directive that banks should freeze the bank accounts of alleged tax defaulters to prevent withdrawals from such accounts. This suspension is stated to take effect immediately and will be effective for a period of 30 days.
The FIRS had in August 2018 announced its decision to appoint banks as collecting agents and also freeze the accounts of taxpayers considered to be in default of tax payment. Such accounts were to be debited to the tune of the alleged tax debt. The FIRS had used the provision of Section 31 of the FIRS Establishment Act 2007 (“FIRS Act”), as the legal basis for the directive which provides that:
“(1) The [FIRS] may by notice in writing appoint any person to be the agent of a taxable person if the circumstances provide in sub-section (2) of this section makes it expedient to do so.
(2) The agent appointed under sub-section (1) of this section may be required to pay any tax payable by the taxable person from any money which may be held by the agent of the taxable person”.
Different stakeholders had provided their views on the FIRS’ directives, which some have referred to as draconian. While the suspension directive for a period of 30 days is a positive response by the FIRS to complaints from taxpayers and other stakeholders on the inconveniences experienced, the question remains whether the provisions of Section 31 of the FIRS Act are being applied by the FIRS in the manner intended by the draftsmen. Some have argued that it seems that the power under Section 31 of the FIRS Act can only be validly exercised if an assessment has become final and conclusive under relevant tax laws. Also, there are fears that the FIRS may arbitrarily allege that tax is payable and a bank may feel compelled to withhold a taxpayer’s money even when the tax demand is under dispute. It would appear that an urgent interpretation of the provisions of the Section 31 of the FIRS Act needs to be made by the court in order to categorically determine whether the FIRS is acting within its powers in respect of the directive.
Nevertheless, the suspension of the directive is a welcome development and one which provides taxpayers with an opportunity to immediately engage with the FIRS for the purpose of resolving their outstanding tax issues. It is envisaged that this suspension period will afford all alleged tax defaulters, who have had their accounts frozen, with time to regularise their tax positions with the FIRS.
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Adepetun Caxton-Martins Agbor & Segun
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