As part of efforts to conform with the modern global tax administration system and ensure a just and seamless tax dispute resolution mechanism, the Minister for Finance, Budget and National Planning, Mrs. Zainab Ahmed in June this year, issued a new Tax Appeal Tribunal (Procedure) Rules, 2021. The Rules which effectively replace the 2010 Rules are intended to guide the practice and procedure for Tax Appeal Tribunal, (TAT) proceedings. The Rules are also intended to enable the Tribunal to deal justly, fairly, and expeditiously with appeals and promote the settlement of disputes among parties.
Some of the highlights of the new Rules include; recognition of service of documents or processes carried out by email or such other electronic means as the Tribunal permits; recognition of virtual/remote hearing of applications and delivery of the rulings of the Tribunal; introduction of a six-month timeframe from the date of commencement of trial for the TAT to conclude and provide a decision and Provisions for hearing of ex-parte and non-contentious applications in Chambers as well as summary appeal procedure for liquidated money demands.
While the new Rules has been commended for reflecting current realities with its wide adoption of technology, some stakeholders have however raised concerns over Order 3 Rule 6 of the new Rules which require taxpayers to pay 50% of any disputed amount into a designated account of the TAT as security for prosecuting an appeal, prior to commencement of appeals. Some lawyers and tax experts who spoke to Law and Human Rights also expressed fear that the provision is susceptible to abuse by tax authorities who may raise unreasonable assessments in the expectation that a taxpayer would pay a 50% deposit. They also opined that the requirement also deviates from the provisions of Section 15(7) of the Federal Inland Revenue (Establishment) Act which permits such deposits only in certain circumstances.
TAT Rules in other jurisdictions
Tax litigation procedures and rules differ across different countries. In the United State of America for instance, a taxpayer is expected to utilize the Internal Revenue Service appeal mechanism before proceeding to the Tax Court. The process of filing appeals for any wrong assessment is however seamless as the petitioners are expected to pay a $60 filing fee and meet order sundry requirements. In China, the rules require that payment for the disputed tax assessment would not be suspended. Article 56 of the China Tax Administrative Law however provided that such payment can be suspended where such payment may lead to irremediable losses. In South Africa and most African countries, the process is also less contentious as no initial deposit is required before a taxpayer can challenge a perceived wrongful assessment by tax authorities.
MultiChioce vs FIRS test cases
Barely six months after it took effect, the 2021 TAT Procedure Rules is already bearing its fang with a test case between MultiChoice Africa Holdings and the Federal Inland Revenue Service, FIRS. The Tax Appeal Tribunal had last week struck out an appeal by MultiChoice Africa Holdings against a disputed tax assessment by FIRS a week after it ruled in favour of hearing an appeal by its subsidiary, MultiChoice Nigeria, in a similar case.
MultiChoice Africa Holdings, the parent company of MultiChoice Nigeria, had filed an appeal against the Companies Income Tax and Value Added Tax assessment notices issued by the FIRS. The company had objected to the $342million tax bill slammed on it by the FIRS and had filed an appeal before the TAT. But in its ruling last Tuesday, the tribunal sitting in Abuja struck out the matter, upholding the preliminary objection of the FIRS to the appeal.
The tribunal stated that MultiChoice Africa had failed to comply with Order 3 Rule 6 of the Tax Appeal Tribunal (Procedure) Rules, 2021; Order 3 Rule 6 requires that an appellant deposits half of the assessed amount being disputed before it can be heard on appeal.
In a contradictory ruling, another TAT sitting in Lagos had dismissed the objection raised by FIRS to the appeal by MultiChoice Nigeria. In that case, MultiChoice Nigeria had objected to the FIRS assessment of N1.8trillion tax covering a 10 years period, which it alleged was based on presumed turnover figures. The FIRS had insisted that in the absence of a proof of deposit, the tribunal should discontinue the hearing of the appeal and enter judgment against MultiChoice. MultiChoice, however, stated that it had complied, as the referenced section of the FIRS Act does not compel it to pay N900 billion but an amount equal to its tax in the preceding year of assessment or one half of the disputed tax assessment under appeal, whichever is the lesser amount plus 10 percent. In the case decided on October 20, the tribunal however ruled that MultiChoice Nigeria was free to continue its appeal having complied with the requirements of the FIRS Act.
Conflict between FIRS Act 2007 and TAT Rules 2021
The seemingly contradictory ruling by the two Tribunals over similar cases buttresses the conflict between the FIRS Act 2007 and the new TAT Procedure Rules, 2021. While the FIRS Establishment Act 2007, paragraph 15 of the fifth schedule requires an aggrieved taxpayer to pay a deposit of 50 percent or the last year of assessment tax liability, the lower of the two, the Tax Tribunal Procedure Rule 2021, which replaced the 2010 rules mandates that a taxpayer who intends to appeal must first pay 50% of the disputed tax into an account designated by the TAT as security for the appeal. In addition, the taxpayer must file a deposition along with the appeal to that effect. In the two MultiChoice cases in reference, while the Abuja Tribunal relied on the 2021 TAT Procedure Rules in its ruling, the Lagos Tribunal relied on the FIRS Act 2007.
50% payment is forced admission of liability- Pedro, SAN
Weighing on the implication of the TAT Procedure Rules 2021, Former Permanent Secretary and Solicitor-General, Lagos State Ministry of Justice, Mr. Lawal Pedro, SAN said that mandating a taxpayer to make a deposit of 50 percent of the disputes tax assessment by FIRS is tantamount to forced admission of liability before actual adjudication of the dispute.
He said: “This will amount to forced admission of liability before adjudication of dispute contrary to our justice system of fair hearing and equality before the law. I believe this is another policy/rule that has not been well thought of having regard to the low level of economy and investment local and foreign in Nigeria. The provisions of the law for the imposition of interest and penalty for late payment of assessed tax should suffice.”
It’s an affront on right to fair hearing – Ubani
The Chairman Nigeria Bar Association Section on Public Interest and Development Law, NBA-SPIDEL, Dr. Monday Ubani believes the new TAT Procedure Rules would invariably infringe on citizens’ rights to a fair hearing. According to Ubani, “The Rules runs against the grain of rationality and our legal jurisprudence. It is going to be challenged. It is an affront against the rights of fair hearing and access to justice guaranteed by the constitution of Nigeria. I have personally written to the Minister of Finance over this issue and highlighted the dangers of the Rules which are capable of stifling businesses and sending a wrong signal to prospective investors.”
It’s a disincentive to investment-Asia
Elvis Asia called for an urgent review of the Rules insisting that it is a major disincentive to investment. He said: “The requirement of deposit of 50% is a limitation on the right of appeal guaranteed by the relevant tax statutes including the Federal Inland Revenue Establishment Act, 2007. When a right is guaranteed by an enabling Act, the rule or regulations made pursuant to the Act cannot take away that right. Besides, the provision has serious implications on the right to a fair hearing and is subject to abuse by the tax authority.
“Imagine you have been given more than 10 times what you are liable to pay as tax. By the provision, you will need to pay half of it before you can appeal. This totally would make the right of appeal illusionary. It is ludicrous and would destroy whatever is left of our ease of doing business. This is a great disincentive to investment and should urgently be reviewed
Abandoning FIRS Act for TAT injuries to businesses- Erikume
Speaking on the implications of the latest position of the Tax Appeal Tribunal, a tax expert Kenneth Erikume said the scenario created by the decision of the tribunal on the appeal brought by MultiChoice is dangerous to the nation’s economy as it sets controversial precedence for conflict resolution between companies and Nigerian tax authorities. Erikume noted that jettisoning the provision of the FIRS Establishment Act for the Tax Appeal Tribunal’s Procedure rules is injurious to the health of corporate organizations in Nigeria.
He said: “A mining company in Tanzania, Acacia Mining Company in 2017 was issued with a tax assessment to the tune of $190billion. After a series of reconciliations, the firm eventually paid $30million. If the case had happened in Nigeria under the current dispensation, Acacia would be expected to deposit $95billion, an amount which can finance the Dangote Refinery five times. If the rules were to be applied, it means a lot of companies will be disadvantaged. They will not be able to take issues to the tribunal. It means the tax authorities will be in a stronger negotiation position and they may even abuse that opportunity because they can issue an assessment of any amount knowing that before you can get to any tribunal, you have to cough out that amount.”