New Tax Tribunal Rules: Own Goal by Finance Minister

Perhaps more than any other time in her history, Nigeria needs non-oil revenues. With the prices of oil, her major resource and revenue earner, flagging since around 2014, the country’s need to look in other directions has assumed greater significance.

It is widely agreed by economic experts that tax revenue, not resource revenue, is the most reliable source from which the country can fund her development aspirations as happens in the world’s most progressive societies. Currently, tax compliance in Nigeria is still meagre.

Speaking earlier this month at ‘Public Presentation and Breakdown of the Highlights of the 2022 Appropriation Bill,’ Mohammed Nami, Chairman of the Federal Inland Revenue Service (FIRS), disclosed that Nigeria has 41 million taxpayers among its 200 million population.

Despite having that number on its tax roll, said Nami, Nigeria still earns lower than what its counterparts across Africa generate from Personal Income Tax (PIT).

“If you also compare that with South Africa where they have a total population of about 60 million people, with just four million taxpayers, the total personal income tax paid in South Africa last year was about N13 trillion. You can now see that these things are not adding up.

“So, if we don’t pay these taxes, there is no way the government will be able to provide the social amenities required, the critical infrastructure required for the wellbeing of the country,” Nami said.

This realization can be seen in the efforts of the government to raise tax collection via the improvement of processes and procedures, tax education, compliance enforcement, legislation and what have you.

All of these, however, look set to be undermined by the government itself. How so? Poor management of tax disputes. Nothing exemplifies this more than the recently issued Tax Appeal Tribunal (Procedure) Rules 2021 by the Minister of Finance, Budget and National Planning, Mrs. Zainab Shamsuna Ahmed.

The new rules were issued in compliance with Paragraph 21 of the Fifth Schedule to the FIRS Act to guide the practice and procedure of the tax tribunal’s proceedings. The rules, which took effect from 10 June 2021 but with taxpayers not becoming aware of it until late September, effectively replaced the Tax Appeal Tribunal (Procedure) Rules 2010.

There is no doubt that they contain a few innovations. The new rules notably allow for electronic filing, which eases the administrative burden for taxpayers, revenue authorities and the tribunal as well as reflect the shift towards modern technology trend. They also allow for virtual proceedings, particularly for delivering rulings and applications using technology or platforms recommended by TAT. This, without doubt, saves time and cost for litigants.

The most fundamental of the rule change, however, sits in Order 3 Rule 6, which prescribes the payment of 50 per cent of the disputed tax as a condition precedent to filing an appeal. In addition, the taxpayer must file a deposition along with the appeal to that effect.

First, the provision of Order 3 Rule 6 shows glaring inconsistency with the provisions of Paragraph 15 (7) of the FIRS Act, which give the tax tribunal the discretion to order payment as security where a taxpayer failed to file returns, or the appeal is frivolous or an abuse, or it is expedient for a taxpayer to pay a sum as security. While the recent Federal High Court (FIRS) Practice Directions, 2021 also contain similar provisions, they are only applicable in a situation in which a taxpayer is challenging the FIRS’ applications to enforce established tax debts, for freezing orders or requests for information.

To my mind, there is no argument that Order 3 Rule 6 has injustice written all over it, as it is no substantive statute even if it was made pursuant to an extant law. The minister, without a doubt, lacks the power to amend an act.

Second, the provision also carries the potential of barring access to justice. With an impediment represented by the requirement to pay 50 per cent of a yet to be established tax liability, a sum that is probably four times the appellant’s turnover, this represents a middle finger to the constitutional rights to fair hearing and fair trial.

In addition, it is not unreasonable to ask if Order 3 Rule 6 is not susceptible to gross abuse by tax authorities, which may be seduced into making unreasonable assessments in the expectation that a taxpayer would pay 50% deposit. For instance, if a business with an annual turnover of N100 million gets slapped with a tax bill of N400 million, it will stand no chance of filing an appeal unless it makes a deposit of N200 million (50 per cent).

Additionally, the blanket requirement for a security deposit as a condition for appeal also makes the tax tribunal less of a dispute resolution platform it was conceived as, but more of a litigation forum. This comes with an increase in the risk of tax dispute resolution occurring on technicalities instead of substantive justice.

More worryingly, Order 3 Rule 6 will be a source of concern for foreign investors who, despite the potential for munificent returns in Nigeria, are likely to fret that they could be victims of presumptuous tax assessments on which they will be required to make statutory deposit of 50 per cent before they could file an appeal against a tax liability considered unjust.

This worry will play on their minds and could nudge them into taking their investments jurisdictions with more clement tax climates, which will result in losses of opportunities for Nigeria in terms of jobs and revenue to the government. Relatedly, the provision of Order 3 Rule 6 is unlikely to help Nigeria’s unimpressive ease of doing business ratings.

Taken together, the Order 3 Rule 6 is akin to sticking a loaded assault rifle in one’s trouser leg and jogging along, but expecting it not to go off.