Experts advise banks, taxpayers on FIRS account suspension order
FOLLOWING the ‘no debit’ directive on customers’ accounts given to banks by the Federal Inland Revenue Service (FIRS) and some State Internal Revenue Services (SIRS), finance and taxation experts have called on deposit money banks to first confirm the allegations against their customers, and seek appropriate advice on the right course of action in order to avoid any violation of their obligations to customers and unnecessary lawsuits.
Taxpayers are also advised to review their records to determine their tax position and any unutilised withholding tax (WHT) credit, as well as complete the WHT Credit Utilisation Request Sheet provided by FIRS with relevant details and submit to FIRS along with documentary proofs of all unutilised tax credit notes.
The experts on separate occasions further encouraged the taxpaying entities to review their records and settle all outstanding tax liabilities timely, and ensure that all notices of assessment issued to them by Relevant Tax Authorities (RTAs) are either settled timely or adequately objected to. This is to avoid any disruption to their business operations.
In an explanatory note to clients, experts at Delloite Nigeria, a Lagos-based management and audit consulting firm, agreed that the directive to banks and the underlying legal bases seem to permit RTA to appoint an agent and request for payment.
However, the firm noted that these raise a myriad of concerns, especially from banks and taxpayers with respect to potential violation of banks’ privacy and confidentiality obligations.
“Where the directives of the RTAs are effected 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.
“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,” the experts warns.
Recall that the FIRS and some 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 RTAs (to the credit of the taxpayers, in full or partial settlement of the tax debts);
Inform the RTA of any transaction (that is, 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), experts say that 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.
Analysts at Proshare Confidential, a financial intelligence firm, say 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 agent of collection.
“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.”
Meanwhile, FIRS has started inviting taxpayers for reconciliation of their withholding tax credit position with FIRS’ records summarised in the taxpayer’s K-Card (tax position card). According to the FIRS, this is necessary to ensure that taxpayers’ records with FIRS are up to date and K-Cards to be uploaded into FIRS’ Standard Integrated Government Tax Administration System are error-free.