The Federal Inland Revenue Service (FIRS) recently commenced sending out letters to Nigerian banks appointing them as tax collection agents for taxes considered payable by their named customers, so did some State Internal Revenue Services (SIRSs).
In these letters, the banks are instructed to set aside the amount of tax due from the bank accounts of alleged defaulting taxpayers and remit same to the accounts of the relevant tax authorities (RTAs), in full or partial settlement of the outstanding tax liabilities.
The FIRS also asked the banks to inform the RTAs of any transaction which involves the transfer of funds offshore or locally on the tax defaulter’s account and obtain the RTAs’ approval prior to execution of such transaction.
This order by the tax authorities negates the right of bank customers to privacy and confidentiality, which states that: “As a bank customer, you have the right to freedom from disclosure of your account details by the bank as well as intrusion into your account by third party”.
The Central Bank of Nigeria (CBN) however provides the following as exceptions to this right:
- Where the bank is required by law to make disclosure; and
- Where the customer consents to the disclosure.
The FIRS has however, hinged its directive on the provisions of Section 31 of its Establishment Act, which empowers the Service to appoint any person, by notice in writing, to be the agent of a taxable person for recovering any tax payable by the taxable person from any money which may be held by the agent of the taxable person. This implies that the affected tax defaulters’ accounts with the banks will be debited with the amount of tax which the FIRS has deemed to be payable by such persons (using its own best of judgement assessment) in its letters to the commercial banks.
Also, there are similar provisions in other tax laws which empower the FIRS and SIRSs to appoint an agent for tax collection, such as Section 49 of the Companies Income Tax Act (CITA), Section 50 of the Personal Income Tax Act (PITA), and Section 41 of the Value Added Tax Act (VATA).
Recall that the Nigeria’s tax amnesty programme – Voluntary Assets and Income Declaration Scheme (VAIDS) – which took off on 1 July 2017 ended on 30 June 2018. The Scheme was aimed to encourage voluntary tax compliance and to enable taxable Nigerians to declare their assets and incomes and get certain waivers, including penalties and interest payments, while ensuring a healthy record / books of account. During the period of VAIDS, it was announced that the data mining efforts of the Federal Ministry of Finance domiciled in ‘Project Lighthouse’ had helped the FIRS identify over 130,000 high net worth Nigerians and companies that have potential tax underpayments. It was also made known that the Service will intensify its efforts on recovering taxes due from defaulters.
The FIRS must however implement this strategy with caution and in accordance with the law in order to avoid a negative impact on the business environment and on ease of tax payments.
Defaulting taxpayers are also advised to make good their tax defaults in order to avoid any unplanned (or perhaps unlawful) invasion into their bank accounts by FIRS.
*The article is expected to provide a general guide to the reading public on the affected subject matter. You should engage a professional firm – Vi-M Professional Solutions (see also www.vi-m.com/services)- to review your specific circumstance and provide you a more detailed and tailored opinion as it affects your business or person*.
— culled from vi-m.com