• Thursday, March 28, 2024
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BusinessDay

FIRS’ searchlight on 2,933 companies’ accounts raises industry dust

FIRS-building

If the plans of Nigeria’s taxman finally work out, Nigerian banks will need to seek its approval to execute transaction in the accounts of no fewer than 2,933 companies said to have been identified for not paying taxes, BusinessDay can disclose.

Though associated pressure may have reduced lately due to elections, but the Federal Inland Revenue Service (FIRS) had asked that banks should within 72 of receipt of the notice forward detailed bank statements and financial records for the said companies and/or any of their subsidiaries holding accounts with the banks. Banks were also asked to provide records of all principal officers related to any of these companies.

In a January 22, 2019 letter signed by Tunde Fowler, executive chairman, FIRS, the taxman appointed banks as collecting agents for the full recovery of the said tax debts.
“The statement should cover the period from the date the accounts were opened to the date of receipt of this notice,” the FIRS told banks, adding that they had just seven days from the receipt of the letter to respond to issues contained in the notice. The taxman also threatened to sanction banks that fail to comply with the notice.

In line with its N8 trillion revenue target this year, FIRS last month said it would expand its dragnet and tighten noose around tax evaders.

“I wish to inform you of the failure of the listed 2,933 companies (see attached page 1-90) to comply with provisions of the tax laws by not paying taxes due to the Federal Inland Revenue Service,” a copy of the letter from FIRS to banks, seen by BusinessDay, read.

“Pursuant to my powers under section 49 of the Companies Income Tax Act Cap C12 LFN 2004 as amended and Section 31 of the FIRS (Establishment) Act No. 13 of 2007, I hereby appoint your bank as Collecting Agent for the full recovery of the amount displayed on the attached schedule payable to the FIRS.

“In this regard, you are kindly required to set aside the aforesaid sum and pay same to the credit of these attached companies in full or partial amortization of its aforesaid tax debt. This should be done prior to execution of all or any related transactions involving these companies or any of its subsidiaries. I further request that the FIRS be informed of any transactions prior to execution on the accounts, especially transfer of funds to or from offshore or local accounts of these companies or any of its subsidiaries. Only on my authority should such transactions be exited,” the letter said.

Just last week, the FIRS directed banks to suspend its lien on bank accounts of alleged tax defaulters for a period of 30 days with immediate effect. The FIRS had recently directed banks to place a lien on the bank accounts of a number of taxpayers for alleged non-payment of taxes. This exercise had resulted in hardships for many businesses, including some tax-compliant businesses, within the period. This attracted comments from many tax experts, particularly those at Andersen Tax, KPMG Nigeria, and PwC Nigeria.

In a chameleonic move, FIRS in its letter dated February 15, 2019 noted that the suspension of the lien was due to the large numbers of taxpayers visiting FIRS offices for reconciliation and the resulting inconvenience.

“There are key questions regarding the powers of the FIRS to place a lien on a taxpayer’s bank account and the lack of due process in doing so in many cases. We are of the view that the substitution power granted the FIRS under the relevant laws does not support the freezing of bank accounts in the way and manner the power is being exercised by the FIRS,” said PwC Nigeria.

“Based on the letter written by the FIRS, taxpayers whose bank accounts were previously frozen pursuant to FIRS’ directive would now be able to access their accounts for a period of 30 days,” said Andersen Tax.

“Notwithstanding the controversies regarding the powers of the FIRS to freeze taxpayers’ bank accounts and the silence on whether such bank accounts would be frozen after the suspension, affected taxpayers should take advantage of the next 30 days to resolve their outstanding tax issues relating to pending assessments. They are also advised to engage their consultants and regularise their tax positions to avoid similar hardships on their businesses after the said period,” it said.

KPMG Nigeria expects that the FIRS will use the opportunity of the break to refine the process of exercising its statutory power of substitution in a manner that respects taxpayers’ rights and ensures that the sanctity of bank-customer relationship is not jeopardised.

“Doing this will repair any damage that might have been done, and thereby revamp the credibility of the Nigerian tax system and restore investors’ confidence in the economy. This is a welcome development as the suspension should allow the banks to notify their customers of the directive so that they can engage with the FIRS to resolve their outstanding tax issues, and enable a positive outcome for all the parties,” KPMG Nigeria noted.

“While it is doubtful that the 30-day window would be sufficient to resolve the disputes involving the acknowledged large number of affected taxpayers, it is a positive response by the FIRS to complaints from taxpayers and other stakeholders, and a demonstration of its willingness to engage with them when occasions demand,” it further noted.

It will be recalled that the FIRS had in August 2018 directed banks to freeze the accounts of defaulting taxpayers to prevent them from drawing funds, and lately the Service appointed agent banks for collection of taxes due from alleged tax defaulters.

In the letters issued last year to the appointed agent banks by the FIRS and some States’ Internal Revenue Service (SIRS), the agent banks were instructed to set aside the tax amount due from the bank accounts of alleged defaulting taxpayers and remit same to the accounts of the relevant tax authorities (RTAs) to the credit of the taxpayers, in full or partial settlement of the tax debts.

Also, the FIRS asked banks to inform the relevant tax authorities of any transaction – that is, transfer of funds offshore or locally – on the tax defaulter’s account and obtain the relevant tax authorities’ approval prior to execution of such transaction.

This development had triggered interesting comments from tax experts lately, including the “Big Four” accounting firms.

 

Iheanyi Nwachukwu