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Legality of the Federal Inland Revenue Service’s power of substitution and its power to freeze taxpayers’ bank accounts

Implications of the decision in RE: Suit No. FHC/WR/CS/17/2019 – Ama Etuwewe V FIRS & Anor


The decision of Federal Inland Revenue Service (FIRS) in the year 2019, to freeze taxpayers’ accounts/ appoint tax collection agents for taxpayers (tax substitution) has no doubt been met by widespread criticism. Although the stiff opposition which the said decision met appears to be responsible for a noticeable suspension of the exercise; serious debates on the validity of the power purportedly exercised by the nation’s chief revenue authority still ensue with stakeholders searching for answers to practical questions.

Interestingly, the subject of the powers of the FIRS to appoint banks as collection agents or their freezing of the bank accounts of taxpayers’ appear to be an undeveloped area of tax litigation; as such, taxpayers, banks and perhaps the FIRS, are forced to live with uncertainty which they very much despise. Understandably, they yearn for a firm legal perspective on the subject, so as to circumvent potential liabilities and/ or complications.

As a result, this article examines the validity of the FIRS’ power to appoint Agents and to freeze bank accounts, vis-à-vis the decision of the Federal High Court in Suit No. FHC/WR/CS/17/2019 – Ama Etuwewe Esq vs Federal Inland Revenue Service & Guaranty Trust Bank Plc

Re: Ama Etuwewe Esq vs Federal Inland Revenue Service & Guaranty Trust Bank Plc.

In October 2019, some questions pertaining to the FIRS powers of substitution and freezing of accounts came up for determination before the Federal High Court of Nigeria, Warri Judicial Division (Delta State). Prior to the institution of the suit, the FIRS had alleged that the Plaintiff (a business name carrying on legal practice) was liable to certain Companies Income and Value Added Tax remittances for relevant periods and that the said taxes had become payable. Accordingly, pursuant the FIRS Establishment Act (FIRSEA), the 2nd Defendant (Guaranty Trust Bank (GTB)) was appointed as an agent of the Plaintiff; the FIRS obtained the Plaintiff’s bank statements from the 2nd Defendant and placed restrictions on the Plaintiff’s bank account with the 2nd Defendant. The Plaintiff was aggrieved by these actions and sought redress in Court.

The Plaintiff’s suit was commenced vide an Originating Summons and in summary, sought a determination of the following questions by the Court (amongst others):

  1. Whether the Plaintiff as a business name/ sole proprietorship was liable to pay Companies Income Tax (CIT);
  2. Whether the exercise of the powers of the FIRS (1st Defendant) to appoint the 2nd Defendant) as the Plaintiff’s agent in respect of the account held by the Plaintiff with the 2nd Defendant is not in contravention of the Fiduciary duties that the 2nd Defendant owed the Plaintiff as its customer; and
  3. Whether the FIRS’ request for the Plaintiff’s bank statement and the appointment of the 2nd Defendant as the Plaintiff’s agent devoid of the Plaintiff’s consent or a Court Order was not unlawful.

Further to the determination of the foregoing issues by the Court, the Plaintiff sought (amongst other reliefs) a declaration that the appointment of the 2nd Defendant as its agent is unlawful/ illegal and that the restriction placed by the Defendants (FIRS and GTB) on his account, in form of freezing, is unlawful and null and void.

Before delving into the more germane issues, the Court decided the contended liability of the Plaintiff (a business name) to pay CIT.  In its decision, the Court was unequivocal as to the inapplicability of CIT to the Plaintiff, being a business that was not registered under Part A of the Companies and Allied Matters Act (CAMA). Sequel to this, the Federal High Court then proceeded to distil the other questions for determination.

Legality of the Appointment of Bank as Agent of a Taxpayer

In evaluating the validity of the appointment of the 2nd Defendant as an agent of the Plaintiff, the Federal High Court, per Emeka Nwite J., found that the authority of the FIRS to appoint a person as an agent of another (for the purpose of collection of tax), rests and vests squarely on the FIRS Board/ the FIRS and not on any of the officers of the FIRS or even the Chairman. The Court stated that section 31 of the FIRSEA which empowered the 1st Defendant (FIRS) to exercise the power of substitution mandated that such power would be activated when the FIRS formally wrote to any such agent. Specifically, section 31 states that the Service may by notice in writing appoint any person to be the agent of a taxable where taxes have become payable by the taxpayer from any money which may be held by the agent so appointed.

Having observed that the letters by which the 1st Defendant notified the 2nd Defendant of its appointment as the Plaintiff’s agent were issued by the Chairman of the FIRS, the Court held that the said appointment was null and void ab initio. Relying on sections 7, 8 and 22 of the FIRSEA (which detail the powers/ functions of the Board, Service and the FIRS Chairman, respectively), the Court stated that the Executive Chairman of the FIRS was not synonymous with the FIRS itself or the FIRS board, as each of the above-mentioned persons had clearly delineated functions and duties under the FIRSEA, and has such the Chairman could not validly exercise powers vested in the Board or the Service.

From the above brief analysis, it would seem that the disposition of the Court on the power of the FIRS to appoint an agent was not an outright dismissal of the power for its incompatibility with extant legal principles of law. Rather, the Court tacitly endorsed the statutory power of the FIRS to appoint a bank as an agent pursuant to section 31 of the FIRSEA, albeit such power must be exercised by the right authority– the FIRS itself (the service) or the FIRS Board; and not the FIRS Chairman or any other individual or officer.

Validity of Freezing of Taxpayer’s Account

 In resolving the above issue, the Court relied on the Supreme Court’s decision in U.N.T.H.M.B. v Nnoli (1994) 8 NWLR (Pt.363) 376 @ 412, wherein the apex Court held that where a person, body or authority claims to have acted pursuant to a power granted by a statute, such person (body or authority) must justify the act if challenged, by showing that he or it was empowered to so act.

Against the strength of the above premise, the Court stated that since the letters from the FIRS Chairman by which the 2nd Defendant purportedly became the Plaintiff’s agent and decided to freeze the Plaintiff’s account was null and void; the freezing of the Plaintiff’s account on the basis of such ineffective legal instrument or any actions hinged thereon were illegal, null and void.

Notwithstanding the above verdict, the Court also observed that even in the event that it was assumed and conceded that the letters (from the FIRS Chairman) were valid, the FIRSEA does not imbue the FIRS with the power to unilaterally freeze the account of a perceived tax defaulter without the due process of obtaining an Order of Court to do so. The Court further noted that the slightest perusal of section 8 (1) (g) of the FIRSEA revealed that the FIRS is empowered to adopt measures to identify, trace, freeze, confiscate or seize proceeds derived from tax fraud or evasion (underlined for emphasis).

According to the learned judge, the implication of the said provision is that in the first instance, the funds sought to be frozen must have been declared as proceeds of tax fraud or evasion. Now, considering the fact that fraud and tax evasion are criminal in nature, it is only logical that the power of the FIRS to freeze bank accounts, as envisaged by section 8 (1) (g), ought to be exercised after the taxpayer who holds such account has been found guilty of tax fraud and/ or evasion, by a Court of competent jurisdiction. Furthermore, the confiscation of the funds or freezing of account must follow due process of law that is, the subsistence of a valid Court Order. This reasoning appears to be in consonance with settled judicial precedents on the prerequisites for freezing bank accounts. The decision of the Court of Appeal in Guaranty Trust Bank Plc v Adedamola (2019) 5 NWLR (pt. 1664) 30 at 43, paras. E- F resonates this.

 Alleged Breach of Fiduciary Duty by the Bank

On the question of whether the 2nd Defendant breached its fiduciary duty to the Plaintiff, the Court noted that undoubtedly, section 28 of the FIRSEA mandated the 2nd Defendant to furnish the 1st Defendant with information relating to a customer’s account (the Plaintiff inclusive) without a duty to first inform any such client. Accordingly, the Honourable Court found no basis for holding the 2nd Defendant liable for furnishing the 1st Defendant with the Plaintiff’s banking information, pursuant to the said law.

Although the Court did not find the 2nd Defendant liable for providing banking information to the FIRS, it found it concerning that despite the fact that the defective letters which the 2nd Defendant purportedly acted upon did not contain any directive from the FIRS for the 2nd Defendant to freeze the Plaintiff’s account. For this, the Bank having frozen the Plaintiff’s account was found to have acted unilaterally and in breach of its fiduciary duty to the Plaintiff/ Customer. Furthermore, the freezing of the Plaintiff’s account was made devoid of a Court Order. According to the Court, a bank must be satisfied that there is an Order of Court authorising the freezing of a customer’s account, failure of which the bank would be held liable. The Court backed this position up by referencing the decision of the Court of Appeal in Fidelity Bank Plc v Bayuja Ventures Limited & Bashir Jimoh (2012) All FWLR (Pt 646) 456 where the Court stated that ‘’Banks have no right to freeze a customer’s account without a proper Order of Court’’.

Putting together the entire circumstances under which the 2nd Defendant placed unlawful restrictions on the Plaintiff’s account, the 2nd Defendant was found to have been negligent and in breach of its fiduciary duties to the Plaintiff.


It would seem that some of the questions which many would have desired to be answered were not particularly determined by the Court. For instance, there was no express pronouncement on the validity of the FIRS’ power of substitution and its amenability to extant legal principles (for instance, principles of Agency). Nevertheless, the above decision of the Federal High Court is instructive in a number of regards; and as such, it would be useful to take cognisance of the following:

  1. Section 28 of the FIRSEA gives the FIRS the power to mandate a bank to forward Customers’ information to the FIRS and the bank is not compelled to inform the Customer’s prior to furnishing the FIRS with the relevant information. The writer is however of the view that out of abundance of caution, a bank may notify a customer where necessary.
  2. The appointment of a bank as a taxpayer’s agent is not outrightly unlawful. The appointment must be made by the FIRS (the service) or the FIRS Board and not by the Chairman of the FIRS.
  3. The power of the FIRS to freeze accounts is provided for under section 8 (1) (g) of the FIRSEA requires that such funds sought to be frozen are established proceeds of tax fraud or tax evasion. The FIRS must also obtain a Court Order to freeze an account.
  4. A Bank cannot freeze a customer’s account or obey a directive by FIRS to freeze an account without ensuring that paragraph 2 above is complied with. Where a bank fails to comply with this, it may be liable for breach of fiduciary duty.

The above decision is from a Court of first instance and could be appealed against. Courts of coordinate jurisdiction may also hold different views to that expressed by the Court in this matter.

However, until there is a decision of Court or a legislation which radically alters the status quo, the above represents the law. Banks, taxpayers and the FIRS are also advised to seek legal counsel before taking relevant steps.


Oluyemi Adebo is an Associate in Kenna Partners who is actively involved in the Firm’s Dispute Resolution practice.

Oluyemi Adebo (

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