In the piece, EHIME ALEX samples analysts’ views on the procedures, standards and policies of implementing tax analysis, and coming up with penalties, following the recent freezing of bank accounts of a multinational by the FIRS over tax evasion
Recent reports show that Nigeria is losing trillions of naira to illicit financial flow, as many multinational companies are seen defaulting in their tax obligation, thereby frustrating the country’s revenue target, worsening its debt profile and infrastructure deficit.
Between 2007 and 2017, Nigeria had lost about N5.4tn through tax evasion by multinational companies operating in the country. The country also accounts for 30 per cent of between $50bn and $60bn Africa losses per year to illicit financial flow, according to the Thambo Mbeki’s African Union Committee’s Report 2018.
To stem the tide, the Federal Inland Revenue Service, last week, wielded the big stick on MultiChoice Nigeria, a cable television service provider. According to FIRS, MultiChoice defaulted in tax payment to the tune of N1.8tn since it commenced operations in Nigeria.
It accused the company of persistently breaching all agreements and undertakings.
“Particularly, MCN has avoided giving the FIRS accurate information on the number of its subscribers and income. The companies are involved in the under-remittance of taxes, which necessitated a critical review of the tax compliance level of the company,” FIRS stated.
To recover the debt, the agency asked some commercial banks to freeze the accounts of MCA and MultiChoice Africa.
In a reaction, MultiChoice said it had not been formally notified about the matter, adding that the case appeared to be based on “unfounded allegations” that MCN had not fully disclosed its existing subscribers to the authorities.
While the parties look to amicably resolve the issue, however, analysts are concerned about the FIRS procedures, standards and policies of carrying out tax analysis, and coming up with penalties.
Stemming tax evasion
Last year, the FIRS rejigged its operational approach to stem illicit financial flow out of Nigeria and improve tax compliance rate, a move that could support Nigeria’s post-pandemic recovery.
A Nigerian public affairs analyst, Bala Zakka, told Financial Street that the company might have taken advantage of the lacunas in the tax laws.
According to him, the first thing that needed to have been established is that external auditors are checking accounts of multinational companies.
He explained that if the accounts were being audited, then based on what was provided, the agency would have been able to establish any case of tax evasion and place the necessary punishments.
His words, “But, the law should not stop at that point; it should go beyond that and find out who the accounting officers are with the corporate entity.”
It will not be a surprise to discover that some of the people in the accounts department are also Nigerians, Zakka added. “Who were the senior financial officers and accounting officers in that company? Who are the middle level financial officers or accounting officers? Who are the lower level financial officers? If for any reason some of them are found to be citizens of this country, then those officers should be summarily punished because that simply means they are not patriotic citizens and, to a reasonable extent, they are financial traitors of Nigeria.”
On the claim that MultiChoice had never paid Value Added Tax to the Nigerian coffers, Zakka asked, “Does it mean that since the company started operations, its accounts were never audited? If audited, how come in all these years those issues of tax and cooking of books were not noticed?
“Could it be that previous staff of FIRS were also culpable? And if they were not colluding, then the question is, how come all these things were not discovered because it is not possible for a corporate organisation of the status of Multichoice to have been operating in Nigeria for all those years without having audited financial statements, or without making their financial books available for review, citing, analysis or vetting by tax regulators?”
According to Zakka, these are some of the questions the FIRS needs to answer because even individuals tender tax clearance.
He added, “If they were getting their tax clearance, because their audited financial statements were always being reviewed and found to be clean and free of errors, how come some people within FIRS are now saying they have not had clean records all the while?”
“Or, could it be that some people are necessarily ambitious in the current FIRS, and want to show that they know the job or want to show some form of accounting dexterity? It could also be that some people want to show that they know the job, not knowing that there are procedures, standards and policies of carrying out tax analysis, and coming up with tax competition and the rest.”
For him, if it is a case of some people wanting to be zealous in FIRS, such people should be called to order. “But if those people made such discoveries in the process carrying out their legitimate duties, , then they should be applauded and, if possible, rewarded by government.”
Tax laws and challenges
The issue with tax collection in Nigeria, especially from foreign-based companies conducting businesses, is frustrating and infuriating to the FIRS.
Meanwhile, Section 49 of the Companies Income Tax Act Cap C21 LFN 2004 as amended, Section 41 of the Value Added Tax Act Cap V1 LFN 2004 as amended and Section 31 of the FIRS (Establishment) Act No. 13 of 2007 empowers the FIRS to act accordingly.
The Head, Tax Regulation at PricewaterhouseCoopers Nigeria, Taiwo Oyedele, said the provision of the law empowers the tax authorities to raise an assessment against the taxpayers, but that “the taxpayers also has the right” to self-assessment.
He said, “If the tax authorities disagree with you or you failed to file your self-assessment, they can raise an assessment on you. By law, you have up to 30 days to object or disagree. In that case, the tax authorities will have to write to the company, and the company also has the right to react.”
According to Oyedele, the back and forth could continue until the tax authorities call a refusal to amend. He said the taxpayers could either pay at that point or go through the court process, starting from the tax appeal tribunal.
But, if the taxpayer default in responding within 30 days during that process, he said the assessment is described as becoming “final and conclusive.” What that means is that no further discussion by law is required, hence the stated amount becomes payable.
Power to penalise
The taxman, Oyedele said, has the power to do almost anything, including seizing assets and selling them to recover the money, if the taxpayer fails to pay.
“The taxman also has an unprecedented power to write to anyone who has money belonging to the taxpayers, including the banks, and appoint them as agents to deduct the money and pay to the government directly on behalf of the taxpayer. So, that what the FIRS has done,” he added.
But there are concerns as to whether the due process has been followed.
While countries have this process in their tax laws, in most developed countries it could require going to the law court or serving a garnishee order. But Oyedele explained that, in Nigeria, it does not go in that order. It is just the FIRS; hence it could freeze the accounts of MultiChoice.
He, however, pointed out that the inability of the company to access its money anymore is a big issue because in the particular order they have not followed the processes to conclusion.
Due process
The tax guru explained also that it was a good move by the FIRS to try to enforce tax laws. However, there were concerns about the due process. “If you don’t follow the due process, anyone at the FIRS can allege that you are owing and then freeze your account, and that has implications on your business. It could even lead to the liquidation of any company.
Eventually, because of the data and intelligence the FIRS now has as a result of VAT, the agency is in a better position to do deemed assessment.
“The law says you can assess the taxpayer to a fair and reasonable percentage of their turnover,” he said, adding that this provision of the law is also in the Personal Income Tax Act.
“My worry is that if you approach that process, it is going to be counter-productive. One, it is going to discourage business and create issues for people who are doing genuine businesses. It could have a negative impact on financial inclusion, especially for individuals in the formal sector. As a country, we need to be careful on how those things are implemented. I agree that we have to implement tax compliance laws,” Oyedele added.
