Introduction:
The 2015 seminal piece, ‘Distrain under PITA: An analysis and evaluation of Principles and Practice’ may be apt in responding to the question. Please see paper here. This piece hopes to re-engage the relevant principles within the context of the decision of the Nigerian Court of Appeal in Independent Television/Radio v. Edo State Board of Internal Revenue [2015] 12 NWLR (Pt. 1474) 442 (the “Case”). What relevant precedents did the decision in the Case set? Did the decision touch on the literal provisions of Section 104 of the Personal Income Tax Act, 1993 (as compiled as Cap. P8, Laws of the Federation of Nigeria 2004 and as amended by the Personal Income Tax (Amendment) Act, 2011) (altogether “PITA”)? This piece hopes to answer these in brief.
The Facts:
It was February 2012 and the Edo State Board of Internal Revenue (the “Board”) assessed the owners of Independent Television/Radio in Benin, Edo State (“ITV”) to a pay-as-you-earn (“PAYE”) liability of about N19million. Between February and August 2012, the Board wrote ITV 10 different letters requesting for a tax review meeting, none of which letter was heeded. The parties met in September 2012 and ITV’s liability was reduced to about N15million with the Board demanding payment to be made within 7 days.
By an ex parte application dated November 1, 2012, the Board, on November 2, 2012 got an order from the High Court of Edo State (the “Court”) to distrain ITV upon its land, premises or place of business as well as distrain against any of its moveable assets in satisfaction of the outstanding PAYE liability of about N12.8million (the “Ex parte Order”). ITV applied to discharge the Ex parte Order by an application dated November 9, 2012 and following the Board’s opposition, the Court adjourned the hearing of the processes for the discharge of the Ex parte Order to December 6, 2012. On December 5, 2012, the Board executed the Ex parte Order by sealing up ITV’s business premises. ITV applied to the Court same day for the unsealing of its business premises.
At the hearing of December 6, 2012, the Court ordered ITV to pay the N12.8million into the Edo State Government Treasury before its premises can be unsealed. The N12.8million will be a conditional payment in the circumstance that where ITV is successful with its November 9, 2012 application, the monies will be returned to it within 48 hours. The Court further adjourned the hearing of the November 9, 2012 application as well as other pending applications to January 22, 2013.
ITV appealed to the Court of Appeal (the “Appellate Court”) on December 12, 2012 on issues bordering on the propriety of the Court’s order and the Court’s jurisdiction. On reading the briefs of the parties, the Appellate Court called on the Counsel to the Parties as well other lawyers to address it on the constitutionality of Section 104 of PITA.
The Decision:
Upon hearing all arguments, the Appellate Court ruled, essentially, that Section 104 is constitutional and that the Court had the jurisdiction to make its December 6, 2012 orders.
Thinking Straight:
The Court is correct that the right of the tax authority to distrain the moveable or immoveable properties of a tax payer under Section 104 of PITA is constitutional. This is in light of Section 44(2)(a) of the 1999 Constitution which permits Government to compulsorily possess or acquire private property for the purposes of tax enforcement. However, a vital and missing link in the decision of the Court and Appellate Court, is whether ITV is a taxable person under PITA; that is, whether ITV is capable of being distrained under its Section 104. This observation is aside from some other procedural issues evident in the facts of the Case at the Court.
Is a Company a Taxable Person under PITA?
A company does not come within the definition of a taxable person under PITA. PITA defines a “taxable person” at Section 108 as: “any individual or body of individuals (including a family, any corporation sole, trustee or executor) having any income which is chargeable with tax under the provisions of this Act.” By the combined effect of Sections 1, 2, 3 and 108 of PITA, the following are the categories of “taxable persons” under PITA: individuals, communities, families, trustees and trusts; save for military personnel in the Nigerian Armed Forces, Police Force and officers of the Nigerian Foreign Service.
In 7up Bottling Co. Plc. v. L.S.I.R.B. [2000] 3 NWLR (Pt. 650) 565 particularly at pages 602 to 606, paragraphs B to C (the “7up Case”), the Court of Appeal had to consider the effect of Section 53 on “assessments”, which is now Section 54 of PITA. According to the Court, the “assessment” is a matter between the relevant tax authority and the taxable person and not between the tax authority and an employer – see page 603 at paragraph H. According to the Court, the “taxable person” under PITA and “the PAYE system is the employee, not the employer” – page 605 at paragraph B. See also, Nigerian Breweries Plc v. L.S.I.R.B. [2002] 5 NWLR (Pt. 759) 1 (the “Nigerian Breweries Case”); D.S.A. Agricultural Machinery Manufacturing Company Ltd v. Lagos State Internal Revenue Board [2013] 11 TLRN 115, 132 – 133 where the decision of the Court in the 7up Case was affirmed. Also please see Sasegbon’s Laws of Nigeria, (supra) Vol. 19 at paragraph 968 at page 376.
In the Nigerian Breweries Case, the Court of Appeal had to pointedly answer the question, whether the best of judgment basis of assessment is applicable to the PAYE system of personal income tax imposition and collection. The Court in interpreting the effect of the provisions of Section 29 of the Lagos State Personal Income Tax Law, which is same with the provisions of Section 54 of PITA, reiterated that an employee or staff is the taxable person for the purpose of the PAYE system. On Section 29(5) of the said Lagos State Law, which is same as Section 54(5) of PITA, the Court held that the Section “exempts staff subject to PAYE from the arbitrariness of best of Judgment” and that the particular assessment which was the subject of the Suit “… ought to be set aside, because the best of judgment assessment is not applicable to the PAYE system” – see pages 17- 18 at paragraphs F – E.
Although the two cases appear to have put to rest, the question, whether an employer is a taxable person under PITA, the Operation of Pay as You Earn (PAYE) Regulations, 2002 (“PAYE Regulations”), just a year later, awakened the issue. The PAYE Regulations was made by the “Minister” pursuant to Section 80(6) of PITA. Regulations 9 thereof states that the provisions of PITA on assessment, appeals and other proceedings shall apply to an employer. We are unaware that the legality of Regulations 9 of the PAYE Regulations has been tested. The legality of the provision is questionable in the circumstance that it seeks to expand the object of tax assessment under PITA to include employers. The Regulation is clearly inconsistent with the provisions of PITA. The current position of Nigerian law is that a Regulation or other administrative act done by the Executive cannot be effected contrary to the express intentions of the Legislature as found in the wordings of the law, save where the law expressly authorises the Executive to so do. Please see Akanni v. Odejide [2004] 9 NWLR (Pt. 879) 575 at 605, paragraph F. It is instructive to note that the Federal Legislature had its opportunity to amend PITA by the instrumentality of the PITAM, none of whose provision either deemed an employer a “taxable person” or amended the provisions of Section 54 of PITA to accommodate the raising and service of income tax assessments on employers.
Conclusion
It is significant that both the Court and the Appellate Court did not consider whether ITV will qualify as a taxable person or taxpayer under Section 104 of PITA. In the absence of express words in PITA, as opposed to the PAYE Regulations, that defines an employer a taxable person, the courts should not easily apply Section 104 to a company. As an agent of the relevant tax authority for PAYE deduction and remittance, PITA provides in its Section 82, that any tax not deducted or remitted by an employer under the PAYE system constitutes a debt in the hands of the employer. Shouldn’t such debts be proceeded against in a typical debt recovery action? In the absence of clear and unambiguous wordings, a relevant tax authority should not easily invoke Section 104 of PITA to disrupt the operations of its statutory agent.
For further information on the foregoing, please contact us Bidemi Olumide (bidemi.olumide@ao2law.com) or Oyeyemi Oke (oyeyemi.oke@ao2law.com) with the subject: “Can a Tax Authority Distrain a Company for PAYE Non-Remittance?”
