The Federal High Court (Federal Inland Revenue Service) Practice Directions, 2021(the Practice Directions) came into effect on 1st June 2021. It provides a new set of rules for tax litigations concerning the Federal Inland Revenue Service (FIRS). The following are the key highlights of the Practice Directions:
1. Tax cases that are to be filed at the Federal High Court (FHC) are strictly to be filed at the FHC Judicial Division where the dispute arose.
2. Court processes as well as hearing notices can be served by email, “WhatsApp” or as the Court may direct.
3. Judges are to accord their tax cases priority.
4. FIRS may now approach the FHC by way of a Motion Ex-Parte for any of the following Orders, that is, Orders for:
4.1
forfeiture
of a taxpayer’s immovable property;
4.2
freezing
of a taxpayer’s bank account;
4.3
accessing
a taxpayer’s corporate books/documents, servers, billing systems, bank accounts;
and
4.4 accessing and/or sealing a taxpayer’s business premises.
5. The Motion Ex-Parte is to be accompanied by:
5.1 an Affidavit, with any of the following as Exhibits:
5.1.1 the Notice of Assessment or Demand Notice earlier
served on the taxpayer;
5.1.2 FIRS’ prior request to the taxpayer for access to its
corporate books/documents, servers, billing systems, bank accounts;
5.1.3 Warrant of Distrain/Access duly executed by the FIRS’ Executive Chairman.
5.2 a Written Address.
6. Where a Judge is satisfied that the Practice Directions has been complied with, the Judge shall grant the FIRS’ Motion Ex-Parte by the grant of Interim Orders that would subsist until the hearing of FIRS’ Motion on Notice; which Motion may likely not have been filed at the time of the grant of the Interim Orders.
7. The Interim Orders will typically last for an extendable 14 (fourteen) days, during which period, the FIRS should have:
7.1
served
the Interim Order on the taxpayer;
7.2
filed
a Motion on Notice and served it on the taxpayer; or
7.3 filed for an extension of the Interim Order if it becomes necessary.
8. The Motion on Notice is to be accompanied by:
8.1 an Affidavit exhibiting the Interim Order(s) alongside any of the following as additional Exhibits:
8.1.1 the Notice of Assessment or Demand Notice earlier
served on the taxpayer;
8.1.2 Warrant of Distrain/Access duly executed by the FIRS’
Executive Chairman; or
8.1.3 such other document as may be directed by the Court.
8.2 a Written Address.
9.
Upon
receiving the FIRS’ Motion on Notice, a taxpayer can do any of the following:
9.1 where it intends to contest the FIRS’ position, it has an extendable 14 days to file its Counter Affidavit and Written Address; and as well pay 50% of the disputed FIRS’ tax demand into an interest-yielding account of the FHC;
9.2 where it intends to make payment of the tax demand, it would apply to the Court for (i) leave to pay the tax debt into the FIRS designated account; and (ii) discharge of the FIRS’ case.
10. Where the FIRS fails to appear on the day of hearing its Motion on Notice, the Motion on Notice may be temporarily struck out until the FIRS subsequently applies to relist it.
11. A taxpayer that has been served with the FIRS’ Motion on Notice but fails to appear will have the Motion on Notice heard and determined in his absence.
Our Thoughts:
The Practice Directions appear to have enlisted the FHC as an agent for tax collection in Nigeria. This is particularly so with the introduction of the Originating Motion Ex-Parte for FIRS to commence its tax cases with; and the requirement for 50% of disputed taxes to be paid into the FHC’s interest-yielding account as part of a taxpayer’s opposition process.
Given the relatively uncontestable access to Interim Orders that the Practice Directions has given the FIRS, the FHC and relevant Judges need to be extra careful on the nature of evidence presented alongside a Motion Ex-Parte. That the exhibits required to be provided are not cumulative, but in the alternative, raises great concern. For example, the requirement that a Notice of Assessment or Demand Notice can simply be exhibited, and such would be the basis for the grant of any of the Interim Orders is worrisome. A good understanding of the tax objection and appeal process will reveal that the Notice of Assessment or Demand Notice is typically the initiating document in the income tax process and for which the taxpayer typically has 30 days to object to with a letter of objection. Following the taxpayer’s objection, the tax authority, in this case, FIRS, also has 30 days to revert to the taxpayer with either a revised assessment or notice of refusal to amend the initial assessment (NORA). The taxpayer thereafter has another 30 days to either abide by the FIRS’ revised assessment or NORA or lodge a tax appeal at the Tax Appeal Tribunal (TAT). The Practice Directions is loudly silent on the requirement for all these documentations and processes. This is a recipe for the violation of taxpayer rights.
The requirement for a taxpayer that seeks to contest its tax bill to pay 50% thereof in the FHC’s interesting-yielding account may prove to be another challenge in the enforcement of taxpayer rights. This is more so, where the contest of the taxpayer is on the arbitrariness of the FIRS Notice of Assessment in the first place. Taxpayer’s litigation may accordingly have to be third-party funded or financed, thereby raising access to justice concerns. That the Practice Directions is further silent on whether a successful taxpayer is entitled to the interests generated on such deposited funds is also questionably curious.
We expect the FHC to further revise the Practice Directions to ensure that sufficient documentary evidence is provided prior to the grant of Interim Orders. To simply ask for evidence of service of a Notice of Assessment or Demand Notice is to throw away the years that have been spent on developing Nigeria’s tax jurisprudence that requires a communication process and diligence on the part of tax authorities prior to enforcement. While litigation-funding firms may see the 50% deposit requirement as an opportunity, the greater issue of access to justice needs be considered to make the 50% deposit requirement selectively applicable.
The loudest question is yet to be asked: what is the
fate of the TAT? The question is asked against the background of the new
reality that allows the FIRS to simply ‘secretly’ originate and secure Interim
Orders from the FHC. Wouldn’t the States take cue from the Practice Directions
and ensure similar practice directions for their State High Courts; thereby
further eroding the TAT’s jurisdiction. Or has the TAT simply become the
taxpayer’s forum while the FHC is the FIRS’ Court?
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