NIGERIA FEDERAL HIGH COURT’S 2021 PRACTICE DIRECTIONS ON TAX CASES: TAXPAYERS NEED TO BE WORRIED

The Federal High Court (Federal Inland Revenue
Service) Practice Directions, 2021(the Practice Directions) came into
effect on 1^st 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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We hope you find this information useful, none of
which should be taken as legal advice. Please be free to reach out to either of: 

Bidemi Olumide

Partner

bidemi.olumide@ao2law.com

Kitan Kola-Adefemi

Associate

kitan.kola-adefemi@ao2law.com 

Ogonna Nzekwe

Associate

ogonna.nzekwe@ao2law.com

Ajoke Olawuyi

Associate

ajoke.olawuyi@ao2law.com 

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