Government desperation and illegal taxation

It is not news that Nigeria is having a serious fiscal crisis, with revenues falling far short of target and majority of those revenues (about 75 percent) used to service debts alone. Consequently, the government has to borrow to run maintain operations and finance the budget. It is therefore understandable that the government is doing everything within its powers to grow its revenues, especially through taxation. It is also noteworthy that it is trying to enforce tax payment by high net worth individuals and corporate organisations who have capitalised on Nigeria’s lax tax regime to evade taxes for years.

However, the way the government has been going about this suggests a serious lack of or total disregard for the rudiments of the law, taxation, fairness and equity. Fresh from the debacle of the CBN’s laughable clampdown on MTN Nigeria over so-called capital importation and the Attorney General of the federation’s usurpation of the functions of the Federal Inland Revenue Service (FIRS) to demand a payment of over $2 billion from the same organisation in unpaid taxes on foreign payments and imports, the country’s tax man, FIRS, has become a law unto itself, levying illegal taxes on companies and compelling banks to become tax collectors by illegally deducting the levied taxes from such companies’ accounts.

One of the first illegal steps FIRS took recently is directing banks to freeze the accounts of defaulting taxpayers to prevent them from drawing funds. It also purported to appoint agent banks for collection of taxes due from alleged tax defaulters.

In the letters signed by Tunde Fowler, executive chairman, FIRS and issued to appointed agent banks they were instructed to set aside the tax amount due from the bank accounts of alleged defaulting taxpayers and remit same to the accounts of the relevant tax authorities (RTAs) to the credit of the taxpayers, in full or partial settlement of the tax debts.

In one of the letters addressed to the banks and seen by BusinessDay recently, FIRS demanded that the commercial bank compulsorily transfer funds (up to N110 million) from a company’s account to the FIRS without due process or a court order.

Sources have told BusinessDay that all companies that have done average turnover of more than a billion naira on their accounts are currently receiving these letters which imposes these ‘arbitrary’ taxes based on the transaction turnover in the accounts.

Sadly, some CEOs who were slammed billions in illegal taxes have demonstrated full compliant to tax regulations. But even after showing full compliance with all the tax laws of the country, they were still requested to ‘pay something.’

Even Nigeria’s greatest industrialist, Aliko Dangote, was not spared. He revealed that he was hit with a tax bill that was twice higher than the US$2 billion that the MTN Group got from the office of the Attorney General of the Federation.

The arbitrariness of the tax bills being sent out have unsettled many companies and even shareholders especially of multinationals operating in the country. The potential impact on company’s cash flow of such debits is creating panic within the business community.

Besides, it is sending negative signals to multinationals operating in the country, current and future foreign direct investors about the uncertainty, unpredictability, and general lawlessness of the Nigerian environment.

Already, shareholders in the US and UK have asked the management of companies exposed to the Nigerian market to explain their exposures to the Nigerian authorities. This is because of the unexplainable tax bills that most of them are getting.

We are at pains to stress that although FIRS has the authority to freeze accounts of tax defaulters, it must only do so on the orders of the court after the tax liability of the tax payer must have been established.

Besides, a tax payer has the right to file tax returns which will be audited by FIRS if it is not satisfied with the returns. The turnover comes in only if companies choose not to file their returns.

The action of the FIRS is raising question on “bank customer confidentiality’ a key principle in commercial banking relationship. With the FIRS asking banks to debit their customer’s accounts and also submit their customer’s bank details, that confidential relationship between banks and their customers is being broken.

What is more, FIRS must exercise its powers with caution to avoid negative impact on the business environment and ease of paying taxes. The current desperation to squeeze money legally and illegally from companies is extremely short-sighted and will only bring woes to the country.