FIRS Press Release

COMMENTS ON THE FREEZING OF BANK ACCOUNTS OF ALLEGED TAX DEFAULTERS BY FIRS

The attention of the Lagos Chamber of Commerce and Industry [LCCI] has been drawn to the recent decision of the Federal Inland Revenue Service [FIRS] to appoint banks as collecting agents and subsequent freezing of the accounts of taxpayers considered to be in default of tax payment.  Such an account will be debited to the tune of the alleged tax debt.

This move is premised on the on the powers conferred on the FIRS by section 31 of the FIRS Act which gives FIRS the powers to appoint collection agents for the recovery of tax payable by the taxpayer.  Such an agent will be mandated to pay any tax payable by the tax payer from any money held by the agent on behalf of the tax payer.  This provision is draconian and could be used as a tool of intimidation, coercion and harassment of taxpayers.  It should be invoked with utmost discretion and caution.

The LCCI is a strong proponent of regulatory compliance by private sector players.  However, it is important to underscore the fact that tax administration should be in consonance with the basic tenets of the rule of law and the fundamental principles of a good tax system.  Tax administration should be consistent with the basic principles of equity, fairness, legality and accountability.  The LCCI is concerned about the recent turn of events, especially the freezing of accounts of bank customers based on tax assessments that are in dispute.  This development raises a number of key concerns which need to be urgently addressed:

• Whether the claim of tax liability by the FIRS of the affected investors applies to a final and conclusive assessment which should be an outcome of an exhaustive engagement between the tax authorities and the taxpayer.
• The propriety of appointing banks as ‘Collecting Agents’ by the FIRS, given the strategic and catalytic role of the banking system in business operations, financial intermediation and transactions among economic players.
• The legality of freezing the accounts of bank customers by the banks on the directive of FIRS for alleged tax liability, given the contractual relationship between the banks and their customers.
• The appropriateness of imposing a lien on funds which may not necessarily belong to the alleged defaulting company. There is a preponderance of third party funds in the accounts of many businesses.
• The disruptions to businesses of account holders of a sudden freezing of accounts for reasons of alleged default in tax payment. This could cause an irreparable reputational damage to businesses.
• The risk to financial inclusion as SMEs may avoid the use of banks for their transactions.
• Risk to liquidity in the banking system.
• Heightened expropriation risk.
• Adverse implications for investors’ confidence resulting from a negative perception about tax administration in the country.
• Risk of a surge in migration of SMEs from the formal to informal sector.

In the light of the foregoing, we urge the FIRS and the banks to exercise utmost restraint in the adoption of this tax revenue recovery strategy because of the grave implications for investors and the economy. The damage to the economy may be much more than the contemplated revenue.

Tax administration should be in consonance with rule of law, due process and fairness.  Before a tax can be pronounced as ‘tax payable’ in the context of the tax law, all legitimate processes of engagement and dispute resolution must have been exhausted.  There is no evidence that this has happened in some of the cases to which this provision has been invoked.

These are not the best of times for investors in the economy.  Many businesses are reeling under a huge burden of high cost of doing businesses.  They are grappling with high energy cost, astronomical cost of logistics, huge regulatory compliance cost, exorbitant property tax, outrageous cost of funds, multitude of taxes and levies imposed by the states and local governments, high import duty, excruciating conditions at the Lagos Ports and the challenges of corruption.  These are critical contextual issues that should be taken into account.  Revenue generation is not an end in itself, it is a means to an end.  The ultimate objective is to ensure equity, improve welfare of citizens, create jobs and promote the advancement of the economy.  The activities of agencies of government should be in tandem with the Ease of Doing Business Agenda of government and the promotion of the ideals of the Economic Recovery and Growth Plan [ERGP].

MUDA YUSUF

DIRECTOR GENERAL

LAGOS CHAMBER OF COMMERCE AND INDUSTRY