Nigeria: The Freeze Mandate

Last Updated: 11 October 2019
Article by Genevieve Henshaw

The Federal Inland Revenue Service ("FIRS") has recently appointed a number of banks as collecting agents authorizing them to freeze taxpayers' accounts for an alleged tax default ("Freeze Mandate").

This Freeze Mandate purports to derive from the power of substitution given to FIRS to appoint any person as a collecting agent to pay taxes payable to the FIRS by the taxable person from monies in the custody of the collecting agents1. Expectedly, there has been an uproar about this Freeze Mandate and whether or not it is an infringement on the right to fair hearing of the affected taxpayer and whether the alleged tax payable is final and conclusive and if the collecting agent can withhold the taxable person's funds. This is a grey area.

This article therefore examines the implications of this Freeze Mandate and how it affects the parties involved (the taxpayers, collecting banks and the tax authority) in different ways.

Section 31 of the Act – Its Implications

The Taxpayer

As earlier pointed out, FIRS purports to derive its Freeze Mandate power from the provisions of section 31(1) of the Federal Inland Revenue Service (Establishment) Act, 2007 (the "Act") which allows FIRS to appoint, by a notice in writing, any person to be the agent of a taxable person. Sub-section 2 of that section also empowers FIRS to require the appointed agent to pay any tax payable by the taxable person from any money which may be held by the agent of the taxable person. It was pursuant to this that the Freeze Mandate was issued to the appointed banks as agents of the taxable persons.

Many have argued, this writer also shares this argument, that the Freeze Mandate infringes on the taxpayer's right to fair hearing and deprives the taxpayer of the opportunity of exploring the appeal options. This argument is hinged on the fact that the Freeze Mandate erodes the taxpayer's options to object any assessment and or appeal against such disputed assessment. The FIRS' recent action will amount to no more than an infringement of the taxpayers' rights to fair hearing and an interest in property which is enshrined under the Nigerian Constitution2. Taking over the taxpayer's money while in the custody of its bankers without a subsisting court order is tantamount to appropriating the taxpayer's rights to own property.

The taxpayer's right to fair hearing is encapsulated in our tax laws through the options to object and or appeal against a disputed tax assessment within the prescribed period3. The question to then ask is whilst the options to object or file an appeal is still subsisting, can the collecting agent (the bank) validly sequester the taxpayer's money in its custody based on the Freeze Mandate? Is the FIRS equating the Freeze Mandate to a final assessment? When does an assessment become final? A final assessment will only be reached where (a) the tax payable is not in dispute; (b) the taxpayer has not exercised its rights to dispute a tax within the prescribed period; and (c) where having exercised the right, a decision has been given by a competent authority4.

It must however be pointed out that Section 31(5) of the Act appears to preserve this right of appeal by a taxpayer or rather that of the collecting agent. The subsection provides that "The provisions of this Act with respect to objections and appeals shall apply to any notice given under this section as if such notice were an assessment." A closer look at Section 31(5) of the Act will however reveal that the lawmakers intended to preserve the taxpayer's rights with this sub-section. The question to then ask is whether section 31(5) indeed guarantees the taxpayer's right to fair hearing and or of appeals? We answer in the negative and shall quickly point out the shortcomings of this illusionary protection offered by Section 31(5) of the Act.

The sub-section purports to deem the notice (Freeze Mandate) issued to the collecting agent (the banks) as an assessment. This effectively puts the agent in the taxpayer's shoes in respect of the alleged taxpayer's tax default. Failure to pay tax is a criminal offence. The poser to then ask is can a person be held criminally liable for a crime allegedly committed by another person? Put differently, can the banks be held liable for the tax default of another person? The answer is no and it is our view that this Section 31 is unconstitutional.

Also, Section 31(5) appears to give the bank the opportunity to object and appeal the assessment. How can a bank who is not privy to the tax books of the taxable person successfully object to and appeal against the assessment?

Furthermore, will the taxable person have the opportunity to participate in the appeal process to be initiated by the bank as the agent of the taxable person? This definitely deprives the taxable person of the opportunity to challenge the assessment issued to the agent (the bank). Does this not amount to shaving someone's head in his absence?

More importantly, the Act fails to provide any protection to the agent in the event that the agent had released the taxable person's monies in his custody to FIRS and the taxable person successfully challenges the assessment before a competent court. The taxable person will have a reasonable cause of action against the bank. The release of the taxable person's money in the bank's custody to FIRS does not validly discharge the bank from any subsequent liability to the taxable person. The Freeze Mandate and the procedure under Section 31(1) is analogous to the garnishee proceedings but with a major difference. Under the garnishee proceedings, the garnishee is given an opportunity to challenge the order nisi before it is made absolute. The Sheriffs and Civil Process Act ("SCPA") for instance, protects the garnishee against the debtor liable, the FIRS Act does not however protect the agents (the banks) against the taxable persons. Section 91 of the SCPA provides that "payment made by or execution levied upon a garnishee under any such proceedings shall be a valid discharge to him against the debtor liable under a judgment or order, to the amount paid or levied, even although such proceeding may be set aside or the judgment or order reversed." This clearly protects a garnishee and offers a valid discharge under the SCPA. The banks however as appointed agents of a taxable person are left unprotected by the Act.

The Banks

The banks owe their customers a fiduciary duty to keep the money deposited with them and produce the same on demand without any delay. In dealing with these funds, the banks are privy to the financial information of their customers. This Freeze Mandate envisions a situation whereby the bank would freeze a taxpayer's money on the basis of a letter from the FIRS. Can the banks refuse to release a depositor's money upon request without a valid court order to that effect? We answer in the negative.

While the FIRS has the power to appoint agents, are these agents obligated to accept the appointments or will they suffer any backlash for their refusal to be part of this? Should the banks accept this appointment, they become liable for the tax payable where they are in default of their obligations. This is a hefty burden. The provisions for objections and appeals for assessments however apply to the appointment of the agents5 (the implications of the sub-section had earlier been discussed). This will definitely affect the banker/customer relationship.

The Tax Authorities

The FIRS' power to appoint agents to recover taxes is as contained in Section 31(1) of the Act and it is our position that this power must be exercised properly. The Freeze Mandate amounts to putting the cart before the horse, the FIRS has now become the complainant, Judge and enforcing authority in its own case. It conflicts with substantive tax legislations on due process and fair hearing i.e objection, decisions from the objection, appeals and final decisions from the same. Whilst we understand the urgency to generate revenue, the FIRS should be wary not to exercise its powers arbitrarily. This action could also open the FIRS up to numerous lawsuits which is easily avoidable.


The FIRS Freeze Mandate disrupts the process of tax dispute adjudication and creates a level of uncertainty to business owners, which is a sharp contrast from the ongoing clamor on the ease of doing business in Nigeria. Also, this may put the contractual relationship between the banks and its customers to test.

Regardless of the uncertainties created by this, it is advisable that taxpayers make sure that their tax positions are up to date and not in contravention of the tax laws. The FIRS' position can be tested in the courts where its powers are exercised contrary to the tax laws.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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