The Federal Inland Revenue Service (FIRS) recently started issuing letters to banks to appoint them as agents of other taxpayers and directing them to set aside alleged amounts owed by the taxpayers for full or partial settlement of alleged tax liabilities. Indeed, on the surface, it seems this action has statutory backing under the tax laws in Nigeria, as various tax laws have provisions that empower a tax authority to appoint another person an agent of a taxpayer, otherwise referred to as power of substitution.

Ingenious as this enforcement process may be, the process must be juxtaposed against the rights of the alleged defaulting taxpayer, other laid down enforcement procedures under the laws, and the burden it places on the banks who derive no benefit from acting as an agent.

In this piece, we examine the issues surrounding the supposed exercise of the power of substitution by FIRS and whether FIRS is trying to use this to test the limit of its immense powers.

Power of Substitution under Applicable Law

Section 31 of the Federal Inland Revenue Service (Establishment) Act (FIRS Act) empowers FIRS to appoint any person as an agent of a taxpayer and such agent may be required to pay any tax payable by the taxable person from any money which may be held by the appointed agent.

Based on this provision, FIRS recently issued letters to various banks appointing them as agents on behalf of alleged defaulting taxpayers who have accounts domiciled in the banks and directed the banks to set aside and pay money from the taxpayers' accounts to FIRS in full or partial settlement of the alleged tax liability.

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Originally published in Business Day, September 5, 2018

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