Taxpayers' Right To Fair Hearing Vs Tax Administrator's Distraining Power

Introduction

The principle of fair hearing is a fundamental aspect of legal justice, essential in both judicial and quasi-judicial settings. It is deeply rooted in the legal tradition, with origins in two key Latin maxims: "audi alteram partem" (the right to be heard) and "nemo judex in causa sua" (no one should be a judge in their own case). These principles ensure that no individual is judged without being given a chance to present their side of the story. Therefore, any legal or procedural actions that fail to respect this fundamental principle are inherently void.¹

Fair Hearing in Taxation: A Fundamental Right

In taxation, individuals and corporations are taxed on their properties and incomes and have a rightful expectation to influence their financial obligations. This expectation underpins the right to a fair hearing in tax disputes, a right grounded in fundamental human rights as recognized by international conventions and the Nigerian Constitution. This legal principle ensures that taxpayers can contest and respond to claims by tax authorities before any conclusive actions are taken. Fair hearings require that tax proceedings be open, impartial, and evidence based. Taxpayers must be able to understand the claims against them, access relevant evidence, and challenge these claims through an independent process. Additionally, this principle of fair hearing guards against the enforcement of retrospective tax laws, protecting taxpayers from unjust penalties related to past transactions.

Legal Framework for Fair Hearing in Nigeria

The right to a fair hearing is a fundamental principle anchored in the core of Nigerian jurisprudence and is recognized globally. This right has been incorporated into various tax laws in Nigeria. Section 36 of the Constitution of the Federal Republic of Nigeria 1999 ("CFRN") outlines the right to a fair hearing, ensuring every individual the right to a fair trial within a reasonable time by an independent court or tribunal. It states:

Additionally, Section 17(2)(e) CFRN emphasizes the need for "the independence, impartiality and integrity of courts of law." This constitutional right is crucial in tax disputes, allowing taxpayers to present evidence, be heard, and challenge decisions; ignoring these rights can invalidate decisions made by tax authorities. In addition to constitutional provisions, various statutes governing taxation in Nigeria reinforce the right to a fair hearing, including:

1. Companies Income Tax Act (CITA): Section 69 of CITA allows taxpayers to object to assessments made by the Federal Inland Revenue Service (FIRS). If dissatisfied, they can appeal to the Tax Appeal Tribunal (TAT) within 30 days of receiving the Notice of Assessment or a notice of refusal to amend by the tax authority.
2. Personal Income Tax Act (PITA): Section 58 of PITA provides individuals the right to object to assessments made by the relevant tax authorities. If dissatisfied with the outcome, taxpayers can appeal to the TAT within 30 days of the refusal to amend.
3. Federal Inland Revenue Service (Establishment) Act (FIRSEA)²: This Act establishes the TAT as an independent entity to resolve tax disputes, ensuring fair and impartial proceedings.
4. Tax Appeal Tribunal (TAT) Rules³: These rules detail procedures for tax dispute hearings, including the submission of evidence and the examination of witnesses, reinforcing the taxpayer's right to a fair hearing.

Tax administrators are granted specific powers and procedures for determining taxable income, assessments, collections, and enforcement, including the power to distrain.⁴ As defined by Black's Law Dictionary, the power to distrain is "to force a person by the seizure and detention of personal property to perform an obligation or to seize goods by distress". Therefore, if a taxpayer fails to pay taxes after receiving an assessment and demand notice, and no objection is filed by the taxpayer within the prescribed period, the relevant tax administrator may invoke the power to distrain.

Distraining Power vs. Fair Hearing

The use of distraining powers by tax administrators presents legal complexities, as evidenced by contrasting Court of Appeal decisions in cases such as Access Bank Plc vs. Edo State Board of Internal Revenue and Independent Television/Radio vs. Edo State Board of Internal Revenue.

These cases highlight the challenges involved in balancing tax enforcement with the safeguarding of taxpayer rights to fair hearing.

i. Access Bank Plc vs. Edo State Board of Internal Revenue⁵

The Edo State Board of Internal Revenue (EIRS) aimed to collect withholding tax on interest from Access Bank Plc for the years 2007 to 2012, totaling N42,184,790.16. To enforce this, EIRS obtained an ex parte order from the trial court under Section 104 of the Personal Income Tax Act (PITA) 2004, authorizing them to distrain the bank's assets. (An ex parte order is a court decision made without all parties present, typically in urgent cases and based solely on the applicant's information).

Access Bank challenged the order, arguing it violated their right to a fair hearing as they were neither present nor represented during the proceedings. The bank also contended that the EIRS' failure to disclose a partial payment of N7,719,929.99 misled the court into authorizing the full amount. Upon review, the appellate court held that Section 104 of PITA does not authorize tax enforcement through ex parte applications. Citing precedents like Chief G.O. Igbinedion CFR v. Edo State Board of Internal Revenue,⁶ the court highlighted that resolving tax liabilities through ex parte proceedings violates the taxpayer's right to a fair hearing under Section 36(1) of the Constitution of the Federal Republic of Nigeria (CFRN). Consequently, the trial court's decision was overturned, and the ex parte order was nullified.

ii. Independent Television/Radio vs. Edo State Board of Internal Revenue⁷

In a different case, the EIRS initiated legal action via a motion ex parte at the High Court of Edo State to distrain Independent Television/Radio's assets to satisfy a tax liability of N12,882,596.43. The court granted the ex parte order and subsequently ordered Independent Television/Radio to pay the outstanding tax liability into the Treasury of the Edo State Government.

In its deliberation, the appellate court stressed the importance of interpreting statutory provisions not in isolation but within the broader context of related sections. Consequently, the court examined Section 104 of the Personal Income Tax Act (PITA) alongside Section 44(2)(a) of the Constitution, which safeguards property rights and privacy. Moreover, the court addressed the use of ex parte applications under Section 104 PITA and held that such applications are constitutionally permissible only if explicitly authorized by the statute. This was illustrated in the case of 7Up Bottling Company v. Abiola & Sons⁸, where the court noted that the suitability of ex parte applications depends on the specifics of each case. This examination led to the conclusion that although Section 104 of PITA permits ex parte applications, its interpretation must be carefully aligned with constitutional protections and individual rights.

Further emphasizing the principle of natural justice, the court cited precedents like AG Bendel v. AG Federation⁹,and Victino Fixed Odds Limited v. Ojo & 2 Ors¹⁰ illustrating the necessity of involving taxpayers in decisions that significantly impact them under Section 104 PITA. This involvement is crucial to ensuring that proceedings are fair and that taxpayers have the opportunity to present their case effectively. This nuanced approach ensures that tax enforcement actions are just and considerate of taxpayer rights, aligning tax authority powers with the requisite legal standards for a fair judicial process.

PITA incorporates several safeguards to ensure fairness:

• Section 44 PITA allows taxpayers to self-assess.
• Section 54 PITA enables tax authorities to conduct assessments if taxpayers do not.
• Section 57 PITA requires notifying taxpayers about the assessment.
• Section 58 PITA provides a mechanism for taxpayers to object to the assessment.
• Section 60 PITA allows for appeals to the Tax Appeal Tribunal.

The court emphasised that taxpayers are provided with multiple opportunities to fulfill their obligations or resolve disputes, including a 30-day period to object to assessments, the option to challenge the Tribunal's decisions, and the ability to convert an ex parte motion to a motion on notice, which notifies all parties and allows them to participate, if justified. The ruling in Newswatch Communications Ltd v. Attah¹¹ reinforces that if taxpayers fail to use these provided mechanisms, they cannot later claim a denial of fair hearing.

Impact of Conflicting Judgments on Taxpayers' Rights

The Court of Appeal's rulings in the cases of Access Bank Plc vs. Edo State Board of Internal Revenue (2018) and Independent Television/Radio vs. Edo State Board of Internal Revenue (2014) illustrate a notable divergence in judicial interpretation, especially regarding the validity and constitutionality of the distrain process in relation to the principle of fair hearing. These conflicting judgments have substantial implications for the consistency of legal precedents and the protection of taxpayers' rights under Nigerian law. These discrepancies highlight the need for a unified approach in interpreting fair hearing principles within tax disputes.

Judicial Role in Safeguarding Taxpayer Rights

Judiciary is crucial in safeguarding taxpayer rights, particularly the right to a fair hearing in tax disputes:

• Interpretation of Law: Courts are tasked with interpreting tax laws and constitutional provisions accurately. This ensures that legislative intents, such as those seen in the 2011 amendments to PITA which authorized ex parte distraining orders, are properly considered in judicial decisions.
• Balancing Tax Enforcement and Upholding Constitutional Rights: It is essential for courts to effectively balance tax enforcement with the protection of taxpayer rights, ensuring that legal processes adhere to due process while actively protecting constitutional rights such as the right to a fair hearing, and nullifying any tax actions that violate these rights.
• Setting Precedents: By establishing clear legal precedents, courts provide guidance for future tax practices, ensuring fair and consistent treatment for all taxpayers.

Implications of Distraining Measures for Stakeholders

The enforcement of distraining measures in tax disputes has significant implications for stakeholders:

1. Judiciary: Courts can benefit from involving amicus curiae (impartial adviser) in complex tax cases to gain expert opinions that help in making balanced and legally sound decisions.
2. Tax Administrators: Tax administrators need to exercise distraining powers judiciously, ensuring their actions align with legal standards and are executed fairly.
3. Taxpayers (Companies and Individuals): Taxpayers face the most direct impact of distraining actions. It is crucial for taxpayers to understand their rights and the available dispute resolution procedures to effectively manage tax decisions and minimize conflicts.

Conclusion

The principle of fair hearing is essential to the administration of justice and particularly crucial in safeguarding taxpayers' rights during tax disputes. The conflicting decisions in Access Bank Plc v. Edo State Board of Internal Revenue and Independent Television/Radio v. Edo State Board of Internal Revenue highlight the urgent need for a clear and consistent interpretation of tax laws, especially concerning the distrain process as outlined in Section 104 of PITA.

To minimize the risk of legal complications and ensure compliance, individuals and companies should adhere to tax regulations and stay well-informed about their rights and obligations under tax law to avoid adverse legal actions. Additionally, tax regulators must continue to maintain transparency and exercise judiciousness while upholding taxpayer rights.

For guidance on tax laws, assistance in navigating tax disputes, or to better understand your rights as a taxpayer, please contact us at Bashir Ramoni or Samuel Oyenitun.

Footnotes

1. See Otapo vs Sunmonu & Ors (1987) 5 SCNJ 57 or (1987) 2 NWLR (Pt. 58) 587; Inakoju vs Adeleke (2007) 4 NWLR (Pt. 1025) 423; Egbuchu vs Continental Merchant Bank Plc (2016) NWLR (Pt. 1513) 192 at 207.

2. Federal Inland Revenue Service (Establishment) Act (FIRSEA) 2007

3. Current TAT Rules 2021

4. See S. 33 of the Federal Inland Revenue Service Establishment Act ("FIRSEA"), S.86 of the Companies Income Tax Act (CITA), S.104 of the Personal Income Tax Act (PITA) and S.3(1)(b) of the Petroleum Profits Tax Act (PPTA).

5. (2018) LPELR-44156 (CA)

6. (2017) LPELR-41619(CA)

7. (2014) LPELR-23215 (CA)

8. (1994) LPELR-14099 (CA)

9. (1981) 10 SC

10. (2010) 8 NWLR Pt. 1197 pg. 486; Amadi v. Thomas Aplin Co. Ltd (1972) 4 SC 228; Kano NA v. Obiora (1959) SCNLR 577; Tukur v. Government of Gongola (1989) 9 SCNJ 1.

11. (2006) All FWLR (pt. 318) p. 580 at 581

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