Following its earlier expression of interest to go after alleged tax defaulters with huge funds in Nigerian banks, the Federal Inland Revenue Service (FIRS) recently started issuing letters to commercial banks, appointing them as tax collection agents for such customers.1  The letters contain directives to the banks to freeze the named accounts in order to facilitate tax recovery. This mode of tax recovery through third parties, known as 'tax substitution,'2 especially with the account-freezing dimension that FIRS introduced to it, has raised diverse reactions from various commentators. Some view the measure as a laudable scheme with good prospects of raising substantial revenue for government and blocking tax leakages. Others air their reservations on the appropriateness of FIRS' approach when viewed in the mirror of relevant laws and its far-reaching economic implications for the Nigerian investment climate.3 This article identifies and responds to the legal controversies of tax enforcement through tax substitution with a highlight on the status and role of the notice appointing banks as taxpayers' agents.


Before the enactment of the Federal Inland Revenue Service (Establishment) Act, 2007 ("FIRS Act"), Section 49 of the Companies Income Tax Act ("CITA"), 1990 and Section 50 of the Personal Income Tax Act ("PITA"), 1993 provided for tax substitution by the tax authorities.4 Section 31 of FIRS Act reproduced these already existing provisions as follows:

"(1) The Service may by notice in writing appoint any person to be the agent of a taxable person if the circumstances provided in sub-section (2) of this section makes it expedient to do so.

(2) The agent appointed under subsection (1) of this section may be required to pay any tax payable by the taxable person from any money which may be held by the agent of the taxable person."

From the wording of the above provision, appointment of the agent is discretionary as it depends on the consideration of the tax authority that such appointment has become expedient. However, the actual recovery of tax through an agent so appointed is subject to 2 conditions implicit in the above-mentioned laws, namely:

  1. That money is held by the agent; and
  2. That tax has become payable by the taxable person.


The second condition in Section 31(2) of the FIRS Act embodies the knotty issues of tax substitution. It raises the cardinal question: when does tax become payable by a taxable person to warrant tax recovery through a FIRS-appointed agent of the taxable person?

Generally, the process of income tax payment commences with tax assessment – computing the tax liability of a taxable person. Section 65 (1) of the Companies Income Tax Act5 ("CITA") by which companies are taxed enables FIRS to raise an assessment on a company when the time allowed for the company's submission of its audited accounts and returns has expired. Section 54(1) of the Personal Income Tax Act6 ("PITA") which applies to individuals and other unincorporated entities, makes a similar provision. There are two broad types of tax assessment namely: assessment based on a taxpayer's returns and Best of Judgment assessment. The former is computed with information from the tax payer's returns and audited financial statement which can be verified by the tax authority. With the introduction of Tax Administration (Self-Assessment) Regulations, 2011, self-assessment provisions in existing tax laws like Sections 52(2) and 53 of CITA and Section 44 of PITA came to life as taxpayers started embracing the self-assessment mode. The self-assessment regime offers taxpayers a voluntary compliance opportunity whereby they compute and pay their taxes, and then file self-assessment returns with evidence of the payment. The essence of formal assessment here is to confirm the accuracy of the payment. Where the taxable person fails to comply with self-assessment requirements, the self-assessment tax provisions still require the tax authority to raise administrative assessment prior to tax recovery. This indicates that in the absence of voluntary compliance, tax assessment and the opportunity of objection are indispensable.

Sections 65 (2)(b) and 65 (3) of CITA; and sections 54 (2) (b) and 54 (3) of PITA make similar provisions on Best of Judgment Assessment. In both cases, the two circumstances warranting a Best-of-Judgment assessment are that: (a) The tax authority refused to accept the audited financial statement and returns filed by the taxable person; and (b) The taxable person has not submitted returns within the prescribed period or might not even have been in the tax net (i.e. has not registered and obtained Taxpayer's Identification Number) but the authority has cause to believe that the person is liable to tax.7  Best of Judgment assessment also buttresses the tax law position that with or without returns or financial statements from a taxable person, FIRS must first issue an assessment and let the objection and appeal periods run out before any attempt at enforcing payment.

Service of an assessment on the taxpayer is followed by the taxpayer's objection in writing to the tax authority stating its grounds of fact and law for the objection. The tax authority in turn considers the objection and also exercises one of three options namely: amending the assessment; discharging it outright or maintaining its position on the assessment. If it chooses the last of the three, it would issue a Notice of Refusal to Amend the Assessment (NORA). The assessment is said to be final and conclusive if at the expiration of the period stipulated by law for objection, the taxpayer fails to object to the assessment; or having objected and received a NORA, fails to further challenge the assessment in court within the stipulated period after the NORA. Paragraph 13 (3), 5th Schedule to the FIRS Act captures the latter instance.

A disputed tax assessment that is under litigation becomes final and conclusive when the court upholds it in a final judgment, unless the taxpayer proceeds on appeal against the judgment within the stipulated time. Thus the assessment never becomes final and conclusive until all appellate opportunities up to the Supreme Court are exhausted.  Paragraph 16(3), 5th Schedule to the FIRS Act however provides that despite the pendency of an appeal against a decision of the Tax Appeal Tribunal, tax shall be paid in accordance with that decision within one month of notification of the amount of tax payable. This is obviously meant to ensure that the revenue does not lose the time value of tax money to litigation considering that tax refund under Section 23 of the FIRS Act would avail the taxpayer who after paying the disputed tax, succeeds in the appeal.

There have been judicial restatements of the prerequisites for tax enforcement in several decided cases. In Federal Inland Revenue Service v. Gazetta Communications Limited8, FIRS assessed the Defendant to various taxes following an audit exercise, upon the Defendant's failure to pay or object to the taxes within 30 days of the assessment, FIRS brought an action in the Federal High Court under the undefended list procedure. The court held that the Defendant's failure to react to the assessment as and when stipulated by law made the assessment final and conclusive, hence the tax became recoverable by FIRS. Also in Medos v. Commissioner for South African Revenue Service9, the Supreme Court of South Africa voiced the consensus that "where no objection is made to an assessment issued by the relevant tax authority, the assessment is final and conclusive as between the tax authority and the taxpayer."

When an assessment becomes final and conclusive, the tax therein becomes payable. In other words, the tax is payable immediately after the expiration of the period for objection or appeal as the case may be, or after exhaustion of all appellate opportunities.


Section 31(1) and (2) of FIRS Act are open to an interpretation that the assessment and objection periods must have been exhausted, hence the tax must have become payable before FIRS can appoint an agent for the taxpayer.  Such a construction may however be incorrect because, as noted earlier, tax becoming payable under Section 31(2) in the process described above is a condition for recovery of the tax from the FIRS-appointed agent, and not a condition for appointing the agent ab initio. The agent is appointed based on FIRS' discretion upon deeming it expedient to recover tax from the taxpayer's money in the agent's hands. But after the appointment, the actual recovery of tax is subject to the tax becoming payable. In this regard, Section 31 (5) of the FIRS Act implies that notification of the appointment of the tax agent doubles as a notice of assessment. The section provides:

"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."

The above provision means that in tax substitution (i.e. tax recovery from FIRS-appointed agents), the notice appointing the agent serves as a notice of assessment. Thus, the assessment-objection process starts with the notice of appointment of the agent.

The first issue on the appointment notice is whether it ought to be served directly on that taxable person whose liability is alleged considering that it is deemed an assessment notice by virtue of Section 31(5) of the FIRS Act or whether service on only the appointed agent would suffice. Section 68 of CITA, with material similarity to Section 57 of PITA provides:

"The Board shall cause to be served on or sent by registered post to each company, or person in whose name a company is chargeable, whose name appears on the assessment lists, a notice stating the amount of the total profits, the tax payable, the place at which such payment should be made, and setting out the rights of the company under the next following section." (emphasis added)

The highlighted part in the above provision indicates alternative service of the appointment cum assessment notice on the taxpayer or his appointed agent. In other words, FIRS' choice to serve it on the agent could suffice and dispense with further service on the taxable person. Nonetheless, service on only the appointed agent (the banks in recent cases) offends the demands of fair hearing in Section 36(1), 1999 Constitution that a person against whom a decision would be taken must be given a prior opportunity of a representation. This constitutional angle is further addressed in details below. The above provision on assessment also requires that the notice of appointment being an assessment, must state the total profits, the tax payable and the right of objection to the assessment.


Section 44 of the 1999 Constitution (as amended) which creates a general ground for account freezing equally provides strict safeguards to that power. It states:

"No moveable property or any interest in an immovable property shall be taken possession of compulsorily and no right over or interest in any such property shall be acquired compulsorily in any part of Nigeria except in the manner and for the purposes prescribed by a law that, among other things –

"(a) requires the prompt payment of compensation therefore and

(b) gives to any person claiming such compensation a right of access for the determination of his interest in the property and the amount of compensation to a court of law or tribunal or body having jurisdiction in that part of Nigeria."

Subsection (2) of Section 44 provides:

"Nothing in subsection (1) of this section shall be construed as affecting any general law (a) for the imposition or enforcement of any tax, rate or duty."

Money in a bank account is in the category of movable property referred to in Section 44 above.  The section requires that the freezing of an account must conform to an enabling law. A pertinent question here is: which tax law enables FIRS to freeze accounts? By Section 8(1)(g) of the FIRS Act, FIRS can, "adopt measures to identify, trace, freeze, confiscate or seize proceeds derived from tax fraud or evasion." This section seemingly throws a naked prerogative at FIRS as it lacks necessary safeguards from likely abuse. In comparison, Section 34(1) of the Economic and Financial Crimes Commissions (EFCC) Act which enables EFCC to freeze bank accounts pursuant to its investigative duties provides a shield from abuse. The provision mandates EFCC to first obtain an ex parte order of court prior to the freezing of an account.10 It is however clear that Section 8(1)(g) of the FIRS Act does not relate to tax substitution under Section 31 of the Act. From the wording of Section 8(1)(g), FIRS' power to freeze accounts relates only to "proceeds derived from tax fraud or evasion." Tax fraud or evasion are crimes specifically embodied in the law which must be established by judicial procedure; not administratively by an executive authority. Section 34(1) of the EFCC Act enables EFCC to freeze an account with an ex parte order of court upon mere suspicion by EFCC that the funds relate to a financial crime. Section 8(1)(g) of the FIRS Act, on the other hand, makes the issue of tax fraud and tax evasion conclusive. In other words, either or both of the two crimes must have been established before that section can be invoked to freeze an account or confiscate funds. Where a tax liability has not been subjected to the challenge process which might bring it under dispute, the issue of tax fraud or evasion is inexistent. It is also beyond contest that a person cannot be held culpable of tax fraud or evasion whose right to challenge an allegation of tax liability against him is still open. This means that Section 8(1)(g) of the FIRS Act does not justify FIRS' directive to the banks to freeze their customers' accounts for the purpose of tax substitution.


The opening provision on fair hearing in Section 36(1) of the Constitution grants fair hearing to a person coming before a court or other legally established tribunal. Subsection (2) enables government bodies to determine legal questions affecting the civil rights and obligations of a person with a strict condition that the person be given an opportunity to make representations before any decision affecting him can be reached. A notice from FIRS appointing an agent for a taxable person, when viewed as an assessment notice under Section 31(5) of the FIRS Act, is a mere allegation, and not a verdict of tax liability against the taxable person. The notice is therefore subject to the constitutional rule of fair hearing which entails that it must clearly state the alleged liability and be served directly on the taxable person to afford the person an opportunity to object. To take any further step on the notice, like account freezing, before the opportunities of objection and appeal are exhausted, is against the constitutional demands of fair hearing.


Enforcement of the relevant laws on tax recovery as analysed above requires adherence to constitutional standards of fair hearing. The way to meet the standards is by creating an avenue for a taxable person to challenge a tax assessment raised against him prior to tax enforcement by the relevant authority. Section 31(5) of the FIRS Act further places this fair hearing duty on FIRS by viewing the notice of appointment of an agent as an assessment notice, and mandating that other provisions of the law concerning assessments, objections and appeals be observed in respect of the appointment notice. It therefore behoves FIRS to: clearly state the tax liabilities in the appointment notices; indicate in the notices the right of objection; serve the notices directly on the taxable persons, not just on their FIRS-appointed agents; and allow the periods provided in the various laws for objection and appeal to run out before making any move for tax enforcement. Toeing a different route would amount to offending Section 36(1) of the constitution and indeed Section 31 (5) of the FIRS Act. It bears repeating that Section 31 of FIRS Act does not envisage the freezing of a taxable person's bank account since it does not suggest any circumstance of tax fraud or evasion which are the basis of fund freezing or confiscation in Section 8(1)(g) of the Act. Thus Section 8(1)(g) offers no statutory justification for the freezing of taxable persons' bank accounts.


* Senior Associate in ǼLEX.

1 Anxiety as FIRS Moves to 'manage' Defaulting Taxpayers' Bank Accounts. Businessday August 27, 2018. Accessed on 1 November 2018.

2 The term substitution is used in the marginal note to Section 31 of the Federal Inland Revenue Service (Establishment) Act which provides for this process.

3  LCCI kicks against freezing tax defaulters' accounts. The Nation August 20, 2018. Accessed on 1 November 2018.

4 Before the enactment of the FIRS Act 2007 which established FIRS, the Companies Income Tax Act No. 22 of 1961 established the Federal Board of Inland Revenue.

5 Cap C21, Laws of the Federation of Nigeria, 2004 (as amended in 2007).

6 Cap P8, Laws of the Federation of Nigeria, 2004 (as amended in 2011).

7 See also Paragraph 3.0 of FIRS Information Circular No. 2005/03 on Preparation and Processing of Best of Judgment Assessment, released in February, 2006. The mode of a Best of Judgment assessment is discretionary, but in Nigerian Breweries Plc. v Lagos State Internal Revenue Board (2001) FWLR (Pt. 72) 1972, the Court of Appeal held that the revenue officer making the assessment should not be dishonest, vindictive; or capricious.

8 (2013) 10 TLRN 1.

9 (2016) 21 TLRN 73.

10 On the basis of this law, the court has consistently faulted restrictions on bank accounts without prior court order. See Chidolue v EFCC (2012) 5 NWLR (PT 1292). This relates to the established principle that the non-fulfilment of a prescribed condition precedent before doing an act renders the act null and void. See Aina V Jinadu (1992)4 NWLR (PT 233)91.

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.