Recently, Federal Inland Revenue Service (FIRS) notified some commercial banks in Nigeria that they are to act as agents for certain taxable persons for the purpose of collecting unpaid taxes. By this appointment, the banks can debit the accounts of taxable persons said to be in default of taxes and remit debited sums to FIRS. Since this development, some persons have had their accounts frozen under the directions of FIRS.

Analysis of this Development

I. Legal basis for the appointment of banks as tax collecting agents

Section 31 FIRS Act and Section 49 CITA empower FIRS to appoint any person as an agent of a taxable person for the purpose of recovering taxes due from the taxable person where the person so appointed has in his possession monies belonging to the taxable person. Failure on the part of the appointed agent to deduct and remit the tax due, will make the tax due recoverable directly from the agent. Based on the provisions of Section 31 FIRS Act and Section 49 CITA, Banks acting in strict compliance with FIRS directive will be free of liability. However, the legal justification cannot compensate for the massive erosion of depositors' trust in banks.

II. Tax to be payable and agent bound to act when assessment is final and conclusive

Before FIRS can appoint a person as an agent of a taxable person, the tax due from that person must have become payable. A combined reading of Section 33 FIRS Act and Section 77 CITA show that tax becomes payable when a tax assessment is final and conclusive i.e. when the tax payer fails to exercise his right to object or appeal against an assessment or after objecting or appealing against the tax assessment, the taxpayer's objection or appeal fails.

Thus, a bank or any other person who receives notice that he has been appointed as an agent of a taxable person has the legal right to demand that before he acts in such capacity, FIRS provides evidence that the tax assessment has become final and conclusive. Where FIRS fails to provide such evidence, the bank/person so appointed is within his rights to refuse to act as an agent and can challenge the appointment at the Tax Appeal Tribunal.

Taxpayer response to and implications of the exercise of Section 31 FIRS Act

The exercise of the powers in Section 31 FIRS Act marks a new approach towards tax enforcement in Nigeria. Taxable persons have a duty to respond proactively and timeously to tax issues to avoid a situation where their operations are severely handicapped by lack of access to their funds.

In the short run, taxpayers may be forced to look for unconventional means of holding their funds until they are assured that there are clear and functioning guidelines for managing issues of this nature. This will increase pressure on Nigeria's slowly recovering economy.

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