Proposed Changes to Nigeria’s Tax Appeal Framework –One Step Forward, Two Steps Backwards – Part Two

Introduction

In the first part of this discourse, I provided some background and necessity for the on-going reform efforts in tax appeal including the desire to project the independence of the Tax Appeal Tribunal (the ‘Tribunal’ or the ‘TAT’). It is common knowledge that the more the bureaucratic distance (the degree of separation) between the tax authority and the Tribunal, the greater the credibility of the tax appeal process. The laws and regulations governing the tax appeal process ought to be distinguished from those that regulate assessment of tax liability.

When the Joint Revenue Board of Nigeria (Establishment) Bill (or the ‘JRBN Bill’) is passed into law by the National Assembly, the TAT established under the law will continue to hear and conclude any proceeding commenced before the coming into effect of the JRBN Bill. The chairman and members of the tax tribunal (being the current TAT) will hold office for the unexpired duration of their term as if they were appointed under the JRBN Bill.[1]

By section 16(4) of the Second Schedule to the JRBN Bill (or the ‘Second Schedule’), the secretary and other staff serving the tax tribunal will continue to hold office under the same terms and conditions of their previous employment. The administration of any real property under the responsibility of the tax tribunal will be transferred to the TAT now established pursuant to section 23(1) of the JRBN Bill.[2]

Issues Arising from The Proposed Legal Framework

I intend to discuss the identified issues in the proposed framework of tax appeal under two broad headlines, to wit: a. Problematic Issues in the Substantive Provisions of Sections 23 - 34 of the JRBN Bill, and b. Issues connected with Second Schedule to JRBN Bill.

Under each head, the relevant provision will be quoted and a comment will appear thereunder.

Problematic Issues in Substantive Provisions of Sections 23 - 34 of the JRBN Bill

1.?????? Establishment of the TAT

Section 23(1). There is established a Tax Appeal Tribunal ("the Tribunal") to exercise the jurisdiction and powers to settle any tax dispute and controversy arising from the administration of Nigeria Tax Act and Nigeria Tax Administration Act or any other tax laws made or to be made from time to time by the National Assembly.

Comments: This establishment section contradicts section 29(1) which confers jurisdiction on the TAT. Section 23(1) makes no reference whatsoever to the Tribunal’s power to adjudicate tax laws made by the State Houses of Assembly. If the TAT’s jurisdiction is to be expanded to include power to adjudicate pure State tax disputes, then section 23(1) should agree with 29(1).

2.?????? ?Appointment Qualification

Section 24(2). There shall be a Chairman for each zone who shall be a legal practitioner qualified to practise with not less than 10 years cognate experience in tax legislation and tax matters.

Comments: The rationale for the reduction of the 15-year post call experience to 10 is unclear. It does not seem to serve the interest of the tax system or of the Tribunal. The more experienced the chairman, the better for the tax system in terms of quality of decision.

Meanwhile, stakeholders are calling for the chairman, in addition to the years of post-call experience, to possess active litigation experience. Reforms should be aimed to strength the capacity of the Tribunal to deliver on its mandate.

3.?????? Assumption of Office

Section 26.? A Tax Appeal Commissioner shall hold office for a term of three years, and may be renewed for a further term of three years and no more.

Comments: There is no clarity as to when the Commissioner assumes office. The current set of commissioners faced this dilemma. While their letter of appointment reads July 2018, the commissioners were inaugurated and sworn in November 2018 when they began sitting. One would expect the new law to address this issue frontally as is done in other fiscal climes. The term of the commissioners should begin to run from the day they are sworn in (that is the date of oath taking). Reforms should aim to improve situations not worsen them.

4.?????? Cessation of Office

?Section 27. A person shall cease to be a Tax Appeal Commissioner, where the person –

(e) is removed from office by the Minister on grounds of public interest or in the interest of the Tribunal

(d) is convicted of a felony or of any offence involving dishonesty or fraud

Comments: Section 27 (e) is too vague. Who or what determines public interest? Whose public interest? What is in the interest of the Tribunal? Who determines that? It could turn out to be the commissioner’s Achilles’ heel. It appears innocuous but scratch the surface and it is clear the provision is coercive, like a subtle threat hanging over the heads of the commissioners. It should not be found in a statutory instrument for eminent persons like Tax Appeal Commissioners. It is a dangerous trend.

With respect to section 27(d), a pertinent question is – would the commissioner continue to hold office while undergoing investigation and prosecution for the offence prequel to conviction? The settled principle of our criminal jurisprudence is that an accused person is presumed innocent until he is proved guilty. Would the commissioner be accorded this presumption of innocence and allowed to continue to sit and hear tax appeals?

Additionally, section 27 does not provide for fair hearing. It seems a commissioner can be removed at will by the Minister acting under this umbrella disqualifying provision. The current law fares better in this regard.

Finally, provision is not made to fill up vacancies arising from the cessation of office or the Minister’s power to remove. Under the current framework, the process for filling casual vacancies is well spelt out. The Minister is vested with power to appoint another person in accordance with the provisions of the Act to fill up in the event of any vacancy in the office of a Tax Appeal Commissioner for any reason other than temporary absence.[3] This will ensure that the sitting of the tribunal is not disrupted and there exists a rich blend of ideas in the consideration of an appeal. The different perspectives of the commissioners based on their background on issues in dispute help to fashion out a pragmatic and robust determination of the appeal.

5.?????? Adjudication of Pure State Tax Disputes

?Section 29(1). The Tribunal shall have power to adjudicate on disputes, and controversies arising from Nigeria Tax Act and Nigeria Tax Administration Act or any other tax law made by the National Assembly or the House of Assembly of a State.

?Comments: Please see comment on section 23 above.

6.?????? Creation of the Office of Coordinating Secretary

Section 31(1). The Minister shall appoint a Coordinating Secretary for the Tribunal.

Comments: It is not clear how the Coordinating Secretary will be appointed and from where. Will the practice of appointing an employee of the tax authority persist? Or do we want to align with global best practices. Kenya represents an advance tax appeal model relative to Nigeria in this area. We may want to shadow the practice in Kenya.

7.?????? Tenured Office for Secretary

Section 31(3). The Secretary shall hold office

(a) for a term of four years, and may be renewed for a further term of

four years and no more; or

(b) until the attainment of the age of 60 years, whichever is earlier.

Comments: Which of the Secretaries? Coordinating or Zonal Secretary? This provision is ambiguous.

Why should the appointment of the Secretary be tenured? In which case, the Secretary will not be subject to the provisions of the Pension Reform Act and, accordingly, not entitled to pensions and other retirement benefits as are prescribed under the Pension Reform Act. But, section 16(4) of the Second Schedule provides that the secretary and other staff serving the tax tribunal will continue to hold office under the same terms and conditions of their previous employment.

There is a disconnect between section 31(3)(a) of the JRBN Bill and section 16(4) of the Second Schedule unless the provision of the latter subsection is expected to take effect when the current secretary retires. This is the only reasonable inference to be drawn from the provision.

Also, how will the Zonal Secretaries be appointed? Similar to the Coordinating Secretary, the law is silent on how the Secretary will be appointed.

8.?????? Appropriation

Section 33. The Tribunal shall prepare, not later than 30th September in each year, an estimate of its income and expenditure for the succeeding year for the purpose of appropriation by the National Assembly.

Comments: Who is the Tribunal? The Coordinating Secretary? The Chairmen in council? The Tribunal does not have an identifiable figure as its head, unlike the practice in other fiscal jurisdictions – Kenya, Ethiopia, United Kingdom. Under the current framework, an adhoc arrangement exists where the chairmen select one of their own as the chair of chairmen.

Who prepares the income and expenses of the Tribunal? Who defends it before the National Assembly? In Ethiopia, the president of the tribunal prepares and submits the annual work program and budget of the tribunal.[4] By section 35 of the Ugandan Tax Appeals Tribunals Act, the Tribunal is required to annually present a budget to the Minister for his or her approval and to keep proper books of account subject to annual audit by the Auditor General. Since the Chairperson is responsible for managing the administrative affairs to be assisted by the registrar of the tribunal and such officers and employees as may be necessary for the efficient discharge of the tribunal’s functions.[5] In Kenya, the secretary coordinates the preparation and approval of annual budget estimates by the Tribunal through a resolution by not less than half of the members.[6]

A more critical issue is – how will the Tribunal be funded? Will it continue to receive hands out from the tax authority? How are tax tribunals funded in other climes? Financial dependence is the worst form of dependence. It will be difficult to perceive the TAT as an independent adjudicative institution if it continued to receive lifeline from the tax authority.

Now that the TAT’s jurisdiction is reestablished under the JRBN Bill and is empowered to settle disputes from tax laws made by the State Houses of Assembly, will the States contribute to its funding? Or will they refrain on the basis that the Minister is solely responsible for the appointment of the commissioners?

Interestingly, of the three institutions created under the JRBN Bill, only the Tribunal’s funding is shrouded in mystery. Section 14(1) of the JRBN Bill establishes a Fund for the Joint Revenue Board to which will be paid and moneys from the Federation Account as may in each year be approved by the National Assembly amongst others. Similarly, section 43(1) of the JRBN Bill clearly outlines the funding sources of the Tax Ombud. ?The Office of the Tax Ombud is to maintain a fund from which will be defrayed all expenditure reasonably incurred for the execution of its functions under this Act. The Fund will comprise take-off grants from the Federal Government; moneys as may be appropriated by the National Assembly and others.

If there is any institution whose funding should be transparent, it is the Tribunal. Financial autonomy will signal independence. Under the proposed law, that is not the case. A key factor in determining the suitability of a tax regime is the effectiveness, efficacy, and independent status of the tax adjudicatory body.[7]

Issues Connected with Second Schedule to JRBN Bill

1.?????? Adjudication of Dispute Concerning Residency

Section 2(1). A taxable person aggrieved by an assessment, demand notice, action, decision of the tax authority, or a dispute as to residency under the provisions of the tax laws, may appeal against such decision or assessment within the period stipulated under this Act to the Tribunal.

Comments: Can the Tribunal adjudicate the issue of residence? This is because any question of residence will involve two States. By section 5(b) of the JRBN Act, the Joint Revenue Board is saddled with the responsibility to ‘resolve disputes between various tax authorities on the issue of determination of residency.’

Any dispute on residency will affect two tax authorities. Would that not amount to usurpation of the statutory function of another body? Where two States lay claim to the income tax of a taxable person, that taxable person becomes an interpleader. An interpleader action cannot be heard by the Tribunal.

2.?????? Hearing Procedures

?The proposed law prescribes two hearing procedures, that is, the liquidated money claim affidavit and appeal by summons.

?Liquidated Money Claim Affidavit

Section 4. Where an Appeal is made to the Tribunal in respect of a claim to recover a debt or liquidated money demand and the Appeal is supported by an affidavit setting forth the grounds upon which the claim is based and stating that in the deponent's belief there is no defence, the Tribunal shall, if satisfied that there are good grounds for believing that there is no defence, enter the Appeal for hearing in what shall be called the "Liquidated Money Claim Appeal".

Appeal by Summons

Section 5. Where the issue before the Tribunal is on interpretation of taxing provisions, rules or regulation without dispute of fact, the Tribunal shall hear and determine the Appeal by affidavit evidence.

Comments: Are these hearing procedures complementary to the existing hearing methods prescribed under the TAT Rules or are they meant to replace those completely? Or are they in the alternative? If they are replacements of the existing ones, then the law is deficient for failing to provide for adversarial hearing where evidence is led in proof of disputed and differing facts.[8] If they are complementary, they are a waste of effort since the TAT Rules already made a more robust provision to accommodate the purpose of these hearing procedures. See the Documents-only,[9] Case Stated[10] and Summary Appeal procedures.[11] If they are in the alternative, the law is deficient. See my comments above.

3.?????? Procedure following decision of the Tribunal

Section 9(1). Notice of the amount of the tax chargeable under the assessment as determined by the Tribunal shall be served by the relevant tax authority upon the taxpayer or upon the person in whose name the taxpayer is chargeable.

?(2). An award or judgement of the Tribunal shall be enforced as if it were a judgement of the Federal High Court upon registration of a copy of such award or judgement with the Chief Registrar of the Federal High Court by the party seeking to enforce the award or judgement.

?Comments: Section 9 needs to be revisited. It is full of internal contradictions and therefore convoluted. The reestablished TAT has jurisdiction under section 29(1) of JRBN Bill over laws made by both the National Assembly & State Houses of Assembly. Appeal cannot therefore lie to the Federal High Court alone. It should lie to the relevant High Court in line with the recognized pattern of administration of the Nigeria Tax Bill.[12] This provision is self-defeating and self-contradictory.

?Moreover, in section 143 of the Nigeria Tax Administration Bill (or the ‘NTA Bill’), relevant tax authority is defined to mean the Nigeria Revenue Service, the Internal Revenue Service of a State or the Federal Capital Territory in Nigeria. The term, tax authority has the same meaning as relevant tax authority. Specifically, it means ‘the Nigeria Revenue Service, or the Revenue Authority of a State or the Federal Capital Territory in Nigeria.’[13]

The time within which the chargeable tax is payable is omitted in the Second Schedule. However, section 48(4) of the NTA Bill stipulates that upon ‘the determination of an objection or appeal, the relevant tax authority shall serve the taxable person, a notice of the tax payable as so determined, and that tax shall be payable within 30 days of the date of service of such notice.’ What’s wrong with the parties finding all relevant provisions on tax appeal in a single instrument? Isn’t the aim of the proposed law to simplify tax matters?

4.?????? Appeal to the Federal High Court

Section 10(1). Any person dissatisfied with a decision of the Tribunal constituted under this Act may appeal against such decision on a point of law to the Federal High Court upon giving notice in writing to the Secretary to the Tribunal within 30 days after the date on which such decision was given.

?(2). A notice of appeal filed pursuant to subparagraph (1) of this paragraph shall set out the grounds of law on which the appellant's case is based.

?(3). Where the relevant tax authority is dissatisfied with the decision of the Tribunal, it may appeal against such decision to the High Court on points of law by giving notice in writing as specified in subparagraph (1) of this paragraph to the Secretary within 30 days after the date on which such decision was given.

?(4). On receipt of a notice of appeal under subparagraphs (1) or (3) of this paragraph, the Secretary to the Tribunal shall cause the notice to be given to the Chief Registrar of the High Court along with all the exhibits tendered at the hearing before the Tribunal.

?(5). The Chief Judge of the High Court may make rules providing for the procedure in respect of appeals made under this Act and until such rules are made, the High Court rules relating to hearing of appeals shall apply to the hearing of an appeal under this Act.

Comments: In one breath appeal lies to the Federal High Court, in another, if the relevant tax authority is dissatisfied with the decision of the Tribunal, it may appeal against such decision to the High Court on points of law. The expression, High Court is defined to mean the Federal High Court or High Court of the State or Federal Capital Territory. Where should appeal lie in respect of pure State taxes over which the Tribunal has been vested with power to adjudicate under section 29(1) of the JRBN Bill? This provision has to re-articulated to accord with the intent of the law. But, what is the intent of the law?

5.?????? Further Appeal

?Section 15. An appeal against the decision of the Federal High Court at the instance of either party shall lie to the Court of Appeal.

Comments: Again, this provision reinforces the incongruity in the law. Further appeal can only lie from the decision of the Federal High Court, not High Court. High Court is defined to include both Federal and State High Courts in section 143 of the NTA Bill.

?If appeal can only lie to the Court of Appeal from the decision of the Federal High Court, it follows that section 29(1) of the JRBN Act is redundant and has to be deleted. Similarly, section 10 of the Second Schedule will require a consequential amendment to remove all references to the ‘High Court’ which should be replaced with ‘Federal High Court’, in which case, the tax appeal system is back to the pre -2024 reform state.

6.?????? Conditional Security Deposit

At the hearing of an appeal, where the representative of the relevant tax authority proves to the satisfaction of the Tribunal appeal that

(a) the appellant has for the year of assessment concerned, failed to prepare and deliver to the tax authority returns required to be furnished under the relevant provisions of the Nigeria Tax Act and Nigeria Tax Administration Act;

(b)? the appeal is frivolous or vexatious or constitutes an abuse of the appeal process; or

(c) it is expedient to require the appellant to pay an amount as security for prosecuting the appeal, the provisions of subparagraphs (7) and

(8) of this paragraph shall apply.

Comments: The provision quoted above is not numbered. This could be the draftsman’s inadvertency. Before the provision, is section 7(5) on onus of proof and immediately after it, is section 7(6) on the TAT’s power to adjourn hearing. The section needs to be re-numbered.

?General Observation

1.?????? Adjudicative Function and Secretariat - Islands unto themselves

Under the existing framework, the secretaries are subject to the general direction of the Tax Appeal Commissioner.[14] It was argued that this general control was in respect of the tribunal’s proceedings only. The flaw of such argument is that it leaves two parallel leaderships at the zonal level. It is doubtful if this is the intention of the legislature. It is safe to ascribe the ambiguity in the paragraph to inelegant drafting. Be that as it may, this has been removed from the proposed law. Perhaps, as a way to avoid the difficult conversation.

The further implication is that there is no relationship between the adjudicative function of the Tribunal and the secretariat. The two functions have been constituted into islands. Every legal framework for the establishment of a tax tribunal subjects the secretariat and its head to the control of the tribunal’s chairman.

However, the approach envisaged under the proposed law is similar to an ostrich burying its head in the sand in the hope that since it cannot see anybody nobody can see it!

2.?????? Absence of Central Coordination in the Adjudicative Function

For central coordination, the same way the office of the coordinating secretary exists to coordinate the activities of the secretariat, there should be an office by whatever nomenclature to oversee both the adjudicative and secretariat functions. This is the norm and standard in all fiscal jurisdictions. The coordinating secretary is the equivalent of the chief registrar, where is the equivalent of the chief judge?

Policy makers may consider borrowing a leaf from the Investment and Securities Tribunal (or the ‘IST’) whose chairman is appointed on a full time basis[15] and he is the Chief Executive Officer responsible for the overall control, supervision and administration of the Tribunal.[16] Yet, his appointment is tenured. By section 277(1) of the ISA, the Chairman holds office for a defined term renewable for another defined term and no more. However, if the coordinating secretary is intended to perform the role of the Tribunal’s Chief Executive Officer, the law should clearly spell this out leaving no room for ambiguity.

Under the extant and proposed frameworks, the coordinating secretary is not the Tribunal’s Chief Executive Officer. Therefore, there is a leadership lacuna in the TAT’s structure. The Tribunal’s Governing Board created under the TAT Case-flow Management Manual, one of the TAT’s administrative instruments, has never been constituted. The ad-hoc approach has been to designate one of the chairmen as the chair of chairmen. This arrangement has no legal basis. Interestingly, but for this adhoc arrangement, each panel will exist as autonomous tribunal.

Conclusion

The proposed statutory framework for the Tribunal is steeped in contradictions and errors. It contains numbering omission and internal contradictions. The intentions may have been good; but the output undermines the efforts. It would seem that the provisions were not well thought through. The entire framework appears geared towards achieving a pre-determined goal. The draftsman seems to have an end in mind that he inadvertently created contradictions, gaps and ambiguities in the proposed law.

While the proposed legal framework offers a few reforms, it cannot be said to have meaningfully improved upon the current legal regime of tax dispute resolution. There is really no appreciable significance between the existing framework and the proposed regime. In fact, the existing framework seems to fare better in comparison. The proposed law seems to water down the framework of tax appeal.

What then shall we say to these things? It appears that the provisions of the proposed law relevant to tax dispute resolution are not well thought out or coordinated to achieve a harmonious whole. The expected synergy is lacking with sections antagonizing each other. Some of the provisions are crafted such that they skirt around existing issues; others are drafted in denial of issues which ought to be addressed head-on by the reform. In the end, the reform process is unlikely to improve the extant tax appeal framework. In fact, it is likely to have an adverse impact as can be gleaned from the analysis. Therefore, the proposed framework is a like a ballroom dance where one step forward means two steps backwards!

?

[1] Second Schedule, s 16(3).

[2] Second Schedule, s 16(6).

[3] The 5th Schedule para 7.

[4] Proclamation No. 233/2001 Federal Tax Appeal Tribunal Establishment Proclamation, s. 9 (4).

[5] The Tax Appeals Tribunals Act, Uganda, s. 29.

[6] The Appeals Tribunals Act No 40 of 2013, s.7A.

[7] Idowu Akinloye, ‘Appraising the Constitutionality and Independence of the Tax Appeal Tribunal (2017) 8(2) Gravitas Review of Business & Property Law 1 - 9.

[8] Tax Appeal Tribunal (Procedure) Rules 2021 (‘TAT Rules’ or ‘TATR’), ord iii r 7. See also ord viii r 3.

[9] TATR, ord xv r 1.

[10] TATR, ord xv r 4.

[11] TAT Rules, ord xvi r 1.

[12] NTA Bill, s 3(1) and s 83.

[13] NTA Bill, s 143.

[14] Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act (or the ‘5th Schedule’), para 9(1)(a).

[15] Investments and Securities Act (or the ‘ISA’), s 275(1)(a).

[16] ISA, s 275(2).