FAAN v. EDO STATE INTERNAL REVENUE SERVICE: CHALLENGES OF LEVYING WARRANT OF DISTRAIN BY A TAX AUTHORITY The televised skirmish between officials of the Federal Airports Authority of Nigeria (FAAN) Benin Airport Station and Edo State Internal Revenue Service (EDSIRS) led by its chairman, Oseni Ilamah, on Tuesday, 30th July, 2013 has thrown up once again the essence of re-examining the challenges before a tax authority that seals up the premises of a taxpayer for the purpose of recovering unpaid or unremitted taxes payable to that tax authority. It was reported in many newspapers on Thursday, 1st August, 2013 including Daily Sun that there is an ongoing rapprochement between FAAN and EDSIRS following the visit of FAAN delegation led by its managing director, George Uriesi, on 31st July, 2013 to the Edo State Governor, Adams Oshiomole. It has also been reported that Governor Oshiomole met President Goodluck Jonathan on Thursday, 1st August to explain the circumstances that led to the closure of FAAN office at Benin Airport, nevertheless, the issue is worth debating. Although many commentators have analysed the legal and security implications of shutting down an airport by a tax authority for the purpose of tax recovery, I will constrain myself to those aspects of the debate that relate to taxation. The facts I intend to analyse are to the effect that FAAN Benin Airport Station allegedly refused to remit personal income tax payable by its employees to EDSIRS as required by the Personal Income Tax Act. FAAN has, in fact, admitted owing a back log of PAYE in the sum of N15 million to EDSIRS. News has it that FAAN has eventually remitted the sum in question. What does the law say on this matter? Section 20 of the Personal Income Tax (Amendment) Act, 2011 (PITAM) created new subsections (2) and (3) to section 81 of the Personal Income Tax Act of 1993 (PITA). Section 81 subsection (2) PITA provides: Every employer shall be required to file a return with the relevant tax authority of all emoluments paid to its employees, not later than 31st January of every year in respect of all employees in its employment in the preceding year. On the other hand, section 81 (3) PITA provides that: Any employer who contravenes the provisions of this section shall be liable on conviction to a penalty of N500,000 in the case of a body corporate, and N50,000 in the case of an individual. It should be noted that the basis of payment of personal income tax is residency as provided for under section 2 (2) PITA: “In the case of an individual, other than an itinerant worker and persons covered under paragraph (b) of subsection (1) of this section, tax for any year of assessment may be imposed only by the State in which the individual is deemed to be resident for that year under the provisions of the First Schedule to this Act and in the case of persons referred to in subsection (1) (b) of this section, tax shall be imposed by the Federal Inland Revenue Service.” FAAN, being an employer, is therefore, required to deduct the PAYE of its employees resident in Edo State and remit the same to EDSIRS. Section 82 PITA specifically provides an employer is answerable to a tax authority for tax deducted from its employees thus: “An employer required under a provision of this Act to make deductions from emoluments or amounts on account of emoluments paid by him to an employee shall account to the relevant tax authority in such manner as the relevant tax authority may prescribe for the deductions so made, and in the event or failure by the employer to make the deduction, or properly to account therefor, the amount thereof together with a penalty or 10 per cent per annum of the amount plus interest at the prevailing commercial rate shall be recoverable as a debt due by the employer to the relevant tax authority.” Where an employer fails to comply with the relevant provisions requiring it to make remittance to a tax authority, the tax authority, after serving demand notice and reminder on the employer, may prosecute the employer under section 99 PITA or exercise its power to distrain for non-payment of tax under section 104 PITA or both. In the case of FAAN (now under reference), EDSIRS invoked its power to distrain under section 104, under which new subsections (3) and (4) have been introduced by section 29 PITAM. For clarity, the new section 104 (3) provides: For the purpose of levying any distress under this section, an officer duly authorized by the relevant tax authority shall apply to a Judge of a High Court sitting in Chambers, under oath for the issue of a warrant under this section. The new section 104 (4) provides: The Judge may, on application made ex-parte, authorize such officer, referred to in subsection (3) of this section, in writing to execute any warrant of distress and, if necessary, break open any building or place in the daytime for the purpose of levying such distress and he may call to his assistance any police officer and it shall be the duty of any police officer when so required to aid and assist in the execution of any warrant of distress and in levying the distress. A combined reading of these provisions shows that EDSIRS approached a Benin High Court judge in chambers with an application in which FAAN was not notified. Based on this application, the judge authorized EDSIRS in writing to seal-up the FAAN office. The controversy is that FAAN is a federal agency, which by section 251 (1) of the 1999 Constitution (as amended) and some decided cases (e.g. NEPA v. Edegboro) stipulates that any suit against a federal agency should be instituted at the Federal High Court. Hence, FAAN expected that it should have been sued at the Federal High Court or that it should have been put on notice. FAAN has argued that the law establishing it excludes it from payment of taxes. EDSIRS did not demand that FAAN should pay tax but that FAAN should remit the tax which it deducted from its staff as PAYE. The law assumes (as decided by the Court of Appeal in 7up Bottling Company PLC v. Lagos State Board of Internal Revenue) that FAAN in this circumstance is a collecting agent of EDSIRS. Is there no other means EDSIRS would have adopted to recover the said sum without closing business at the airport? It seems to me that EDSIRS should have sent a request to the Accountant General of the Federation to deduct at source the sum allegedly owed by FAAN from FAAN’s budgetary allocation. The law permits this approach in the new section 74 (2) PITA, which provides that: “The Accountant-General of the Federation shall have power to deduct at source, from its budgetary allocation, un-remitted taxes due from any Ministry, Department or Government Agency and transfer such deduction to the relevant State upon request by such State". If EDSIRS had adopted this approach, the passengers who were stranded at the airport and the general public would have been saved the ugly spectacle that saw government officials on both sides engaging in fisticuff in the full glare of cameras. There is clear danger that lies in every tax authority invoking its powers to levy warrant of distrain against public institutions as there is hardly any federal agency that is fully compliant in PAYE remittance. Tax authorities should find a more robust way of enforcing orders of this nature because of the hardship that lies ahead for the public if the trend continues. Even beyond public institutions, I have proposed in this column in the past that the National Assembly should further amend section 104 PITA to allow the taxpayer to be put on notice in the application to be presented before a judge for an order to levy warrant of distrain. The present manner in which the draftsman has couched the relevant provision on power to distrain is completely to the detriment of the taxpayer and wholly to the advantage of a tax authority. I am strengthened in my recommendation by a Yoruba proverb, which Late MKO Abiola popularised, that says (in English translation) that a man’s head should not be shaved behind him. I hope that the National Assembly will revisit the Personal Income Tax Act and amend this provision, among others, accordingly.
Posted on: Fri, 02 Aug 2013 12:10:18 +0000
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