FIRS-Multichoice: The Twist

in Tax Tribunal’s Ruling

Last week’s decision of the Tax Appeal Tribunal to strike out an appeal by MultiChoice Africa Holdings against a disputed tax assessment by the Federal Inland Revenue Service a week after it ruled in favour of hearing an appeal by its subsidiary, MultiChoice Nigeria, in a similar case, has raised questions on the issue of fair hearing and avoidable burden businesses in the country will have to bear, reports Festus Akanbi

For hardly obscure reasons, last week’s decision of the Tax Appeal Tribunal (TAT) in the dispute between MultiChoice Africa Holdings and the Federal Inland Revenue Service (FIRS) has continued to dominate discourse in the media, attracting generous attention of the country’s business community.

MultiChoice Africa Holdings, the parent company of MultiChoice Nigeria, had filed an appeal against the Companies Income Tax and Value Added Tax assessment notices issued by the FIRS.

The company had objected to the $342million tax bill slammed on it by the FIRS and had filed an appeal before the TAT.

But in its ruling last Tuesday, the tribunal struck out the matter, upholding the preliminary objection of the FIRS to the appeal. The tribunal stated that MultiChoice Africa had failed to comply with Order 3 Rule 6 of the Tax Appeal Tribunal (Procedure) Rules, 2021, recently approved by the Minister of Finance, Mrs. Zainab Ahmed. Order 3 Rule 6 requires that an appellant deposits half of the assessed amount being disputed before it can be heard on appeal. In addition to depositing the sum, the appellant is required to file along with its appeal an affidavit verifying the payment, which the tribunal said MultiChoice Africa Holdings also failed to comply with.

Curiously, just a week before its latest ruling, TAT had dismissed the objection of the FIRS to the appeal by MultiChoice Nigeria in a case that is a near-facsimile of the last week’s. In the case decided on October 20, the tribunal had ruled that MultiChoice Nigeria was free to continue its appeal and fixed 17 November for the hearing. MultiChoice Nigeria had objected to the FIRS assessment of N1.8trillion tax covering a 10 years period, which it alleged was based on presumed turnover figures.

The FIRS stated that in the absence of a proof of deposit, the tribunal should discontinue the hearing of the appeal and enter judgment against MultiChoice.

MultiChoice, however, stated that it had complied, as the referenced section of the FIRS Act does not compel it to pay N900 billion but an amount equal to its tax in the preceding year of assessment or one half of the disputed tax assessment under appeal, whichever is the lesser amount plus 10 per cent.

Ruling on the objection raised by FIRS and the counter-argument made by MultiChoice, the tribunal disagreed.

It held: “We have carefully examined the submission of both counsel and we are of the understanding that this tribunal has been called upon to give a ruling on the proper legal interpretation of the relevant sections of provisions of paragraph 15 of FIRS Establishment Act 2017 based on which the orders of this Tribunal of August 24, 2021, was made. It is our understanding that one of the major functions of this Tribunal is to interpret and outline tax law in specific cases that will come before it. In doing this duty, we will be guided by the Superior Courts of Record. In a plethora of cases, the courts have often held that in the interpretation of provisions of the law, the court must give meaning to the exact word used by the makers of the law without adding or subtracting. The tribunal is to declare what the law is and not what it ought to be.

“This tribunal is unable to agree with the argument presented by the respondent counsel because the said portion of the paragraph in the FIRS talks about the ‘preceding year’ and not ‘preceding years’. The paragraph under the portion of the FIRS in reference also talks about assessment and not assessments. This tribunal cannot reduce anything from the paragraph as intended by the makers of the law. The paragraph under consideration also talks about ‘assessment’ and not ‘assessments’ therefore this Tribunal will not add or reduce anything from the said paragraph.

“On the objection raised by FIRS that MultiChoice has not complied with the orders of this court made on August 2021, which is to the effect that the Appellant must comply with paragraph 15, sub 7 of the 5th schedule of FIRS 2007, by depositing the tax assessment under appeal for the preceding year of assessment or one half of the assessment charge under appeal.

“In compliance with the orders of this tribunal, the applicant (MultiChoice) has filed two affidavits of compliance. The first affidavit is dated September 9, 2021, sworn to by one Oseni Okunola showing payment of N2billion and N700million. The second affidavit also showed a payment of N5billion and N300million by the same Oseni Okunola totaling N8billion. The payment as explained by the appellant is to satisfy whatever interpretation adopted by this tribunal. This payment has been acknowledged by the tribunal concerning its order.

“We must emphasise that fairness and impartiality is the hallmark of this Tribunal. Therefore, we will be failing in our duties if we close our doors and allow technicalities to stand in their way against justice.

“The appellant has complied with the orders of this tribunal given on August 24, 2021, and is therefore entitled to be heard on merit. It is hereby directed that this matter proceeds to hearing.”

The Twist

The drama, however, came with the appeal filed by MultiChoice Africa Holdings, which saw the FIRS object to the hearing of the appeal on the grounds that Multichoice had not complied with the earlier order of the tribunal.

Watchers of the unfolding developments were shocked when the tribunal changed its position by striking out the matter in favour of the FIRS.

The tribunal, while delivering its judgment on the appeal filed by the company last week, upheld the preliminary objection of the FIRS against the appeal of Multichoice.

It stated that the South African company did not comply with Order 3 Rule 6 of the Tax Appeal Tribunal (Procedure) Rules, 2021, which requires that an appellant is to deposit half of the assessed amount it is disputing before it can be heard on appeal.

Controversial Procedure

Weighing the implications of the latest position of the Tax Appeal Tribunal, tax experts said the scenario created by the decision of the tribunal on the appeal brought by MultiChoice is dangerous to the nation’s economy as it sets controversial precedence for conflict resolution between companies and Nigerian tax authorities.

A tax expert, Kenneth Erikume, speaking on an ARIS NEWS Channel programme, shortly after the latest ruling of the tax appeal tribunal, said jettisoning the provision of the FIRS Establishment Act for the Tax Appeal Tribunal’s Procedure rules is injurious to the health of corporate organisations in Nigeria.

The FIRS Establishment Act 2007, paragraph 15 of the fifth schedule says you pay a deposit of 50 per cent or the last year of assessment tax liability, the lower of the two, while the Tribunal procedure rule 2021, which replaced the 20210 rules says that a taxpayer who intends to appeal must first pay 50% of the disputed tax into an account designated by the TAT as security for the appeal. In addition, the taxpayer must file a deposition along with the appeal to that effect.

Shedding light into the inconsistency of the rule being followed here, the foremost tax audit firm, PricewaterCoopers (PwC) argued that “this provision is inconsistent with similar provisions in the Federal Inland Revenue Service (Establishment) Act 2007 which gives the TAT discretion to order payment as security where a taxpayer failed to file returns, or the appeal is frivolous or abuse, or it is expedient for a taxpayer to pay a sum as security.

Compromising Access to Fair Hearing

“Therefore, the provision may be challenged on grounds of inconsistency with a statute. Furthermore, there are concerns that the provision is a bar to access to justice which is contrary to the constitutional right of fair hearing and a fair trial.”

Erikume, who is also a staff of PwC, explained that by insisting that companies seeking redress over disputed assessment should pay half of such a controversial figure is already disadvantaged because it will be at the mercy of the tax authorities.

He recalled the experience of a mining company in Tanzania, Acacia Mining Company which, in 2017, was issued with a tax assessment to the tune of $190billion. After a series of reconciliations, the firm eventually paid $30million, with Erikume saying that if the case had happened in Nigeria under the current dispensation, Acacia would be expected to deposit $95billion, an amount which he said could be used to finance the Dangote Refinery five times.

According to the tax expert, if the rules were to be applied, it means a lot of companies will be disadvantaged.

He said: “They will not be able to take issues to the tribunal. It means the tax authorities will be in a stronger negotiation position and they may even abuse that opportunity because they can issue an assessment of any amount knowing that before you can get to any tribunal, you have to cough out that amount.

Burden on Companies

The fear is that any company that dares to challenge FIRS could be run out of business via a constriction of cash flow. Tax industry analysts contended that by the time such a company is slammed with a hefty sum of money to pay before the appeal could be heard, then its future will be in jeopardy. This scenario is described as dangerous to investment inflow and the economy.

Professor Mohammed Abdulrazak of the Lagos State University Law Faculty, in an article, argued that the directive for 50 per cent payment of the statutory deposit as a condition for the continuation of the appeal is tantamount to procedural rule breach and was indicative of a denial of fair hearing.

Titled “MultiChoice Nigeria, Tax Tribunal Ruling: Issues and Doubts,” Abdulrazak, a professor of taxation, argued that to ask the appellant to make such a huge deposit for the continuation of the appeal “is a failure by an administrative tribunal to observe procedural rules that are expressly laid down in the legislative instrument by which its jurisdiction is conferred and a miscarriage of justice from denial of fair hearing.” He questioned the TAT’s reliance on paragraph 15(7) as a basis for its directive because the FIRS failed to supply proof that MultiChoice neglected to file returns to the FIRS or for the year of assessment as prescribed by law.

MultiChoice Africa Holdings, in a statement released last week, rejected the latest TAT ruling, saying it was based on a technicality rather than the merit of the case, and vowed to appeal to the Federal High Court.

The flip-flopping by the tribunal and the illegal Order 3 Rule 6 has the potential to cause profound rupture within Nigeria’s business community. Aside from worsening the country’s ease of doing business rating and discouraging foreign direct investments, it also stands to suffocate existing businesses.