In an article titled, "Banks as Collecting Agents for FIRS – A Conundrum", I discussed issues arising from the Federal Inland Revenue Service (FIRS)'s recent tax substitution directives, involving commercial banks. Generally, the FIRS directs a bank to set aside an amount equivalent to the tax payer's outstanding tax liability, and remit same to FIRS.
FIRS also directs that the bank place a restriction on the tax payer's accounts and inform FIRS of any transaction on the tax payer's account prior to execution on the accounts. The bank is also expected to release the tax payer's bank statements and other financial records to FIRS.
In a recent Judgment of the Federal High Court, sitting at Warri, Honourable Justice Emeka Nwite, in Suit No. FHC/WR/CS/17/2019 – Ama Etuwewe Esq vs Federal Inland Revenue Service & Guaranty Trust Bank Plc, held that law firms, not being companies, are not within the contemplation of the Companies Income Tax Act, to pay companies income tax. The Court further declared unlawful, and nullified FIRS's appointment of Guaranty Trust Bank as collecting agent in respect of the Plaintiff's law firm bank account. The basis of the court's decision was that law firms not being companies, are not within the contemplation of the Companies Income Tax Act, to pay companies income tax.
At the time of writing this article, the full Judgment was not available for review. But, a copy of the enrolled order revealed that the Judgment is restricted in the sense that the Judgment does not apply to companies liable to pay tax under the Companies Income Tax Act (CITA), but only to law firms or other business arrangements that are not liable to pay tax under CITA.
It is important to note that the Judgment in Ama Etuwewe vs FIRS & GTB, has not resolved the controversy relating to the legality of FIRS appointing banks as collecting agents over their customers who are companies liable to pay tax under CITA. The case involved a Law Firm not liable to companies' income tax.
It remains to be seen, what the Courts' determination would be, where a company liable to pay companies income tax approaches the Courts for a determination of the legality of FIRS' appointment of a bank to act as collecting agent over its outstanding tax liability.
This decision underscores the need for banks to proceed carefully in complying with FIRS' directives as Banks may be exposed to legal action, particularly where the tax liability is disputed. The banks ought to take into consideration that as with all tax assessments and notices, a tax payer has the right to object or appeal, at the Tax Appeal tribunal, or to Court.
The judgment is a welcome development to our jurisprudence and it is hoped that the banks and affected tax payers may test the legality of the FIRS' appointments of banks, as collecting agents, pursuant to the provisions of the Federal Inland Revenue Service (Establishment) Act 2007 and Section 49 of the Companies and Income Tax Act, 2007, in the Courts.
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