In 2016, three university students discussed the idea of a fintech. They built together and ran pilots in school, getting 500 students to use the product they were bringing to the market. By 2018, 14 months after graduation, they hit one million subscribers. With a little media coverage and a lot of networking, they get a US company to invest $50 million for them to scale. In six months, this unicorn-in-the-making is burnt to debts by new tax rules quietly introduced by the federal government. This is avoidable.
In June 2021, Zainab Ahmed, the minister of finance, budget and national planning, approved the Tax Appeal Tribunal (Procedure) rules, 2021. This replaces the 2010 TAT rules, which had a few shortcomings and had become obsolete in some sense.
For the most part, the new rules are good for businesses; both KPMG and PwC agree that the rules are a reflection of the country’s most recent realities.
“The implementation of the new Rules emphasizes the Federal Government’s commitment to improving Nigeria’s tax landscape,” KPMG’s Wole Obayomi wrote.
For PwC, the rules “are intended to make the TAT more efficient in the dispensation of justice. They are also a reflection of the current realities given the wide adoption of technology in the administration of justice”.
The new rules now recognise service of documents by email or such other electronic means as the Tribunal may permit. It also gives room for virtual or remote hearing of applications and delivery of rulings by the tribunal.
In addition to all these, it also introduces a six-month timeframe from the date of commencement of trial for the tribunal to conclude and provide a decision on an appeal.
THE BUSINESS KILLER IN THE RULES
In the midst of all that good rules is also a potential business killer. According to order 3 rule 6 of the Tax Appeal Tribunal (Procedure) rules, 2021, “for an appeal against the tax authority, the aggrieved person will pay 50% of the disputed amount into designated account by the Tribunal before hearing as security for prosecuting the appeal”.
In simpler terms, this means FIRS could simply claim that a company valued at $50 million owes $100 million in unpaid taxes. The company could appeal the decision of the tax authority at the Tax Appeal Tribunal but would need to pay $50 million — 50% of the disputed amount — as security before the appeal can be heard.
This also means that if the company does not pay the $50 million, the tribunal will not begin hearing. If the hearing cannot start, there will be no justice, and the tax authority may effectively shut down the business to recover the “tax claim”.
This would discourage companies from approaching the tribunal for justice, it would encourage them to disobey tax authorities, and would ultimately lead to more damage in the tax landscape.
In its advisory about the tax rules, PwC said “there are concerns that the provision is a bar to access to justice which is contrary to the constitutional rights of fair hearing and a fair trial”.
The advisory said, “it 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”.
That discretion has been taken away from the tribunal as a fixed price has been set to somewhat favour the tax authority — all the time. KPMG agrees.
“The introduction of a blanket requirement for taxpayers to make a 50% deposit of disputed amounts to the TAT may act as a clog in the wheels of justice and discourage taxpayers from pursuing recourse from the TAT,” Obayomi said.
This new tax rule takes the tribunal “away from the less formal dispute resolution framework” it was designed to be.
KPMG asked the minister of finance to consider making the “TAT Rules less litigious or court-like to ensure the TAT maintains its edge as a speedy and non-litigious tax dispute resolution forum”.