KPMG, one of the Big Four auditors in the world, says Nigeria’s Federal Inland Revenue Service (FIRS) is breaching bank-client confidentiality and has gone draconian by giving fiats to banks to freeze accounts of suspected tax defaulters.
In September 2018, Tunde Fowler, FIRS chairman, said the service was going after 6,772 tax defaulters, stating that they would have their account frozen till they pay due taxes.
“So, all these ones of TIN and no pay and no TIN and no pay, to the total of 6772 will have their accounts frozen or put under substitution pending when they come forward,” Fowler had said.
“First, they refused to come forward in 2016, they refused to come forward under VAT and are still operating here. So, we are putting them under notice that it is their civic responsibility to pay tax and to file returns on these accounts.”
In reality, FIRS has not only frozen the accounts in question, but have also stopped some companies from paying staff salaries or carrying out routine transactions.
In addition to this, FIRS has also ordered the banks to deduct the alleged tax debt from these bank accounts “in full or partial payment”.
In its KPMG in Nigeria issue 2.5 released in February 2019, the professional service firm, said FIRS has gone too far in its bid to get more people into the tax net.
KPMG argued that Section 69 of Companies Income Tax Act (CITA) 2004 “allows a taxpayer to object to a disputed assessment within thirty (30) days from the date of service of the notice of assessment”.
The firm adds that “Section 77(3) of CITA further provides that the collection of tax, in any case where notice of an objection or appeal has been given by a taxpayer, shall remain in abeyance until such objection or appeal is determined”.
KPMG CONTRAVENING Companies Income Tax Act
KPMG said “nothing in the CITA or FIRSEA authorises the FIRS to impose a freeze order on a taxpayer’s bank account beyond the amount of tax proven to be due and payable by that taxpayer”.
“The requirement directed to banks not to honour mandates from taxpayers over and above the tax amount supposedly proven by FIRS to be due and payable is without foundation and goes too far.”
It added that “the letters to the SBs leave them with 7 days within which to comply with the directives of the FIRS. This is contrary to the provisions of Sections 69 and 77(3) of CITA which permit a taxpayer a 30-day period of review and objection”.
FIRS BREACHING BANK-CLIENT CONFIDENTIALITY
KPMG stated that the letters of substitution issued to the banks breach the confidentiality agreement between banks and their clients.
“Generally, a bank has a fiduciary obligation to maintain the confidentiality of its customers and their transactions, and to prevent third-party access to the customers’ account information,” KPMG said.
“The exceptions to this duty are in cases where the bank is required by law or a court of competent authority to make disclosure, and where the customer consents to the disclosure.
“We note that the FIRSEA and CITA allow the FIRS to request certain banking information (without breaching the bank’s duty of confidentiality), such as names and addresses of new customers and specific individuals, and details of transactions above N5 million and N10 million for individuals and companies, respectively.
“However, these provisions, including relevant provisos, should not be interpreted to have given the FIRS the absolute power to demand all forms of customer information, including details of account balances, bank statements and other financial records of a company, its subsidiaries or principal officers; or power to direct when a bank may honour its customers’ transaction requests.”
KPMG SALUTES FIRS TAX DRIVE — WITH CAUTION
Concluding its intervention to FIRS, KPMG said: “We note and salute the FIRS’ objectives to bring delinquent taxpayers into the tax net and consequently increase the Federal Government’s tax revenue”.
“However, the current practice whereby the FIRS issues fiats to freeze taxpayers’ bank accounts generally and to demand that SBs pay alleged outstanding tax liabilities from customers’ bank balances without recourse to affected persons, is draconian.
“This will cast doubt on the Federal Government’s drive to improve the ease of doing business in Nigeria, diminish the credibility of the Nigerian tax system, and erode investors’ confidence in the Nigerian economy.”
The company also called on taxpayers to “ensure that they fulfil their civic obligations by paying the right amount of taxes and filing relevant tax returns with the tax authorities, as and when due”.