This article will detail Tax Authorities and the power to distrain in Nigeria-tax administration. This analysis will be backed up by legal provisions on the matter too.
What is Distrain in Nigeria-Tax Administration?
Distrain means to seize someone’s property to obtain payment of money owed. In tax practice, the tax authority will seize the taxpayer’s property until the taxpayer settles the outstanding tax or sell off the properties to settle the tax if the taxpayer refuses to pay up.
The Black’s Law Dictionary defines distrain as “to force a person, usually a tenant, by seizure of and detention of personal property, to perform an obligation (such as paying an overdue rent)”. The definitions also imply that only personal properties or movable goods capable of being moved can be distrained.
Legal Basis of Distrain in Nigeria Tax Administration
The Legal Basis in Nigeria has similar provisions spelling out the powers of the tax authorities to distrain. This can be found in S. 33 of the Federal Inland Revenue Service Establishment Act (“FIRSEA”), S.86 of the Companies Income Tax Act (CITA), S.104 of the Personal Income Tax Act (PITA) and S.3(1)(b) of the Petroleum Profits Tax Act (PPTA) among others.
It is important to note that section 104 of PITA only differs in context compared to other laws because it requires that the tax authority(State Internal Revenue Service)apply to the High Court via an ex-parte motion for an order of the Court authorizing the tax authority to seize the taxpayer’s properties.
An ex-parte motion means an application that is made in a Court with no notice being given to the other party.
An ex-parte application for an Order to distrain can only be issued against a taxpayer where the taxpayer has failed to comply (within the specified time) with a final and conclusive assessment communicated to the taxpayer via a demand notice, based on the combined interpretation of Sections 55, 58 and 104 of the PITA.
The application to distrain in the absence of a final and conclusive assessment duly communicated to the taxpayer would amount to denying the taxpayer the constitutional right to a fair hearing.
Unlike the provisions in PITA, there is no provision for any form of application to the court in the provisions regulating distrain procedure in CITA and FIRSEA. The warrant of distrain once issued by the Board of the FIRS and signed by the Executive Chairman of the Service is sufficient to warrant authorising an officer of the FIRS to levy distrain on the properties of the defaulting taxpayer.
The only situation in which the Act compels the FIRS to get an order from the Court is where the FIRS intends to sell any immovable property of the taxpayer.
Court of Appeal Ruling on Power to Distrain
The Court of Appeal in the case of Ekiti State Board of Internal Revenue v Guaranty Trust Bank Plc held that the Ekiti State Board of Internal Revenue cannot make an ex-parte application to distrain a taxpayer’s property or issue a warrant of distress in the absence of a final and conclusive tax assessment.
The Court arrived at this decision because Section 104 of the Personal Income Tax Act (PITA) only empowers a tax authority to distrain taxpayers, subject to the fulfilment of certain conditions.
These conditions include the service of a demand notice on the taxpayer; the tax assessed becoming final and conclusive; and a default in the payment of the tax assessed by the taxpayer.
Please be informed that where a taxpayer has objected to an assessment in line with Section 58 of PITA, such assessment cannot be said to be final and conclusive.
Frequently Asked Questions
What is the Legal Basis of Distrain in Nigeria Tax Administration?
The Legal Basis in Nigeria has similar provisions spelling out the powers of the tax authorities to distrain. This can be found in S. 33 of the Federal Inland Revenue Service Establishment Act (“FIRSEA”), S.86 of the Companies Income Tax Act (CITA), S.104 of the Personal Income Tax Act (PITA) and S.3(1)(b) of the Petroleum Profits Tax Act (PPTA) among others.
It is important to note that section 104 of PITA only differs in context compared to other laws because it requires that the tax authority(State Internal Revenue Service)apply to the High Court via an ex-parte motion for an order of the Court authorizing the tax authority to seize the taxpayer’s properties.
Is there any provision regulating distrain procedure in CTA and FIRESA?
Unlike the provisions in PITA, there is no provision for any form of application to the court in the provisions regulating distrain procedure in CITA and FIRSEA.
Are distrain in Nigeria Legal?
From the several constitutional provisions, the distrain of one’s property can be said as a violation of the taxpayer’s constitutional right to a fair hearing and right to own property.
Recall that the Constitution provides that where a person’s civil rights and obligations are to be determined, such a person is entitled to a fair hearing. This is what the move to distrain prevents.
Conclusion
The above provisions only empower a tax authority to distrain in Nigeria-tax administration, subject to the fulfilment of certain conditions. These conditions include the service of a demand notice on the taxpayer; the tax assessed becoming final and conclusive; and a default in the payment of the tax assessed by the taxpayer.
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More About Author:
Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this,Olatunji worked as Director,Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax,Regulatory & Advisory Services at Saffron Professional Services.
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