Distrain under PITA - An Analysis and Evaluation of Principles & Practice - Bidemi Daniel, Olumide

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Distrain under the Personal Income Tax Act: An Analysis and Evaluation of Principles and Practice1

Olumide, Bidemi Daniel2

Abstract: In some respects, the scope of tax collection can be described as a statutorily-enhanced means of debt collection by the State; that is, debts arising from due and owed taxes. The power of the tax authority to distrain, that is, seize and hold, the assets of the tax debtor is one of such means. In 2011, the Nigerian legislature amended the process for the exercise of the power of distrain under the Personal Income Tax Act, 19933, providing among others: the requirement for personal service of demand notices; and the power to authorise distrain being reposed in a High Court Judge, among others. This paper examines these introductions alongside existing jurisprudence on the power and process of distrain under Nigerian law. The paper does a bit more to reflect on the practical considerations to be had by the tax collector in the use and administration of his power to distrain. In the end this discussant makes a case for not losing sight of the big picture, that is, the efficient and effective collection of due and owed taxes by both the tax authority and the tax collector. The paper is divided into 2 parts, to wit: (i) An Analysis and Evaluation of the Distrain Provisions under PITA; (ii) Distrain - Practical Considerations for the Tax Collector. A case study follows. It is the hope of this discussant that at the end of the paper and the presentation to follow, participants would have been better enriched in the knowledge of the distrain process, and more importantly, its application as a means of successful tax collection.

1 Being a Paper delivered at the in-house training of Legal Officers of the Lagos State Internal Revenue Service held in Lagos, Nigeria on Tuesday, August 25, 2015. 2 Olumide, Bidemi Daniel is a Legal and Tax Practitioner resident in Lagos, Nigeria. 3 Currently compiled as: (i) Cap. P8, Laws of the Federation of Nigeria, 2004 (December 2010 Update); and (ii) Cap. P8, Laws of the Federation of Nigeria, Annual Supplement 2011 (altogether “PITA”).

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PART 1: An Analysis and Evaluation of the Distrain Provisions under PITA

In rather simplified terms, Section 104 of PITA as amended4 states and requires the following in relation to the power to distrain and the process to follow:

1. Distrain is simply one of the other powers conferred on a tax authority to enforce the collection of tax.5

2. The tax must be due.6

3. Enforcement is against the taxable person.7

4. The taxable person must have been served with an assessment.8

5. The assessment must have become final and conclusive.9

6. A demand notice must have additionally been duly served on the taxable person.10

7. Payment must still be owing at the expiration of the notice period.11

8. For the purpose of collecting the payment, the tax collector may distrain and sell any of the following assets of the taxpayer: “goods”, “other chattels”, “bond”, “other securities” (all of which will hereinafter be referred to as “Moveable Assets”); “land”, “premises” and “places”, (all of which will hereinafter be referred to as “Immoveable Assets”); where ever they may be found in Nigeria.12

9. The tax authority must specifically authorize its officer to proceed with distrain.13

10. The officer must thereafter apply, under oath, to a High Court Judge for the issue

of a warrant to distrain (“Warrant of Distress” or “Warrant”).14

4 Section 104 of PITA was wholly amended by Section 29 of the Personal Income Tax (Amendment) Act, 2011 (“PITAM”). 5 Section 104 (1) 6 Section 104 (1) 7 Subsection (1); Section 108 of PITA; 7up Bottling Co. Plc. v. Lagos State Internal Revenue Board [2000] 3 NWLR (Pt. 650) 565, 605 at paragraph B, 618, paragraph A (Court of Appeal); Nigerian Breweries Plc v. L.S.I.R.B. [2002] 5 NWLR (Pt. 759) 1(Court of Appeal); Sasegbon’s Laws of Nigeria, (DSC Publications; Lagos; 2005) Vol. 19 at paragraph 968 at page 376; D.S.A. Agricultural Machinery Manufacturing Company Ltd v. Lagos State Internal Revenue Board [2013] 11 TLRN 115, 132 - 133 (Court of Appeal) 8 Section 104 (1); Section 54 of PITA. 9 Section 104 (1) 10 Section 104 (1) 11 Section 104 (1)) 12 Section 104 (1) and (7) 13 Section 104 (2) 14 Section 104(3); Lagos State Board of Internal Revenue v. Mgbeyi & Associates (2013) 9 TLRN 1 (Lagos State High Court)

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11. To proceed, the Judge must issue a formal Warrant to the officer.15

12. The warrant authorizes the officer to, if necessary, break into any building or place in the daytime for the purpose of the distrain.16

13. Any police officer called upon must aid and assist in the execution of the Warrant.17

14. Sale of Moveable Assets can, on the application of the owner, be delayed for 14

days to allow for payment of the tax, at the expiration of which period the Assets would be sold if the tax, including the charges and cost of the distrain (altogether, the “Debt”), have not been paid.18

15. Sale of Immoveable Assets must be authorized by a court of competent jurisdiction.

16. The Debt shall be deducted from the sale proceeds and any outstanding amount is (a) remitted to the tax payer; or (b) where cannot be found, paid to the appropriate court; all within 30 days of the sale.19

We shall now turn to analysing and evaluating key words and phrases underlined in the enumeration above.

1. The Taxable Person: Only a “taxable person” can be the subject of distrain under PITA, as currently worded. PITA itself defines a “taxable person” at Section 108 as: “any individual or body of individuals (including a family, any corporation sole, trustee or executor) having any income which is chargeable with tax under the provisions of this Act.” By this definition, it should be clear that both an employer and withholding tax agent (payer) are, with regards to their functions, not taxable persons under PITA20 and accordingly cannot be the subject of distrain under Section 104. The judicial authorities on this position are the decisions of the Court of Appeal in 7up Bottling

Co. Plc. v. L.S.I.R.B. [supra], Nigerian Breweries Plc v. L.S.I.R.B. [supra] and D.S.A. Agricultural Machinery Manufacturing Company Ltd v. Lagos State Internal Revenue Board [supra] where the decision of the Court in the 7up Bottling Co. case was affirmed. Please see also Sasegbon’s Laws

of Nigeria, (supra) Vol. 19 at paragraph 968 at page 376. In 7up Bottling Co. Plc. v. L.S.I.R.B., particularly at pages 602 to 606, paragraphs B to C, the Court of Appeal had to consider the effect of Section 53 on “assessments”, which is now Section 54 of PITA. According to the Court, the “assessment” is a matter between the RTA and the taxable person and not between the tax authority and an Employer.21 According to the Court, the “taxable person” under PITA and “the PAYE system is the employee, not the employer”.22

15 Section 104(4) 16 Section 104(4) 17 Section 104(4) 18 Section 104(1) and (5) 19 Section 104(6) 20 7up Bottling Co. Plc. v. Lagos State Internal Revenue Board [2000] 3 NWLR (Pt. 650) 565, 605 at paragraph B, 618, paragraph A (Court of Appeal); Nigerian Breweries Plc v. L.S.I.R.B. [2002] 5 NWLR (Pt. 759) 1(Court of Appeal); Sasegbon’s Laws of Nigeria, (DSC Publications; Lagos; 2005) Vol. 19 at paragraph 968 at page 376 21 see page 603 at paragraph H 22 see page 605 at paragraph B.

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By the combined effect of Sections 1, 2, 3 and 108 of PITA, the following are submitted to be the categories of “taxable persons” under PITA: individuals, communities, families, trustees and trusts; save for military personnel in the Nigerian Armed Forces, Police Force and officers of the Nigerian Foreign Service. A company or an Employer is, without doubt, not a “taxable person” for the purposes of PITA. Providing its analysis of Section 53(5)(a) and (b) (now Section 54(5)(a) and (b) of PITA), the Court of Appeal held that that income tax assessment (inclusive of that made on a best of judgment (“BoJ”) basis) can generally not even be raised on an employee, whose income tax is deductible under the pay as you earn (“PAYE”) system, except either the employee applies for it or the relevant tax authority (“RTA”) considers it necessary to so do.23 The Court rightfully located the respite of the tax authority in the provisions of Section 55(4) and (5), now Section 56(4) and (5) of PITA24 which part-laid the foundation for the administration of the PAYE tax system.25

In the latter case of Nigerian Breweries Plc v. L.S.I.R.B. (supra) particularly at pages 16 to 18, paragraphs G to E, the Court of Appeal had to pointedly answer the question, whether the BoJ basis of assessment is applicable to the PAYE system of personal income tax imposition and collection. The Court in interpreting the effect of the provisions of Section 29 of the Lagos State Personal Income Tax Law, which is same with the provisions of Section 54 of PITA, reiterated that an employee or staff is the taxable person for the purpose of the PAYE system. On Section 29(5) of the said Lagos State Law, which is same as Section 54(5) of PITA, the Court held that the Section “exempts staff subject to PAYE from the arbitrariness of best of Judgment”26 and that the particular assessment which was the subject of the Suit “… ought to be set aside, because the best of judgment assessment is not applicable to the PAYE system”27

Although the two cases appear to have put to rest, the question, whether an employer is a taxable person under PITA, the Operation of Pay as You Earn (PAYE) Regulations, 2002 (“PAYE Regulations”), just a year later, awakened the issue. The PAYE Regulations was made by the “Minister” pursuant to Section 80(6) of PITA, with the effect, Regulations 9 thereof, that the provisions of PITA on assessment, appeals and other proceedings shall apply to an employer!

23 see page 604 at paragraphs A – B. 24 Section 56(4) and (5) of PITA provides:

(4) In the case of an employee from whom tax is recoverable by deduction from his emoluments under the provisions of section 81 of this Act, the relevant tax authority may, from time to time, prescribe –

(a) the form in which a record of his assessable and chargeable income, and of the tax so recovered from him, shall be maintained in the offices of the relevant tax authority;

(b) the form in which his employer shall maintain a like record; and (c) the form in which his employer shall account to the relevant tax authority for the tax so

deducted; and (5) The employer shall produce the record maintained by him pursuant to subsection (4) of this

section for examination by the relevant tax authority within 21 days of notice given to that effect by the relevant tax authority, and allow a duly authorized officer of the relevant tax authority access to the record and to accounts or vouchers relating thereto in the premises of the employer at all reasonable times.

25 see page 604 at paragraphs C – D 26 see page 17 at paragraph F 27 see page 18 at paragraph E.

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This discussant is quick to submit that to the extent that Regulation 9 unwittingly seeks to expand the object of tax assessment under PITA to include employers, the Regulation is clearly inconsistent with the legislated provisions of PITA. It is trite that a Regulation or other administrative act done by the Executive cannot be effected contrary to the express intentions of the Legislature as founding in the wordings of the law, except the law expressly authorises the Executive so to do.28 This is more so in the case of tax statutes: the relevant law at all times being the legislation as enacted by Parliament and not the fiat of the Executive. A Regulation such as the PAYE Regulations can only amplify PITA but not amend, add to or override its express wordings: please see Akanni v. Odejide29. It is instructive to note that the Federal Legislature had its opportunity to amend PITA by the instrumentality of the PITAM, none of whose provision either deemed an employer a “taxable person” or amended the provisions of Section 54 of PITA to accommodate the raising and service of income tax assessments on employers. Further, this discussant argues that the tax authority cannot rely on Section 50 of PITA to declare an agent of an employee for personal income tax purposes so as to invoke the provisions of PITA on assessments, objections and appeal on the employer.30 The basis of this argument stems from the fact that PITA specially provides for the obligation of an employer under Section 81 of PITA and it would go against the grain of statutory interpretation to apply a general provision as Section 50 of PITA to an employer. An employer is not the agent of the employee for tax deduction and remittance purpose, but the agent of the State.31 A simpler system of tax assessment, deduction, remittance and recovery is however obtainable under the WHT system. One, the tax which a Payer is obligated to deduct had been statutorily determined in the form of known percentages: please see generally Sections 69, 70, 71 and 72 of PITA; and the provisions of the Personal Income Tax (Rates, etc., of Tax Deducted at Source (Withholding Tax)) Regulations, 1997 (“PITA WHT Regulations”). Two, the Payer is only required to deduct the applicable percentages of WHT from payments made to a taxable person resident in the territory of the RTA and the sum deducted is to be remitted to the RTA within 30 days of the date of deduction of the WHT. Three and similar to the PAYE system, the taxes that are required to be deducted and remitted are obligations of the Payer and the financial liability of the Payer in such sums only arises in the circumstance that the Payer refused, omitted or neglected to deduct and remit the applicable taxes. That said, it becomes imperative to ask: what does a relevant tax authority need to do in order to recover taxes under the PAYE and WHT system from an employer or payer? In relation to PAYE, the law is that deductible taxes are as ascertained by a RTA and for which, previously in practice, the RTA issues an employer, a tax deduction card (“TDC”) in respect of each person employee in the employer’s employment. It is then the employers responsibility to deduct the taxes due from the emoluments of its employees as required by the RTA and remit same to the RTA before the 10th (tenth) day in the month following the tax deduction - please see Section 56(4) and (5), and 81 of PITA; Regulations 2, 3, 4, 5, 7 and 16 of the PAYE Regulations.32 It is where the employer fails to discharge the dual duty of deduction and

28 For example, see the powers given to the Minister under Section 38 of the Value Added Tax Act, 1993 (as amended and currently compiled as Cap V1, Laws of the Federation of Nigeria, 2004 (May 2007 Update); see also: Rita Okoji v. Retail Supermarket (Nigeria) Ltd [2013] 14 Tax Law Reports of Nigeria 136 (Federal High Court) 29 [2004] 9 NWLR (Pt. 879) 575 at 605, paragraph F. 30 See Section 50(3) of PITA. 31 D.S.A. Agricultural Machinery Manufacturing Company Ltd v. Lagos State Internal Revenue Board [2013] 11 TLRN 115, 132 (Court of Appeal) 32 See Nigerian Breweries Plc v. L.S.I.R.B. (supra) at page 17, paragraph H

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remittance that the law requires that a demand for the taxes due may be made by the RTA. Section 82 of PITA is express that the taxes due constitutes a debt due to the RTA in the hands of the employer. What is readily conceivable from the foregoing are the following principles of the PAYE tax system:

a. The responsibility for the tax assessment of employees resident within the jurisdiction

of the RTA is that of the RTA. b. The tax assessment mentioned above has no basis in Section 54 of PITA and

accordingly a BoJ assessment is also inconceivable. c. Upon assessment, the RTA imposes the obligation on the employer to deduct and remit

certain ascertained sums from the emolument of the employees on a monthly basis; TDCs, as previously used, were meant to be kept for a recordation of the deductions made.

d. It is where the employer fails to discharge its obligation that such obligation becomes

a financial liability in the hands of the employer; and

Where the employer fails to either discharge its obligation or settle its financial liability, the RTA after due demand, may institute a debt recovery action against the employer, for the sum that might have been ascertained by the RTA in (a) and (b) above; This discussant submits that the foregoing evinces a clear case of shared responsibility between a RTA and an employer. Indeed the foregoing is about the collection of sums that the parties (the RTA and employer) should have been clear about its essential components. The foregoing does not admit of laziness on the part of an RTA that is serious about revenue generation; it demands work and hard work at that. The foregoing will not accommodate tax consultants who are more concerned with the commission they hope to get from the RTA rather than assist the RTA set up an efficient mechanism for the administration of the PAYE tax system. Same treatment for debts due under the PAYE system will apply under the WHT system. That is, the RTA can sue for the recovery of the sum due as a debt due to the RTA - please see generally Sections 74 and 78 of PITA as amended by Section 18 of PITA 2011; and Regulations 4 and 5 of PITA WHT Regulations.

2. Tax Assessment:

A tax authority has no basis in a tax claim if there has been no prior assessment on the tax payer.33 Part 7 of PITA (Sections 54 to 59) deals with tax assessments. Significantly, note that it is not enough that the tax authority raised a tax assessment on the tax payer, substantially the tax assessment must:

a. state the amount of the assessable, total or chargeable income; b. state the tax charged;

33 Federal Inland Revenue Service v. Mega Tech Software Ltd (2012) 7 T L R N 65 (Tax Appeal Tribunal); ; See Section 54 of PITA

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c. state the place where payment should be made; d. set out the rights of the tax payer to dispute the assessment; e. have been served on the tax payer, either personally, by registered post, courier service

or email.34 Payment on an assessment only becomes due and owing after 2 months from the date of service of the notice of assessment or any later time limited by the tax authority. In other words, upon service of a notice of assessment, the tax payer has a minimum 2 months from its receipt of the notice of assessment to make payment.35 Other than make payment within 2 months, the tax payer also has the right to dispute the assessment by way of a formal objection which will state the grounds of objection. This, the tax payer has to do within 30 days of service of the tax assessment.36 We shall hereinafter refer to an assessment or part thereof that the tax payer does not dispute as “Undisputed Tax” and that which is disputed as “Disputed Tax”. Significantly, it is noteworthy that no issue of penalty and interest should arise at the stage of raising an assessment; it is only where the tax payer fails to make payment within the 2 months (or later time limited by the tax authority) from the date of service of the assessment that the imposition of penalty and interest should arise. The penalty is set at 10% per annum37 and the interest which is also on an annual basis tracks the bank base lending rate.38 In this wise, it is unlawful for a tax authority to:

a. request by its assessment notice that payment of the tax due be made within a period that is less than 2 months;

b. impose penalty and interest on its assessment notice, before the expiration of the minimum period.

In actual fact, penalty and interest only should properly feature in a demand notice and not an assessment notice. It is significant that the provision on demand notice39 appears in same section as that on penalty,40 and just immediately before than on interests.41

34 See generally Sections 57 and 59 of PITA and Section 13 of PITAM which amended Section 57 of PITA. 35 See generally Section 68(1)of PITA 36 Section 58(1) of PITA 37 Section 76 (1) of PITA 38 Section 77 of PITA and Section 19 of PITAM 39 Section 76(2) of PITA 40 Section 76(1) of PITA 41 Section 77 of PITA (as amended by Section 19 of PITAM)

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3. Final and Conclusive Assessment:

It is old law, as it relates to PITA, that the failure to object within 30 days to an assessment notice makes the assessment notice final and conclusive.42 This is by virtue of the deletion of the erstwhile Section 66 of PITA43 by Section 15 of PITAM.44 Accordingly, it will, since June 14, 2011, be incorrect for a tax authority to rely on the dead Section 66 to state that that its assessment became final and conclusive in the circumstance that it received no objection after 30 days of service of a tax assessment. Indeed the expression “the assessment has become final and conclusive” should have left the parlance of the State tax authorities! So what does the tax authority do in the absence of Section 66 of PITA? Simple. Enforce the more substantive provisions on “assessments”, “payment”, “demand notice” and “collection”; which provisions are time specific and bound.

4. The Demand Notice: The process for the issuance of a demand notice or note is provided for by Section 76(2) of PITA45 and sets a statutory limit of 1 month from the date of the service of the demand notice for payment to be made. In this wise, it is unlawful for the tax authority to request by its demand notice that payment of the tax due be made within a period that is less than 1 month.

42 FIRS v. Omega Savings & Loans Ltd (2011) 14 T L R N 153 (TAT) 43 Section 66 of PITA, before its repeal had provided:

“66. Assessment to be final and conclusive (1) Where no valid objection or appeal has been lodged within the time limited by section 58 or 61 of

this Act or where due notice has not been given of a further appeal against a decision of the Appeal Commissioners or a judge, as the case may be, an assessment as made, or agreed to under the provisions of subsection (3) of section 58 of this Act determined under the proviso to that subsection or on appeal, as the case may be, shall be final and conclusive for all purposes of the Act as regards the amounts of the assessable, total or chargeable income and the tax charged thereby.

(2) If the full amount of the tax charged by a final and conclusive assessment is not paid within the appropriate period or periods prescribed by this Act, the provisions therefore relating to the recovery of tax, and to any penalty under section 76 of this Act, shall apply to the collection and recovery of the tax or penalty subject only to the set-off of the amount of any tax repayable under any claim made under a provision of this Act which has been agreed to by the relevant tax authority or determined on an appeal against a refusal to admit that claim:

Provided that – (a) where an assessment has become final and conclusive, any tax overpaid, including any

amount deposited with the relevant tax authority on account of the tax charged by the assessment, shall be paid;

(b) nothing in section 56 of this Act shall prevent the relevant tax authority from making an assessment or additional assessment for any year which does not involve reopening any issue, in the same facts, which has been determined for that year of assessment under subsection (3) of that section on appeal.”

44 Section 15 of PITA 2011 provides: “Section 61 – 67 of the Principal Act are deleted” 45 It provides: “(2) The relevant tax authority shall serve a demand note on the taxable person or the person in whose name the taxable person is chargeable and, if payment is not made within one month from the date of the service of the demand note, the relevant tax authority may proceed to enforce payment as hereinafter provided.”

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Note that with regards to Disputed Tax and following the resolution of the dispute, the tax payer is also due to make payment within one month of the date of service of a demand notice.46

5. Collection of Tax:

The power to collect taxes can be utilized or expressed by both the tax authority and any officer authorised in that regard (tax collector)47 in any of the following manner:

a. the tax authority prosecuting the tax payer in a criminal court;48 b. the tax authority suing the tax payer in a civil court49 (including an action brought under

the undefended list procedure);50 c. the tax collector entering into any premises during day time to collect information;51 d. the tax collector distraining the assets of the tax payer;52 e. the tax collector selling the distrained assets of the tax payer;53

None of the tax collection powers of the tax authority can be delegated to any person other than its personnel.54 An officer of the tax authority becomes a tax collector55 for the purpose of enforcing any of his above mentioned powers. The tax collector is immune from criminal or civil prosecution on account of anything said or done by him in the lawful exercise of his powers as a tax collector.56 The issue of collection of tax does not arise in the case of a Disputed Tax as collection will be in abeyance until the objection or appeal is determined. The power of Collection only arises in case of an Undisputed Tax.57 The Undisputed Tax must also have been demanded for by a demand notice. As earlier stated, the minimum time limited for a tax payer to make payment on an Undisputed Tax is 2 months58 and 1 month on a demand notice. This simply means that from assessment to the commencement of the collection process for an Undisputed Tax is a minimum of 3 months. It is important to highlight a special power of the tax authority in Section 68(4) of PITA which allows the tax authority to proceed with its rights of collection of an Undisputed Tax in the instance where:

46 See Sections 68(3) of PITA 47 See generally Section 102 of PITA. 48 Sections 98 and 99 of PITA; UniPetrol (Nig.) Ltd v. ESBIR [2006] 8 N.W.L.R. (Pt. 983) 624, 638 - 639; [2013] 9 TLRN 40 (Supreme Court). Set out in the Appendix is a list of different crimes recognised and punished under PITA. 49 Section 78 of PITA 50 See Federal Inland Revenue Service v. Gazetta Communications Ltd [2013] 10 TLRN 1 (Federal High Court) 51 Section 103 of PITA 52 Section 104 of PITA 53 Section 104 of PITA 54 Section 88(4) of PITA 55 Section 102 of PITA. 56 Section 106 of PITA 57 See generally Section 68(2) of PITA. 58 Section 68(1) of PITA

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a. it has reason to believe that the tax will become unrecoverable for any reason including that the tax payer will leave Nigeria;

b. further to (a), the tax authority gives notice to the tax payer to either: (i) pay the tax;

or (ii) provide, to the reasonable satisfaction of the tax authority, security for the payment of the tax; and

c. either the tax or the security is not paid or provided.59

6. Application to a Judge for a Warrant of Distress: The tax authority must authorise a tax collector for the tax collector to invoke his power of distrain.60 The tax collector invokes his power of distrain by applying under oath to a Judge in chambers or by way of an ex-parte application, for the issuance of a Warrant of Distress.61 The application, although ex parte, is neither a breach of the fundamental right to hearing of the tax payer, nor is it in the nature of an interim injunction.62 It is simply for the issuance of the Warrant. Although it is the practice, for example at the Lagos State Internal Revenue Service that a tax payer is issued a “notice of intention to obtain warrant of distrain”, there is however no law that mandates this. Generally, the tax collector needs not go back to the same court as the Judge should become functus officio after the issuance of the Warrant. Instances where the tax collector may go back to same court could include:

a. to obtain authority to sell an Immovable Asset;63 and b. to duly deposit any outstanding proceeds of sale of Assets after the deduction of the

Debt due to the State.64

7. Executing the Warrant and Sale of Assets: The Warrant can be executed by the tax collector calling on the assistance of any police officer for the purpose of:

a. seizing any Asset of the tax payer in Nigeria; b. breaking open any premises in the daytime for the purpose of (a); c. selling any Asset seized pursuant to (a) or (b).

In practical terms, the provision of Section 104(5), suggests that following the seizure of any Asset, the tax payer is at liberty to approach the tax collector and request that the Asset be kept for a period not more than 14 days, to enable the tax payer rally in order to offset its Debt. The tax collector may sell the Asset at the expiration of the 14 days period if the Debt remains unpaid.

59 See generally Section 68(4) of PITA 60 Section 104(3) of PITA. 61 Section 104(3) and (4) of PITA. 62 Lagos State Board of Internal Revenue v. Mgbeyi & Associates (2013) 9 TLRN 1, 8 – 9 (Lagos State High Court) 63 Section 104(8) of PITA. 64 Section 104(6) of PITA.

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As defined above, the constituents of the Debt are, the:

a. tax due; b. costs or charges incidental to the keeping of the distrained assets; and c. costs or charges incidental to the sale.

The Tax Collector has a duty of accountability in ensuring that the Debt is duly deducted from the proceeds of sale and any outstanding amount is either (a) remitted to the tax payer; or (b) where the tax payer cannot be found, is paid to the appropriate court; all within 30 days of the sale.65 In relation to the power to sell Assets, the tax collector must obtain an authority (order) to sell from a court of competent jurisdiction before selling an Immovable Asset.66

65 Section 104(6) 66 Section 104(8)

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PART 2: Distrain - Practical Considerations for the Tax Collector

The whole essence of distrain is tax collection and hence it makes it prudent for the tax collector to have done his thorough due diligence before embarking on a distrain process which may end up being more costly than either the tax to be collected or the amount that will eventually be recovered. In this discussant’s view, key considerations should include answering the following questions:

1. Do I intend to proceed against a tax payer within the contemplation of PITA?

2. Is the tax due for collection? In other words:

a. has an assessment been left unpaid for a period in excess of 2months or the period limited by the tax authority;

b. has a demand notice been issued after the expiration of the 2 months payment period in which no payment was received; and has 1 month elapsed since the service of the demand notice on the tax payer?

3. Does the tax payer have Assets worth seizing? In other words:

a. Are there Assets that have been targeted?

b. Do they belong to the tax payer?

c. Where are the Assets?

d. Are they Moveable or Immoveable Assets?

e. Will the amount to be realized from the sale of the Assets defray the Debt?

f. Is the cost to be incurred in the keeping of the Asset manageable?

g. Can the Asset be easily sold?

4. Have adequate security measures been put in place, for example, sufficient police presence to prevent any reprisals from the tax payer?

We shall now review some of these considerations within the context of the case study that follows.

© Copyright to this work belongs, without qualification, to Olumide, Bidemi Daniel.

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CASE STUDY

1st Shepherd Nigeria Ltd (“1st Shepherd”) is a health safety and environment (“HSE”) services

provider and supplier of high-grade safety outfit for operators and service companies in the

Nigerian oil and gas industry. For its supply business, it receives its goods from the Apapa Port

in Lagos and maintains a warehouse in same Apapa for this purpose. 13 persons are employed

at the warehouse. Its registered and principal offices are at Ikeja and Victoria Island

respectively; with the principal office hosting 32 employees including:

Dr. Kayode Jehoshaphat Olutola (“Dr. Olutola”), the founder and chief executive officer

(“CEO”) the company;

Dr. Johnny Okereke (“Dr. Okereke”), the chief operating officer (“COO”) of the

company;

Mr. Williams “Bill” Folorunsho (“Mr. Folorunsho”), the chief financial officer of the

company; and

Dr. (Mrs.) Boma Evelyn Olutola (“Dr. (Mrs.) Olutola”), Dr. Olutola’s wife and the

Executive Director (Human Resources) of the company;

1st Shepherd also maintains an operational office in Port Harcourt, Rivers State, where 37 core

field workers are employed.

The high-grade safety outfit 1st Shepherd supplies are manufactured by BomKay Manufacturing

Sdn. Bhd. (“BomKay”), a Malaysian company based in Penang, in which 1st Shepherd owns

20% of the equity. The other shareholders are: Dr. Olutola (30%), Dr. (Mrs.) Olutola (30%), Dr.

Musa Tengku (“Dr. Tengku”) (15%) and Mr. Kayode Daniel Olutola Jnr. (“Mr. Olutola”) (5%).

Dr. Olutola is the CEO of BomKay while Dr. Tengku is the COO. Mr. Olutola, popularly known

in social circles as “Junior” is employed both in 1st Shepherd and Bomkay from where he draws

salaries. He is currently undertaking his post graduate studies at the University of Liverpool,

England.

Dr. Olutola and Dr. (Mrs.) Olutola have been married for 28 years and maintain their family

residence in their palatial home in Banana Island. 7 Bullmastiffs, 5 Rottweilers and 5 Pit Bulls

live on the property. Dr. Olutola avoids politicians, more often than not leaving Dr. (Mrs.) Olutola

to deal with them. He is of the strong opinion that Nigerian politicians are irresponsible and

should not be trusted with the people’s commonwealth.

Due to traffic congestions between Ikoyi and Victoria Island, Dr. and Mrs. Olutola, during the

week days, more often than not live in a serviced duplex in Victoria Island, Lagos. The duplex

was leased and paid for by 1st Shepherd. Dr. (Mrs.) Olutola had become quite attached to the

duplex such that in 2013, 1st Shepherd purchased the property outright for US$800,000 (Eight

Hundred Thousand United States Dollars). 2 Bullmastiffs and 2 German Shepherds live on the

property.

The Olutola’s also have homes in:

Port Harcourt, Rivers State

Penang, Malaysia

Liverpool, United Kingdom (where Junior lives); and

Abu Dhabi, United Arab Emirates

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In April 2015, during its tax audit of 1st Shepherd’s 2014 affairs, Mr. Folorunsho presented the

Audit team of the Lagos Internal Revenue Service (“LIRS”) with the audited financial statement

of the company, the Income Statement and Statement of Financial Position which reads:

1st Shepherd Nigeria Ltd

Income Statement

For the Year Ended 31 December 2014 12 months

2014

Note ₦

Turnover 700,271,923

Interest income 1 41,600

Total Income 700,313,523

Impairment charges 2 (250,000,402)

450,313,121

Personnel expenses 3 (245,953,157)

IT and communication (5,193,673)

Professional fees (5,000,000)

Marketing (44,276,243)

Amortisation 4 (23,547,401)

Depreciation 5 (35,208,041)

Other operating expenses 6 (25,286,500)

Loss before income tax 65,848,106

Income tax expense 7 (12,324,345)

Profit after income tax expense 53,523,761

Other comprehensive Income 6,545,792

Total comprehensive Profit 60,069,553

Profit per share 8 12.01

1st Shepherd Nigeria Ltd

Statement of Financial Position

As at the Year Ended 31 December 2013 12 months

2014

Assets ₦

Cash and Cash equivalents 9 10,549,862

Financial Assets - Held to Maturity 11 51,213,332

Property and Equipment 12 807,221,443

Intangible assets 13 20,845,065

Other assets 14 10,539,370

Total Assets 900,369,071

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Liabilities

Borrowing 16 420,500,000

Other Lliabilities 17 13,106,453

Subordinated loans 18 123,000,430

Total Liabilities 556,606,883

Equity

Share Capital 18 5,000,000

Retained Earnings 338,762,188

Total Equity 343,762,188

Total Liabilities & Equity 900,369,071

At conclusion of the tax audit exercise, the Audit Department of the LIRS, by Assessment Notices

served on April 30, 2015 assessed the following to additional taxes:

1. 1st Shepherd (on a BoJ basis) to additional unremitted PAYE remittances of

N151,680,000 as it assumed a total wage/remuneration bill of N800,000,000 for the

company in the 2014 year of assessment which income it surcharged to an effective

personal income tax rate of 18.96%.

2. Dr. Olutola (on a BoJ basis) to additional personal income tax of N47,400,000 as it

assumed a total income of N250,000,000 for him in the 2014 year of assessment which

income it surcharged to an effective personal income tax rate of 18.96%.

3. Dr. (Mrs.) Olutola (on a BoJ basis) to additional personal income tax of N28,440,000

as it assumed a total income of N150,000,000 for her in the 2014 year of assessment

which income it surcharged to an effective personal income tax rate of 18.96%.

Both Dr. Olutola and Dr. (Mrs.) Olutola objected to their assessments but eventually agreed to

pay N10,000,000 each to the Lagos State Government. Lagos State Government has since June

3, 2015 issued a demand notice for the sum of N20,000,000 from the Olutolas. Dr. Olutola

seems not in a haste to pay the money as he was unhappy at the success of the current Governor

of Lagos State at the polls.

1st Shepherd did not object to the assessment but on June 5, 2015 wrote the LIRS requesting for

a meeting to discuss the BoJ assessment on it.

The Legal Adviser of the LIRS has just handed over the files of the Olutolas and 1st Shepherd to

you and requires your urgent advice on how to proceed to recover the taxes due from the

Olutolas and 1st Shepherd.

© Copyright to this work belongs, without qualification, to Olumide, Bidemi Daniel.

Page 16 of 21

APPENDIX: Criminal Offences and Punishment under the Personal Income Tax Act

S/N OFFENCE PUNISHMENT REFERENCE REMARKS

1. Giving incorrect information for the purpose of obtaining a tax clearance certificate (“TCC”).

N50,000 fine + twice the tax payable or 3 years imprisonment; or both.

S. 85(7) of PITA The major ingredient of the offence is in the act that constitutes the offence,

2. Obtaining TCC through misrepresentation, forgery or falsification

N50,000 + twice the tax payable or 3 years imprisonment; or both.

S. 85(7) of PITA The major ingredient of the offence is in the act that constitutes the offence.

3. Failure of any Person in a Ministry, Department or Agency of Government or commercial bank to, in required circumstances, demand for the TCC of persons it has dealings with and verify same with the RTA.

N5,000,000 fine plus twice the tax payable or 3 years imprisonment; or both.

S. 85(1),(2) and (9)of PITA

The major ingredient of the offence is in the act that constitutes the offence.

4. Failure of a Person to furnish a statement or information or keep required records for PIT purposes.

Fine of N5,000 + N100 for each day the default continues. 6 months imprisonment for failure to pay the fine.

S. 94(1) and 99 of PITA

The main ingredient of the offence is in the act or omission. Evidence of the Tax Authority’s formal request for the statement, information or the records that needs be kept is vital for a successful proof of the offence. Offence to be prosecuted with the sanction of the RTA.

5. Failure to comply with the requirements of a notice served under PITA.


Ss. 94(2)(a), 94(1), 94(4) and 99 of PITA

The main ingredients of the offence is in the act or omission. Evidence of the Tax Authority’s formal request for the statement, information or the records

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that needs be kept is vital for a successful proof of the offence. Offence to be prosecuted with the sanction of the RTA.

6. Failure to, without sufficient cause, attend to or answer a notice, summons or lawful questions served under PITA


Ss. 94(2)(a), 94(1) and 99 of PITA

The main ingredients of the offence is in the act or omission. Evidence of the Tax Authority’s formal request for the statement, information or the records that needs be kept is vital for a successful proof of the offence. Offence to be prosecuted with the sanction of the RTA.

7. Without reasonable cause, making incorrect returns by omitting or understating any income liable to tax under PITA.

Fine: N20,000 + twice the value of tax undercharged or may have been undercharged.

S. 95(1)(a) and 99 of PITA

The main ingredient for this offence is the absence of a reasonable basis for committing the act. It is logical that proof that there was a reasonable basis should be on the defence. Offence to be prosecuted with the sanction of the RTA and within 6 years of its commission.

8. Without reasonable cause, giving incorrect information in relation to any matter affecting the tax liability of a taxable person.

Fine: N20,000 + twice the value of tax undercharged or may have been undercharged.

S. 95(1)(b) and 99 of PITA

The main ingredient for this offence is the absence of a reasonable basis for committing the act. It is logical that proof that there was a reasonable basis should be on the defence.

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Offence to be prosecuted with the sanction of the RTA and within 6 years of its commission.

9. The intentional making of false statements or representations, whether or not for the purpose of obtaining any deduction, set-off, relief or repayment of PIT.

Fine of: N50,000 for individuals, N500,000 for corporate bodies; or maximum 6 months imprisonment. Where offence is committed in respect of a year of assessment: N10,000 fine or 3 times the tax chargeable for that year; whichever is greater.

S. 96(1)(a) and 99 of PITA

The main ingredient for this offence is in proving intention or what CITA states as “knowingly make”. Offence to be prosecuted with the sanction of the RTA.

10. The aiding, abetting, assisting, counselling, inciting or inducing of another to make, deliver, keep or prepare false returns, statements, accounts or particulars for PIT purposes.


S. 96(1)(b)(i)(ii) and 99 of PITA

The main ingredient for this offence is in proving the acts that will constitute assisting, counselling, inciting or inducing. Offence to be prosecuted with the sanction of the RTA.

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11. The aiding, abetting, assisting, counselling, inciting or inducing of another to unlawfully, refuse or neglect to pay PIT.


S. 94(1)(b)(iii) and 99 of PITA

The main ingredient for this offence is in proving the acts that will constitute assisting, counselling, inciting or inducing. Offence to be prosecuted with the sanction of the RTA.

12. A Tax Officer or Tax Office Agent’s demand from a person an amount in excess of the authorised PIT assessment.

N100,000 fine or 3 years imprisonment; or both.

S. 97(a)(i) and 99 of PITA

The main ingredient for this offence is in establishing that a demand has been made. Note the qualifier in “excess of the authorised assessment of the tax”. Also note the significant difference in the fine compared with CITA. Offence to be prosecuted with the sanction of the RTA.

13. The withholding by a Tax Officer or Tax Office Agent of any PIT collected, for his own use.


S. 97(a)(ii) and 99 of PITA

The main ingredient for this offence is in establishing that part of the amount paid as tax has been withheld. How so in light of direct remittances? Note the significant difference in the fine compared with CITA.

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Offence to be prosecuted with the sanction of the RTA.

14. A Tax Officer or Tax Office Agent’s rendering of false returns (whether in writing or orally), of the amount of PIT collected or received by him.


S. 97(a)(iii) and 99 of PITA

The main ingredient for this offence is in establishing that a false return has been made. Offence to be prosecuted with the sanction of the RTA.

15. A Tax Officer or Tax Office Agent’s act in defrauding any person, embezzling money or uses his position deal wrongfully with the RTA.


S. 97(a)(iv) and 99 of PITA

The main ingredient for this offence is in establishing: fraud, embezzlement and wrong conduct. Note the lumping up in the Section. Offence to be prosecuted with the sanction of the RTA.

16. Collection or the attempt to collect PIT by an unauthorised person.


S. 97(b) and 99 of PITA

The main ingredient for this offence is in establishing the collection or acts of attempt at collection. Offence to be prosecuted with the sanction of the RTA.

17. Wilfully obstructing a Tax Collector in the performance of his duties by neglecting or refusing to give information required in the exercise of the power of distrain.


Ss. 105(a) and 94(1) PITA

The main ingredients of the offence is in establishing that the obstruction was committed intentionally. Offence to be prosecuted with the sanction of the RTA.

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18. Obstructing or wilfully misleading or attempt to mislead a Tax Collector in the performance of his duties.


Ss. 105(b) and 94(1) PITA

The main ingredients of the offence is in establishing that the act of misleading or attempt to so do was intentional. Offence to be prosecuted with the sanction of the RTA.

Documents

Distrain under PITA - An Analysis and Evaluation of Principles & Practice - Bidemi Daniel, Olumide