ABSTRACT

Tax investigation and tax enforcement are the two major methods used by Tax Administration Agencies to ensure tax compliance by recalcitrant tax payers. Non-compliance with tax payment can undermine Government’s ability to generate sufficient revenue for socio-economic development. It is therefore necessary that non-compliance is fully investigated and defaulters sanctioned appropriately through tax enforcement procedures for the purpose of ensuring compliance. The Federal Government of Nigeria established the Federal Inland Revenue Service (FIRS) for the administration of federal taxes. Under the Federal Inland Revenue Service (Establishment) Act 2007, the FIRS is empowered to employ tax investigation and tax enforcement as means of ensuring compliance with payment of taxes within its jurisdiction. This paper examines the procedures for investigation and enforcement of tax violation under the Federal Inland Revenue Service (Establishment) Act 2007. The methodology adopted in this paper is qualitative and analytical. Relevant data was sourced from primary and secondary sources. The relevant data obtained from these sources were qualitatively analyzed to draw appropriate deductions that ground the conclusions and recommendations proposed in this paper.

Keywords: Taxation in Nigeria, Tax investigation, Tax enforcement, Tax compliance, Federal Inland Revenue service, Tax administration

*DSW, LLB, (BENIN); LL,M (IBADAN); BL; Legal Officer, Nigeria Police Force, Zone 2 Police Command Headquarters, Lagos, Nigeria; former member of the Special Enforcement Unit of the Tax Investigation and Enforcement Department of the Federal Inland Revenue Service. Email: ekpiku@yahoo.com

INTRODUCTION

Legal Substratum for Federal Inland Revenue Service Investigation and Enforcement of Tax Violation

Section 35 of the Federal Inland Revenue (Establishment) Act, 2007 (FIRSEA)[1] provides for the powers of the Federal Inland Revenue Service (FIRS) to investigate tax offences, while the power to enforce violation of tax payment is provided in section 36. According to section 35;

  • The Service shall employ Special Purpose Tax Officers to assist any relevant law enforcement agency in the investigation of any offence under this Act.
  • Notwithstanding any thing to the contrary in any other enactment or law, the Service shall have power to investigate or cause investigation to be conducted to ascertain any violation of any tax law whether or not such violation has been reported to the Service
  • In conducting any investigation under subsection (2) of this section, the Service may cause investigation to be conducted into the properties of any taxable person if it appears to the Service that the lifestyle of the person and the extent of the properties are not justified by his source of income.
  • Where any investigation under this section reveals the commission of any offence or an attempt to commit any offence, the Service shall, pursuant to section 48 of this Act, undertake the prosecution of the offences.

In section 36 of the FIRSEA, it is provided thus;

  • The Service may co-opt the assistance and co-operation of any of the law enforcement agencies in the discharged of any duties under this Act
  • The law enforcement officers shall aid and assist the authorised officer in the execution of any warrant of distraint and the levying of distraint.
  • Any tax officer armed with the warrant issued by the Judicial officer and accompany by a number of law enforcements as may be determined by the Executive Chairman shall-
  • enter any premises covered by such warrant and search for, seize and take possession of any book, document or other article used or suspected to have been used in the commission of an offence;
  • inspect, make copies of, or take extracts including digital copies from any book, document or computer regardless of the medium used for their storage or maintenance;
  • search any person who is in or on such premise;
  • open, examine and search any article, container or receptacle;
  • open any outer or inner door or window of any premise and enter or otherwise forcibly enter the premise and every part thereof; or
  • remove by reasonable force any obstruction to such entry, search, seizure or removal as he is empowered to effect.
  • No person shall be bodily search under this section except by a person who is the same gender as the person to be bodily search.

In order to successfully carryout these duties of tax investigation and tax enforcement, the FIRS established the Tax investigation and Enforcement Department headed by a Coordinating Director.  The Tax investigation and Enforcement Department is presently divided into: (a) Criminal Investigation Department (CID) and the Special Enforcement Unit (SEU). The CID is headed by a Director in the FIRS while the SEU is headed by a Senior Police Officer that is assigned on special duty to the FIRS by the Nigeria Police Force. The CID is made up of staff of the FIRS who are specially trained in tax investigation. On the other hand, the SEU consists of Police Officers assigned to the FIRS from the Nigeria Police Force and Operatives from the Department of State Services, including Special Purpose Tax Officers who are staff of the FIRS but specially trained in tax enforcement duties. It is important to state here that in broad terms, tax investigation is one of the methods of tax violation enforcement. Whereas the CID mainly carries out investigation of tax violations and non-compliance, the SEU carries out both investigations of tax violations and offences, including tax violation enforcement duties.

Necessary Factors for Tax Investigation and Tax Enforcement

Most often, tax payer may devise means to avoid payment of tax. Although, some of the methods employed by tax payer to avoid payment of tax may be legal[2], tax violation itself is illegal. It follows therefore that non-compliance with tax payment and other tax violations are conditions precedent for tax investigation and tax enforcement. Under the FIRSEA and other tax laws, non-compliance with tax law is an offence and the law empowers the FIRS to investigate and enforce compliance through its Department such as the Criminal Investigation Department and the Special Enforcement Unit.

Since non-compliance with tax and tax violation are pre-condition to tax investigation and tax enforcement, it would be better to fully understand the concept of tax compliance before we proceed to discuss tax investigation and tax enforcement procedures in details.

WHAT IS TAX COMPLIANCE

Chambers 21st Century Dictionary[3]defines compliance as “yielding, agreement, assent, submission”. Tax compliance is therefore a concept used to describe the voluntary payment of the right amount of tax by a tax payer at the right time and place. Tax compliance implies that the tax payer obeys the tax laws and rules. For example, a tax payer must do the following:

  • Register with relevant tax authorities
  • Declare the actual and true income and profit
  • File tax returns as and when due
  • Pay the tax timeously
  • Give true report of tax base
  • Correct computation of tax liabilities
  • Provide information and documents to tax officers to enable them carry out their duties, such as tax audit
  • Allow tax officers access to premises, where necessary
  • Remit taxes deducted from a third party on behalf of the FIRS,

Where a tax payer acts contrary to the above stated tax obligations, it will amount to non-compliance and a violation of the tax law. Penal sanctions such as imprisonment, fine, penalty, interest or destrain may be the consequence of such tax violation.

TYPES OF TAX COMPLIANCE

There are two types of tax compliance, namely: Voluntary Tax Compliance and Compulsory Tax Compliance.

Voluntary Tax Compliance: This is where a tax payer willingly complies with tax laws in all respects and without compulsion from tax authorities. A tax payer may voluntarily comply with tax laws either out of patriotism, or due to tax education and enlightenment from tax authority, or based on fear of sanctions for non-compliance. Voluntary tax compliance is a legal requirement under the relevant laws which require a tax payer to register for tax, keep accurate records, disclose business affairs in full, file tax returns and pay taxes as and when due, without being forced to do so. Therefore, the defining feature of voluntary tax compliance is where a tax payer willingly reports his or her tax affairs by registering with tax authority, making self-assessment, filing tax returns, and paying full taxes on or before the due date specified under the laws.[4]

Compulsory tax compliance: This is the type of tax compliance which is induced by the tax authority through tax compliance enforcement mechanisms. For examples:

  • Breach of tax compliance by tax payer is tantamount to non-compliance with tax obligations
  • Payment of tax in order to avoid prosecution due to indictment by tax investigations for tax evasion[5]
  • Payment of tax based on the order of a competent court after successful civil or criminal indictment for tax evasion
  • Payment of tax after denial of application for Tax Clearance Certificate due to non-compliance with tax law (i.e payment in order to qualify for TCC)
  • All compulsory tax compliance is a consequent of successful tax enforcement

FACTORS THAT PROMOTE TAX COMPLIANCE

The following factors may promote tax compliance:

  • Dynamic and result-oriented tax laws. This encompasses existence of pragmatic tax laws that have adequate sanctions for tax violations, with simple assessment procedures and devoid of multiple of taxes
  • Sound tax compliance enforcement regime. Tax payers will pay their tax voluntarily if they know that non-payment will be successfully enforced by tax administration authority
  • Purposeful tax education and enlightenment
  • Government’s provision of basic infrastructure and services for tax payers
  • Incentives for voluntary tax compliance. This may be in form of discounted refunds from the amount of tax to be paid when the tax payment is timely, correct and voluntarily paid

PREDISPOSING FACTORS OF NON-COMPLIANCE WITH TAX OBLIGATIONS

The following factors may influence non-compliance with tax payment

  • Defective legal regime for taxation
  • Lack of adequate sanctions for non-payment of taxes
  • Complex tax assessment procedures
  • Avalanche of multiple of taxes
  • Lack of robust tax enforcement regime
  • Lack of purposeful and result-oriented tax education and enlightenment
  • Corruption and embezzlement of tax revenue by public officials resulting to government’s inability to provide basic infrastructure and services for tax payers

WHAT IS TAX INVESTIGATION

What is Investigation: Investigation can be defined as “careful inquiry or research”.[6] It could also be defined as “the act or process of carefully examining a crime, problem, statement, etc. especially to discover the truth”.[7] Tax investigation can therefore be defined as the systematic and conscious inquiry into the commission of tax violation[8] with a view to ascertaining and, or establishing the ‘who’, ‘where’, ‘why’, ‘when’, ‘how’ and ‘what’[9] of the violation.

Power of the FIRS to investigate Tax Violation: As earlier stated, the power of the FIRS to investigation tax violations is primarily derived from Section 35 of the FIRSEA but other relevant Tax Laws in Nigeria[10] which empower the FIRS in the administration of taxes under the respective laws also gives the FIRS powers to investigate tax violation.

Purpose of Tax Violation Investigation: Tax violation investigation is basically aimed at achieving the following:

  • To ascertain the extent and level of tax violation by a taxpayer
  • To ascertain those responsible for the tax violation
  • To ascertain the beneficiaries of tax violation
  • To ascertain the extent of revenue lost due to the tax violation. Tax audit machineries are used when tax violation investigation is for this purpose
  • To ascertain the immediate and remote cause(s) of the tax violation. This is aimed at blocking the revealed cause(s) in the future
  • To gather evidence that is required for prosecution of tax violator(s)

Parties in Tax Violation Investigation: The parties in tax violation investigation are;

  • The Complainant: This is mostly the FIRS Department that discovered the tax violation. Such Department will make report of the violation to the Executive Chairman of the FIRS or any other person authorized by him to received and act on such tax violation report. The Chairman of FIRS or his delegate, on receipt of the complaint, will refer it to the Tax Investigation and Enforcement Department (TIED) for investigation. The Coordinating Director of TIED will assign the Criminal Investigation Department or the Special Enforcement Unit of the FIRS to investigate the tax violation reported. The complainant may also have witnesses that will help the investigators with more information on the tax violation.
  • The Suspect: This is usually the tax payer that commits the tax violation and includes his cohorts and accomplice. The suspect may also have witnesses that will support his defence (if any).

Types of Tax Violations Investigation: The two main types of tax violation investigation are Proactive Investigation and Reactive Investigation.

  • Proactive Investigation: This is the type of tax investigation that starts from an intelligence generated by specially trained and designated FIRS staff and Security Operatives assigned to the FIRS from the Nigeria Police Force and the Department of State Service, who make up the Tax Investigation and Enforcement Department. From time to time, they monitor and dig into tax violation by tax payer. The intelligence generated from such surveillance is normally passed to appropriate authority for approval and investigation.
  • Reactive investigation: This is a type of investigation that emanates from complaint by FIRS Tax Offices and Departments, or tax violation discovered by the FIRS from information received from external bodies. For instances, all Government Ministries, Departments and Agencies (MDAs) request for Tax Clearance Certificate (TCC) from every corporate bodies that registered and bid for their contracts. TCC is usually issued to corporate bodies by the FIRS upon satisfaction that the corporate body has complied with all tax obligations. These MDAs will forward the TCC to the FIRS for confirmation of its authenticity. Where such TCC is discovered by the FIRS to be outright forgery or altered, they will cause investigation to be carried out on the forged TCC. Such investigation is referred to as Reactive Investigation.

Tax Violation Investigation Process/Stages: This encompasses all the activities and events that take place during tax investigation. For the purposes of our discussion, tax violation investigation process, are:

  • Instigation: This is the starting point of any tax investigation, be it the proactive or reactive investigation. This involves the receipt of intelligence or complaint which calls for tax investigation.
  • Pre-arrest Investigation: What the tax investigator does at this stage is to ascertain whether, from the complaint or intelligence received, there is any violation that warrants investigation. At this stage, the investigator makes entry in the crime diary of the received complaint/intelligence, open case file for investigation, and record the statement of the complainant or its representatives and that of witnesses. The tax investigator may also look for additional evidence that may support the compliant/intelligence. Once the investigator is satisfied that the complaint/intelligence deserves further investigation, he will go to the next stage, which is arrest/invitation, otherwise, he will, without hesitation, close the case for lack of evidence.
  • Arrest/Invitation: It is at this stage that the investigator makes the first contact with the suspect (alleged tax violator) as the case may be. In case of a corporate taxpayer, it is those that are listed in Section 49 (2) of FIRSEA that are to be arrested or invited for interrogation/interview.
  • Where the tax violation necessitates arrest, for example in cases of forgery, counterfeiting, assault of FIRS officers, etc, the FIRS will formally report the case to Law Enforcement Agency for investigation. As already stated, the FIRS now have the Special Enforcement Unit made up of Police Officers and DSS that are mandated to investigate such cases. The relevant laws grants the Law Enforcement Agency power to arrest offenders. For example, Section 18 of Administration of Criminal Justice Act (ACJA)[11] and Section 24 of the Police Act[12]empower the Police to arrest offenders.
  • Post-arrest Investigation: The following usually takes place during this stage, namely;
  • Statement by suspect: Recording of statement from an arrested/invited tax violator is an integral part of tax investigation, most especially if the tax violation is criminal in nature and the tax investigation is by Law Enforcement Agent in the Special Enforcement Unit of FIRS. It important to note here that:
  • When the tax violators are more than one person, the statement of the arrested/invited tax violators must be recorded separately and must not be recorded in the presence of the other co-violator.
  • In case of a corporate tax payer, it is those that are listed in Section 49 (2) of FIRSEA that will be arrested or invited.
  • The tax offender must be properly cautioned of his rights before his statement is recorded in writing.[13]
  • Where the tax offender volunteered confessional statement, such confession must be recorded under video coverage and where his lawyer is present, in the presence of his lawyer. It is desirable that the tax offender be taken before a Superior Investigator for endorsement of the confessional statement[14]
  • It is necessary for the investigator to have proper knowledge of what is required for the confessional statement of a tax offender to be admissible in evidence.[15]
  • Detention of Arrested/Invited Tax Offender: Where and when the circumstance of the case so demands, an arrested or invited tax offender may be detained by a Law Enforcement Agent that is investigating tax violation. Instances where a tax offender may be detained, are:
  • When the tax violation under investigation upon which the suspect is arrested or invited is serious, e.g. forgery or counterfeiting of Tax Clearance Certificate, falsification of documents, amongst others.
  • Tax violation that involves violent conduct by the tax payer, such as attack or assault on FIRS officers on tax duty.
  • Rights of a Tax Violator under detention by Law Enforcement Agency investigating Tax Violation, are:
  • Right to medical attention.
  • Right to have access to family member and lawyer.
  • Right to feeding.
  • Right to be kept clean, etc.
  • Bail of Tax Violator in Custody: The law provides that a tax violator under investigation and in detention is entitled to bail pending conclusion of the investigation within a reasonable time.[16]
  • Exhibit: For our discussion, exhibit can be defined as any object, substance or document that has to do with the commission of tax violation, and which was recovered during the investigation of the tax violation.
  • Sources of Exhibit in Tax Investigation are:
  • From the tax violator under investigation.
  • From the complainant that reported the tax violation to the tax investigator.
  • From a witness.
  • From scene of crime, such as a destroyed Non-compliance Sticker pasted on defaulting tax payer premises can be recovered at the scene of the tax violation.
  • From conducting search on suspect during arrest or search on the house/premises of the tax violator.
  • Keeping/Custody of Exhibit: Exhibit must be kept and produced from proper custody so as to ensure its admissibility. A label to be affixed to each exhibit must show the following:
  • Exhibit register number
  • The charge register number
  • The case file number
  • The identification number of the exhibit
  • Where to Seek Scientific Aid/Confirmation of Exhibit Recovered During Tax Investigation:
  • Suspected forged Tax Clearance Certificate and other FIRS documents. This can be obtained from the FIRS Tax Office purported to have issued it.
  • Suspected forged handwriting or signature. This is obtainable at the Forensic Science Laboratory, Force Criminal Investigation Department Annex, Alagbon Close, Ikoyi Lagos or the office of the EFCC, Abuja. Note that several samples of the handwriting or signature of the person purported to have written or signed it, and that of the suspected forger, will be taken and forwarded together with the suspected forged handwriting/signature, to a handwriting expert or analyst, who will be one of the prime witness to give evidence where the tax violator is charged to Court for the tax violation.
  • Case File: A case file is a file which contains all the facts and evidence about a complaint or intelligence on tax violation made to the Tax Investigation and Enforcement Department for investigation. Case file of tax offences are usually compiled by Law Enforcement Agents such as the Police or DSS that are assigned to the FIRS.
  • Content of Case File: Case file consists of the following contents:
  • Extract from crime diary.
  • Police investigation report.
  • Minute sheet.
  • Complaint/intelligence.
  • Complainant’s statement.
  • Statement of witnesses
  • Statement of suspects
  • Documents
  • Rules of Keeping Case File: A tax investigator who is investigating tax violation that is criminal in nature must observe the following rules in keeping the case file:
  • Have knowledge of the movement of the case file
  • Keep the case file up to date (keep to B.U or Bring UP) date
  • Register the case file with the Crime Recorder
  • Refer to parties in the case file by name, and not by page.
  • Ensure that all minutes are complied with.
  • Tax Offences Investigation Powers and Tools: As already stated, when tax violation is criminal in nature, it is reported to the Special Enforcement Unit of the Tax Investigation and Enforcement Department of FIRS. This is because it is only the Law Enforcement Agency that is mandated by law to investigate crime as such it has all the necessary powers and tools for the investigation of criminal tax violation.[17] It was for this reason and purpose that the FIRS formed the Special Enforce Unit and requested for officers from the Nigeria Police Force and the Department of State Service. The most pronounced tax investigative powers and tools by the Law Enforcement Agents in the Special Enforcement Unit of the FIRS are:
  • Power of invitation: The tax offender will be invited by the tax investigator, and where the tax offender is a corporate tax offender such as a company, its representative as stated in Section 49 (2) of FIRSEA will be invited.
  • Power of arrest: The investigative tool required to lawfully arrest a tax offender is a Warrant of Arrest. The only exception is where the arrest is carried out in an emergency situation, in which case the power of arrest is inherent in every Law Enforcement Agent who properly identifies himself in accordance with law. Note that in case of a corporate tax offender, Section 49 (2) of FIRSEA provides for those that may be arrested.
  • Power of Search: The tax investigator must know exactly what to search for and obtain a valid Search Warrant.
  • Power to request for tax offender statement of account from their bankers:[18] In order to achieve this objective the tax investigator must know the account number of the tax offender and arms himself with a valid Banker Order from the Court[19].
  • Power to call for the tax offender (corporate tax offender) details/information from the Corporate Affairs Commission: The tax investigator must know the actual name of the corporate tax offender from his preliminary investigation, so that he can send a valid name to the CAC for necessary information.
  • Vetting of Case File During Tax Investigation: Vetting of case file during investigation is usually done by the investigator’s Superior in order to guide the investigator to do all that is needed to be done in the tax investigation. Vetting of case file during investigation is different from vetting of case file after investigation by the Legal Department, which is mainly to ascertain whether or not there is sufficient evidence in the case file to establish the offence investigated against the tax offender. The reasons for case file vetting during investigation are to: examine, criticize and advice the direct tax investigator on his next line of action in the investigation,

WHAT IS TAX ENFORCEMENT

The word “enforcement’’ is derived from the word `enforce’, and the Chambers 21st Century Dictionary[20]defines it as “to cause a law or decision to be carried out”. Enforcement therefore means the process of causing a law or decision to be carried out. Black’s Law Dictionary[21]defines enforcement as “the act or process of compelling compliance with law, mandate, command, decree or agreement”. Tax enforcement could be described as the process or series of processes used in the administration of tax to compel a recalcitrant and defaulting tax payer to perform his or her tax obligations under the law.

CONDITIONS PRECEDENT TO TAX ENFORCEMENT

As already stated elsewhere in this paper, the condition precedent to tax enforcement is non-compliance with tax obligation or a violation of the tax law. Non-compliance or tax violations that may compel tax enforcement are:

  • Non-registration of tax payer with the tax office for the purpose of obtaining Tax Identification Number (TIN)
  • Non-filing of tax returns and payment of taxes
  • Non-payment of assessed tax liability
  • Refusal of tax payer to furnish on demand documents and information to FIRS
  • Refusal of a tax payer to give tax officers access to premises in the course of their duty

The Special Enforcement Unit of the Tax Investigation and Enforcement Department of FIRS is empowered by relevant tax laws to enforce the above tax violations using the enforcement procedures and mechanisms discussed below

TAX ENFORCEMENT PROCEDURES AND MECHANISMS

Tax enforcement is the most effective method of checking tax violation and ensuring compulsory tax compliance by tax violators. Tax can be enforced either through executive action or judicial order. The various tax laws in Nigeria make provisions on how payment of tax and other compliance with relevant tax laws can be enforced against a defaulting tax payer. Some examples of tax law provisions for the enforcement of taxes include:

  • The Federal Inland Revenue Service (Establishment) Act[22] which provides for enforcement powers of the FIRS, outline what the FIRS and the law enforcement agencies should do in the enforcement of tax.[23]
  • The Companies Income Tax Act[24] makes it mandatory for a Ministry, Department or an Agency (MDA) of government or a commercial bank, with which a company has any dealing, with respect to any of the transaction set out in Section 101 (4) and (5) of the Act, to demand from the person a tax clearance certificate for the three years immediately preceding the current year of assessment.
  • The Personal Income Tax Act[25] also makes it mandatory for MDA or a commercial bank, with which a person has any dealing, with respect to any of the transaction set out in Section 85 (4) and (5) of the Act, to demand from the person a tax clearance certificate for the three years immediately preceding the current year of assessment.

Unfortunately, these provisions of the tax laws for the enforcement of taxes by demanding for tax clearance certificate is not duly observed and obeyed by those the laws mandate to so do. We state here without equivocation that no commercial bank in Nigeria at the moment requests for tax clearance certificate from individuals (and even corporate bodies) that apply for loan facility before granting such loan. This also applies to the registration of motor vehicle, application for firearms licence, amongst others.

Methods of Tax Violation Enforcement

The following methods may be used for tax compliance enforcement by the FIRS.

  1. Routine Tax Audit: This is an investigation carried out on tax payers to ascertain the veracity of the returns filed by such tax payer. It is tax enforcement mechanism in that it exposes the true tax liability of a tax payer and makes the tax payer to pay the correct amount of tax. The Special Enforcement Unit may adopt this method of tax enforcement. When the SEU adopts this method in tax compliance enforcement, they will have to involve and rely on the expertise of the Tax Audit Department of the FIRS.
  2. Criminal tax investigation: See our discussions above on investigation of tax violation.
  3. Civil litigation: This is the use of civil judicial process to enforce payment of defined tax liability. It involves the use of the Undefended List Procedure to recover undisputed tax liability or through the use of writ of summons where the tax liability is disputed. The role of the Special Enforcement Unit in this regards is to help the relevant FIRS department and staff to get necessary information and documents from the tax payer.
  4. Criminal prosecution: This is the trial of a tax payer in the court for tax offence committed under the tax laws. It involves arraignment, taking of plea, trial, judgment and sentencing. This is similar to our usual criminal prosecution procedure where the SEU officers are required to prepare the case file, make a duplicate of the case file available to Legal Department of FIRS for vetting and a legal advice, and to give evidence in court.
  5. Destraint: This is the seizure and holding of property of a tax payer as security for payment of a debt or satisfaction of claim pursuant to a valid Court Order. Section 33(1) of Federal Inland Revenue Service (Establishment) Act provides for the power of the FIRS to destrain thus:

Without prejudice to any other power conferred on the Board for the enforcement of payment of tax due from a company, where an assessment has become final and conclusive and a demand has, in accordance with this provision of the relevant tax laws in the First Schedule to this Act, been served upon the taxable person or upon the person in whose name the taxable person is chargeable, then if payment of the tax is not made within the time limited by the demand notice, the Board may in the prescribed form, for the purpose of enforcing payment of the tax due-

  • distrian the taxpayer by his goods or other chattels, bonds or other securities;
  • destrain upon any land, premises, or place in respect of which the taxpayer is the owner and, subject to the following provisions of this section, recover the amount of tax due by sale of anything so distrain.[26]
  1. Sealing of business premises: The sealing of business is sequel to the distraint powers of the tax authority.
  1. Tax Recovery by Deduction at Source: This is a type of tax enforcement method whereby the tax owed by a tax payer (usually government ministries, departments or agencies) and the interests thereto are deducted at source by the Accountant-General of the Federation from the statutory revenue allocation due to the tax defaulting government agency. Such deduction is usually upon the written request of the tax authority, and the deducted tax amount is remitted to the revenue authority of government. This mode of tax enforcement is provided for in Section 83 of Company Income tax Act and Section 74 (2) of the Personal Income Tax Act. The role of the SEU in this method of tax compliance enforcement is to help get necessary information and documents from the defaulting tax payer through its investigative mechanism whenever the Unit is required to so do.

RECOMMENDED OPERATIONAL PROCEDURES FOR THE SPECIAL ENFORCEMENT UNIT (SEU) IN TAX VIOLATION ENFORCEMENT

It is recommended that in carrying out their duties, the SEU of the Tax Investigation and Enforcement Department of FIRS should ensure that they:

  • Know and master tax laws that apply to all enforcement cases
  • Know the full facts of the case of tax violation to be enforced
  • Interview the FIRS staff in charge of the tax payer’s file for verification
  • Ensure that the tax enforcement is authorized by the appropriate authority
  • Arm themselves with the requisite enforcement tools, which vary from one enforcement method to the other. For example, in tax enforcement by investigation, they should procure valid warrant of arrest, search warrant, bankers order, investigation activities signal, etc. In tax enforcement by destraint of tax payer property, they should get the relevant destraint order.
  • Be polite and courteous in their approach but firm in their decision.

It would also be helpful for the SEU of the Tax Investigation and Enforcement Unit of FIRS:

  • Not to request for bribe or any other form of gratifications from the tax payer, and refuse to accept when offered
  • Not to terminate enforcement half way
  • Not to apply force, and when applied, must not be disproportionate
  • Not to expose their life and that of the FIRS staff to danger and unnecessary risk during enforcement exercise
  • Not to allow the FIRS staff to dictate to them in the middle of enforcement exercise the style and method of enforcement. They should follow the method approved by the Head of SEU, and seek for further direction when circumstances demand
  • Not to go for tax enforcement unless approved by appropriate authority, such as the Head of the SEU or any other person so delegated by him

CONCLUSION

It is important to point out that all we have discussed here are mere guidelines for the day-to-day tax investigation and tax enforcement duties by the Tax Investigation and Enforcement Department of FIRS. The main determinant of a successful tax investigation and enforcement duties is the “human factor”. Tax investigation and tax enforcement will be a futile exercise and an unproductive endeavor if there is no competence, sincerity of purpose, determination, ingenuity, and dedication to duty on the part of those saddled with the responsibility.

[1] Federal Inland Revenue Service (Establishment) Act, No. 13, 2007

[2] For example, tax restructuring may enable a taxpayer to pay lesser tax, and tax restructuring is legal under the law.

[3] At page 281

[4] FIRS 2015 Tax Year Planner

[5] See Section 48 of Federal Inland Revenue Service (Establishment) Act, 2007, which empowered the service to compound tax offences by accepting a sum of money not exceeding the maximum fine specified for the offence.

[6] The New International Webster’s Comprehensive Dictionary of the English Dictionary of the English Language. 2013 Encyclopedic Edition

[7] Available at http://dictionary.combridge.org/dictionary/english/investigation

[8] Tax violations includes (1) failure to deduct or remit-Section 40 of Federal Inland Revenue (Establishment) Act (FIRSEA), 2017, (2) obstruction-Section 41 of FIRSEA, (3) false declaration-Section 42 of FIRSEA, (4) counterfeiting documents (forgery)-Section 43 of FIRSEA, (5) false statement and returns-Sections 94 of Companies Income Tax Act, 2004 (as amended) and Section 96 of Personal Income Tax Act, 2004 (as amended). (6) failure to register-Section 32 of Value Added Tax Act, 2004 (as amended), (7) tax evasion-Section 26 of VAT Act, etc.

[9] ‘who’ is the author of the violations or who committed the violations, ‘where’ is the place the violation took place, ‘when’ is the time the violations was committed, ‘why’ is the reason for the violations, ‘when’ is and ‘how’ is the way the violation was committed. The 4 W and 1 H are the main puzzle every investigator want to unravel, although there are other questions an investigator will also need to find answer to, if he is to have a result oriented investigation

[10] See the Personal Income Tax Act, Cap. P8, Laws of Federation of Nigeria, 2004, Companies Income Tax Act Cap. C21, LFN, 2004, Value Added Tax Act, Cap. V1, LFN, 2004, Petroleum Profit Tax Act, Cap. P13, LFN, 2004, Tertiary Education Trust Fund (Establishment, Etc.) Act, 2011, etc.

[11] Administration of Criminal Justice Act, 2015

[12] Police Act and Regulations, Cap. P19, LFN, 2004

[13] See Section 36 of the Constitution of the Federal Republic of Nigeria, 1999

[14] Note that a confessional statement will not be invalidated because it was not endorsed by a Senior Investigator. See the case of Anthony Omoruyi v. The State (CA/B/245C/2011, delivered on Friday, 2nd May, 2014 by the Court of Appeal, Benin Division, per Ibrahim Mohammed Musa Saulaw, JCA

[15] See Section 29 of Evidence Act, 2011

[16] See Section 35 (1) of the Constitution of the Federal Republic of Nigeria, 1999. See also Section 30 of the Administration of Criminal Justice Act, 2015

[17] See for example, Section 4 of the Police Act that empowered the Police to investigate crime. See also the cases of Fajemirokun V Commercial Bank (Credit Lyonnais) Nig. Ltd & Anor (2002) 10 NWLR (pt. 774) P. 95 at P. 110, Paras D – E, Fawehinmi V IGP (2005) I NCC, pg 414 at P. 430, Para C, Mr. Ajala Abbey Kalio & Anor v. Mr. Fubara Cyrus Dawari & Ors (2018) LPELR-44628 (CA) and Akanbi & Ors v. COP Kwara State & Ors (2018) LPELR-44049 (CA), Pp. 24-26, Paras, F-A.

[18] The Law Enforcement Agent investigating tax offences can request for the tax offender bank statement of account under Bankers’ Books Evidence, 1879, (it is a statute of general application in Nigeria)

[19] See the judgment of the High Court of Lagos State (unreported) delivered by Kazeem Alogba, J (as he then was), on 24th May, 2019, in Suit No. LD/1961GCM/2017, Osemene & 5 Ors v,Guaranty Trust Bank & 6 Ors, where the Court held that a banker order issued by a Magistrate Court, without a proper application filed by the party seeking the banker order is void and invalid.

[20] At page 435

[21] 8thed, page 569

[22]Federal Inland Revenue (Establishment) Act, 2007, Section 36 thereof. Its commencement date was 16th Day of April, 2007

[23] See Section 36 of FIRSEA

[24] In Section 101

[25] In Section 85

[26] See also Section 33 (2), (3), (4), (5), (6) and (7) of Federal Inland Revenue (Establishment) Act, 2007, Section 86 of Company Income Tax Act and Section 104 of Personal Income Tax Act.

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