Introduction

The Tax Appeal Tribunal (TAT) in Nigeria requires an aggrieved taxpayer to deposit 50% of the disputed tax amount into a designated account as security for the prosecution of a tax appeal. This practice stems from the provisions of paragraph 15(7) of the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act, 2007 (as amended) (FIRS Act). These provisions grant the TAT the authority to adjourn a tax appeal hearing and direct the appellant to deposit a prescribed amount with the Federal Inland Revenue Service (FIRS) as security for the appeal. However, this order can only be made if the FIRS satisfies the Tribunal that:

1. The appellant has failed to file tax returns with the FIRS for the concerned year of assessment.
2. The appeal is frivolous, vexatious, or an abuse of the appeal process.
3. It is expedient to require the appellant to pay an amount as security for prosecuting the appeal.

If the Tribunal orders such a deposit, it becomes a condition precedent to hearing the appeal. Non-compliance with this order renders the appeal incompetent and liable to be struck out.

The Case of Multichoice Africa Holdings BV vs FIRS

In the case of Multichoice Africa Holdings BV vs FIRS (decided on October 22, 2021), the appellant challenged a tax assessment of approximately N1.8 trillion issued by the FIRS. During the hearing, the FIRS argued that the appellant was required to make a security deposit for the appeal in accordance with paragraph 15(7) of the Fifth Schedule to the FIRS Act. The Tribunal agreed and ordered the appellant to deposit 50% of the disputed tax amount with the FIRS as security for the appeal. The appeal was ultimately struck out because the appellant failed to comply with the order, and the disputed tax amount became final and conclusive.

The Tribunal later codified its ruling in Multichoice by issuing the TAT (Procedure) Rules, 2021, which mandated taxpayers to pay 50% of a disputed tax amount into a designated account before hearing as security for prosecuting appeals against the FIRS or any tax authority in Nigeria.

The Case of Investment Holdings Limited vs FIRS

In the subsequent case of Investment Holdings Limited v FIRS (decided on March 8, 2022), the Tribunal revisited the issue of the 50% deposit requirement. The Tribunal determined that:

1. The provisions of Order III Rule 6(a) of the TAT Rules were at variance with paragraph 15(7) of the Fifth Schedule to the FIRS Act and did not have the same effect.
2. While Order III Rule 6(a) introduced a 50% deposit requirement, paragraph 15(7) made such a payment conditional upon specific circumstances, which the FIRS must prove.
3. Order III Rule 6(a) of the TAT Rules, being a subsidiary legislation, was invalid for being inconsistent with the primary legislation, the FIRS Act.

Appeals to the Federal High Court

According to paragraph 17(1) of the Fifth Schedule to the FIRS Act, appeals on points of law lie with the Federal High Court (FHC). The Federal High Court (Federal Inland Revenue Service) Practice Directions, 2021, and the Federal High Court (Tax Appeal) Rules, 2022, require respondents challenging a tax assessment to deposit half of the assessed amount into an interest-yielding account of the FHC pending the determination of the appeal.

However, in the recent decision of Joseph B. Daudu SAN v FIRS (November 9, 2023), the FHC invalidated provisions requiring security deposits for tax appeals, declaring them unconstitutional for violating the right to fair hearing and access to court under the Nigerian Constitution.

Commentary

Failure to satisfy a condition precedent, where required, is fatal to a suit. Until the decision in IHS v FIRS, the 50% deposit requirement was established as a condition precedent for hearing tax appeals against the FIRS. The decision in IHS v FIRS suggests that the payment of a 50% deposit will no longer be mandatory, except under specified circumstances proven by the FIRS.

The FHC decision in Joseph B. Daudu SAN v FIRS provides further comfort to aggrieved taxpayers intending to challenge tax assessments, as it invalidates provisions requiring security deposits for tax appeals. This decision underscores that any legislation contravening the Constitution is null and void.

While the recent rulings may seem to relax the deposit requirement, the issue remains unresolved until a superior court makes a definitive pronouncement. Taxpayers should still consider the security deposit requirement and seek appropriate legal advice before pursuing tax appeals.

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