September 9, 2021

The untidy FIRS, Multichoice foxtrot

By Ikechukwu Amaechi

FOR some time now, the Federal Inland Revenue Service, FIRS, has been embroiled in an acrimonious tax liability tango with MultiChoice Nigeria Limited, MCN, owners of the popular subscription-based satellite television platforms – DStv and Gotv – and its parent company, MultiChoice Africa, MCA. And the tango is not only untidy, it has become messy.

The brouhaha started on April 7, 2021, when FIRS issued tax liability notices of assessment and demand note in the sum of N1.8 trillion to the pay-TV company.  Apparently, Multichoice disputed the figures and in August, the executive chairman of FIRS, Muhammad Nami, directed banks to freeze all accounts of MultiChoice Nigeria Limited and MultiChoice Africa in order to recover the alleged N1.8 trillion tax liability.

Nami claimed that Multichoice’s performance does not reflect in its tax obligations and compliance level in Nigeria and frowned at what he described as the penchant of foreign-based companies conducting businesses in Nigeria refusing to pay taxes and after making a kill in profits. “They do with impunity in Nigeria what they dare not try in their countries of origin,” the tax czar who took over from Tunde Fowler, lamented.

Alarmed at FIRS’ action and disputing the claims as unfounded, Multichoice headed for the Lagos Tax Appeal Tribunal, TAT, as a responsible and law abiding corporate citizen for adjudication. The five-member TAT, chaired by Prof. A.B. Ahmed, sat on August 24 and after hearing the matter in appeal, adjourned to September 23 after invoking Order XI of the TAT Procedure Rules 2010, which requires any taxpayer who disputes tax assessments, to make the statutory deposit required under Paragraph 15(7) of the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act 2007, FIRS Act.

The paragraph states: “The Tribunal may adjourn the hearing of the appeal to any subsequent day and order the appellant to deposit with the Service, before the day of the adjourned hearing, an amount, on account of the tax charged by the assessment under appeal, equal to the tax charged upon the appellant for the preceding year of assessment or half of the tax charged by the assessment under appeal, whichever is the lesser plus a sum equal to ten percent of the said deposit, and if the appellant fails to comply with the order, the assessment against which he has appealed shall be confirmed and the appellant shall have no further right of appeal with respect to that assessment.”

Ironically, the interpretation of the TAT ruling added another layer of controversy to the saga. FIRS went to town claiming in a statement by its Director, Communications and Liaison Department, Abdullahi Ahmad, that the Tribunal had ordered Multichoice to pay the Federal Government N900 billion, which will be 50 per cent of the alleged N1.8 trillion tax backlog.

Expectedly, Multichoice countered the claim. “The directive issued by the TAT in accordance with paragraph 15(7) of the Fifth Schedule to the FIRS Establishment Act requires Multichoice Nigeria to deposit with FIRS an amount equal to the tax paid by Multichoice Nigeria in the preceding year of assessment or one half of the disputed tax assessment under appeal, whichever is the lesser amount plus ten per cent.

MultiChoice implied that enlightened self-interest should dictate it goes for the option that will enable her make lesser deposit. “The lesser amount is the tax paid by Multichoice Nigeria in the previous assessed year, which is substantially less than the disputed assessment,” the pay-TV group said.

FIRS interpretation of the court ruling has raised some fundamental questions. How did it arrive at such faux-pas? If it could deliberately misinterpret the extant provisions of the law and ruling of the TAT, how reliable was its tax assessment techniques? Simply put, how did FIRS arrive at the N1.8 trillion tax default figure? To be sure, it is unacceptable that companies operating in Nigeria infringe on tax laws. It also goes without saying that all companies operating in the country must do so in accordance with the extant laws. Tax evasion is a serious crime globally. Nigeria should not be an exception.

ALSO READ: VAT Act supports us – FIRS

Therefore, FIRS is absolutely right to insist that all companies in the country must be held accountable and made to pay their fair share of relevant taxes. But in doing so, care must be taken not to inject the notorious sloppiness of the country’s institutions into the process because that is counterproductive.

Unfortunately, this seems to be the case in this instance. The narratives must also be straightforward and seen to be credible. That seems not to be the case here. For instance, while FIRS is claiming that Multichoice denied its agents access to its servers, it is also claiming that it discovered the alleged N1.8 billion tax fraud through a forensic audit.

How was the forensic audit carried out without access to the company’s books? If Multichoice was recalcitrant, by what computational magic did FIRS arrive at the N1.8 trillion figure? While it may be true that Nigeria contributes 34 per cent of Multichoice’s total revenue and the rest of Africa where they have presence accounts for 45, does that make the N1.8 trillion figure believable?

What is the total turnover of the company? Given the fact that tax is on profit, can this be true or is FIRS, as some tax experts are suggesting, simply bandying figures, with the hope of drawing Multichoice out for possible negotiation?

Wouldn’t that tactic be wrong headed assuming that is the intent? Besides, as the leading professional services firm, PwC, noted in its tax alert posted on its website, TAT seemed to have focused only on the order for statutory deposit while ignoring other issues that are relevant to arriving at that decision.

These conditions include failure by the appellant to file tax returns for the year concerned and evidence that the appeal is frivolous or an abuse of the appeal process. In other words, the burden is on the FIRS to put forward relevant materials and facts before the tribunal in proof of Multichoice’s default. None of these conditions was met in this case.

While FIRS is right to insist that companies pay statutory taxes, it must be wary of the perception of regulatory onslaught. Tax matters must be based on evidence, not assumption or conjecture. This is the crux of the matter. Multichoice’s subscriber base in Nigeria should not be a matter of conjecture. In fact, FIRS should not even wait for Multichoice to supply the numbers if it were a serious organisation because the Value Added Tax, VAT, paid by subscribers whenever subscriptions are renewed go directly to the agency. Not only that, Multichoice is reputed as the first to allow FIRS real-time access to its earnings for VAT computation.

While it is expected that a country as cash-strapped as Nigeria is right now would embark on aggressive revenue generation drive, care must be taken to avoid regulatory onslaught. By creating the impression that it didn’t do the homework required in the circumstance but only did a simple straight-line calculation of what it thinks should be the revenue of MultiChoice and the tax obligations therefrom, FIRS is only being disingenuous.

No doubt, Multichoice is hurting. A report by Bloomberg indicated that FIRS regulatory onslaught prompted shares offload of the Johannesburg-based company and erased $240 million of its market value in less than two hours of the FIRS statement. The stock declined eight per cent to a near 11-month low. It only took MultiChoice’s explanation for the stock to claw back 3.6 per cent.

But the Nigerian economy will be the ultimate loser because the global investment community is watching. The much needed Foreign Direct Investment, FDI, will be negatively impacted, particularly if it becomes evident that the computational metrics used by FIRS to arrive at the tax liability figures are questionable.

The actions of FIRS may impress an excitable country in perpetual search for thieves even as corruption thrives, but the haemorrhaging economy will pay the ultimate price when the confidence of foreign investors to do business in Nigeria is completely eroded.

Rather than media trial of Multichoice and playing to the gallery in the court of public opinion, FIRS should assemble all its evidence and prove same in the TAT. Nigerians will be interested in knowing how the same Multichoice, which FIRS commended in the past as a good corporate citizen, suddenly became a tax renegade.

Vanguard News Nigeria