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By Gbade Moradeyo

On October 20, public attention will swivel back to the N1.8 trillion tax dispute between MultiChoice Nigeria (MCN) and the Federal Inland Revenue Service (FIRS). On that date, the Lagos Zone of the Tax Appeal Tribunal (TAT) will rule on the matter.

The TAT, on September 23, had fixed the date for ruling on the appeal filed by MCN. At the time the dispute erupted, with the FIRS issuing notices of assessment and demanding the payment of N1.8 trillion tax liability from MCN, it was seductive to side with the revenue agency because businesses are known for desperate hoop-jumping to skip tax.

But N1.8 trillion seemed way out. So is the story behind it, which is a poorly carpentered one. Persuaded that it had a firecracker narrative and backed by law, the FIRS directed banks to freeze MCN’s accounts, appointing them as collection agents for the tax liability. The FIRS, in a statement, said MCN’s performance as a business was at variance with the taxes it paid, alleging that Nigeria accounts for 34 per cent of the total revenue of the MultiChoice Group.

It also alleged that it was denied access to MCN’s subscriber database. The revenue agency claimed Section 65 of the Companies Income Tax Act (CITA) empowers it to issue a best of judgment assessment on a taxpayer. MCN rejected the assessment, which it said was based on cooked turnover figures.

It also stated that it provided audited financial statements prepared by a top-tier firm, which it attached to its annual tax return filed at the FIRS.

MCN’s appeal at the TAT attracted the FIRS’ application for accelerated hearing. After the hearing of the appeal on August 24, the tribunal adjourned to September 23, ruling that MCN should make a statutory deposit before the adjourned date. The tribunal had invoked Order XI of the TAT Procedure Rules 2010, which requires a disputant to make the statutory deposit required under Paragraph 15(7) of the Fifth Schedule to the 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.”

The FIRS issued a statement in which it interpreted the tribunal ruling as an order to MCN to pay N900billion, half of the disputed tax liability, before the continuation of its appeal. MCN disagreed, saying: “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. The lesser amount is the tax paid by MultiChoice Nigeria in the previous assessed year, which is substantially less than the disputed assessment.”

Tax experts, individual and corporate have faulted the FIRS. PricewaterCoopers (PWC), in its analysis of the TAT ruling, stated: “It is clear from the law that MCN is required to pay the lower of the two amounts under the referenced provision of the law.”

PwC argued that paragraph 15(7) of the Fifth Schedule to the FIRS Act provides three conditions for the Tribunal to grant an order of security deposit. The listed conditions are a) that the appellant has, for the year of assessment concerned, failed to prepare and deliver to the FIRS returns required to be furnished under the relevant provisions of the tax laws b) the appeal is frivolous/ vexatious or an abuse of the appeal process c) or it is expedient to require the appellant to pay an amount as security for prosecuting the appeal.

PwC said it was curious that the TAT did not refer to any of the conditions to reach its decision.

“As a result, the Tribunal did not mention which facts were placed in proof of such condition(s), or how it considered that the FIRS’ facts were cogent enough to trigger the provision. The tribunal ignored this critical part of the provision and focused on the order for statutory deposit,” it stated.

It also noted that the only conditions necessary for the hearing of such is filing of the appeal within 30 days in the prescribed form, payment of the filing fees and that it was not mandatory for the TAT to issue a statutory deposit order.

Even if the FIRS could prove one of the conditions, PwC added, the Tribunal may exercise discretion on whether or not to order a statutory deposit.

It branded the Tribunal’s order as vague, given that the relevant provision requires the payment of the lower of a) an amount equal to the tax charged upon the appellant for the preceding year of assessment b) or half of the tax charged by the assessment under appeal.

“A simple confirmation of the amount paid by MCN in the preceding year of assessment, if any, would have enabled the Tribunal to make a definite order that would not be open to misinterpretation by both parties involved in the dispute,” said PwC.

In his intervention, Mohammed Abdulrazak, a taxation professor at the Lagos State University Faculty of Law, noted that the Tribunal’s directive for the N900billion deposit to enable further hearing breached procedural rules and amounted to a miscarriage of justice.

In a widely published article titled ‘MultiChoice Nigeria, Tax Tribunal Ruling: Issues and Doubts,’ Abdulrazak wrote: “To ask a party in a tax dispute to pay such a humongous amount as security to enable a further hearing is a failure by an administrative tribunal to observe procedural rules that are expressly laid down in the legislative instrument by which its jurisdiction is conferred and a miscarriage of justice from denial of fair hearing.”

He argued that the application of paragraph 15(7) as a basis for the ruling raises serious doubts, as there was no proof that MCN did not file returns to the FIRS or file tax returns for the year of assessment as required.

He also wondered if conclusions reached were fact-based, stating that the FIRS is required to prove the alleged violation of compliance with the FIRS Act before issuing the assessment notice, given that it sought an accelerated hearing.

Tax and business advisory firm, Andersen, similarly described as kooky the computational basis for the N1.8trillion liability. In an article published on its website of 7 September, Andersen described as misleading the FIRS’ claim that Nigeria accounts for 34 per cent of the total revenue of the MultiChoice Group as the basis for the tax bill.

“This premise may be misleading. According to the 2019 Audited Financial Statements of the MultiChoice Group, Nigeria accounts for 34 per cent of the group’s Rest of Africa (RoA), with the RoA accounting for 29.96 per cent of the group’s revenues. Thus, the effective total revenue of Nigeria to the group is 10.19 per cent. It is arguable that 10.19 per cent is significantly different from 34 per cent of total revenue. However, one cannot help but question whether some other parameters in the computation of the alleged tax liability are also misleading,” Andersen added.

The computation appears to carry a strong whiff of presumptuousness rather than cold facts. For one, the FIRS’ claim that MCN receives payments from third parties, including DAAR Communications and Channels TV (both free-to-air broadcasters on MCN’s DStv and GOtv platforms) as part of its revenue streams, is one without a leg to stand on.

It is common knowledge that local channels on MCN platforms are carried for free. Same with the agency’s claim that MCN receives revenues from outside Nigeria. A business with services limited to Nigeria cannot receive payments from where its services are unavailable.

Not cocky enough to say those behind the computation have poor numeracy skills, so I will say they are in the category of those who think two plus two can yield 222.

· Moradeyo, a social commentator, lives in Lagos

Vanguard News Nigeria

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