For some time now, the Federal Inland Revenue Service (FIRS) has been embroiled in an acrimonious tax liability tango with MultiChoice Nigeria Limited, owners of the popular subscription-based satellite television platforms – DStv and Gotv – and its parent company, MultiChoice Africa.
And the tango is not only untidy, it has become messy.
The brouhaha started on April 7, 2021 when FIRS issued tax liability notice 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 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’ seeming self-help, MultiChoice Nigeria Limited filed an appeal against the companies income tax and value added tax assessment notice at the Tax Appeal Tribunal (TAT).
The organisation not only objected to the FIRS assessment which it insisted was based on presumed and inaccurate turnover figures but also stated unequivocally that it provided an audited financial statement prepared by a well-known reputable global firm and attached same to its annual tax returns filed at the FIRS.
Multichoice also complained about the tax agency’s post no debit directive to banks and alleged the breach of the statutory limit of six years for tax audits and investigations as stated in section 66 of the Companies Income Tax Act (CITA).
Why not responding specifically to any of the charges, FIRS only insisted that they had the power under Section 65 of CITA to issue a best of judgment assessment on any tax payer, including Multichoice Nigeria.
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 one 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 punched back: “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,” the pay-tv group said. And enlightened self-interest dictated the option that offered the lesser amount.
FIRS interpretation of the court ruling has raised some fundamental questions. Why did it commit such a faux-pas by putting a spin on it intended to mislead the public? If it could deliberately do that, how reliable was its tax assessment technics?
Simply put, how did FIRS arrive at the contentious N1.8 trillion 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.
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 institution into the process because that is counterproductive. Unfortunately, that seems to be the case in this instance.
The narratives must also be straightforward and credible. That seems not to be the case here.
For instance, while FIRS is claiming that Multichoice denied it access to its servers, it is at the same time boasting of carrying out thorough forensic audit.
How was the forensic audit carried out? What computational magic did FIRS use in arriving 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 figure be correct? Any company with a tax portfolio of N1.8 trillion must be in the A-list. Definitely, Multichoice does not play in that league.
So, could it be that FIRS is simply bandying figures, hoping to arm-twist Multichoice into making some concessions?
Besides, as the multinational professional services firm, Pricewaterhousecoopers (PwC), noted in a 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 to prove Multichoice’s guilt.
So far, what suffices as evidence are mere conjectures and inferences.
So, 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 assumptions.
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 because Multichoice is reputed as the first company to allow FIRS real-time access to its earnings for Value Added Tax (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 committing regulatory harakiri.
By creating the impression that it didn’t do the homework required in the circumstance but only 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 and 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, always wary of opaque regulatory environment, is watching.
Clarity is the name of the game. 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 nation whose citizens are in perpetual hunt for thieves, but the hemorrhaging economy will pay the ultimate price when the confidence of foreign investors to do business in Nigeria is completely eroded.
Rather than 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 to the tune of N1.8 trillion and what it was doing while the alleged tax liability was mounting.