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AWA IBRAHEEM, PhD, FCA, ACTI.      &                    R. O. JEGEDE, FCA, FCTI.
ICMA Services (Tax Consultants),                           Ijewere & Co. (Tax Consultants)
3, Core Group Close,                                                106-110 Lewis Street, Lagos
Opposite Police Headquarters, Asaba.
Email:  awa@icmaservices.com                               Email: niyi@jegede.com      

The Companies Income Tax Act, 1990 established the Federal Board of Inland Revenue together with its operational arm called Federal Inland Revenue Service (FIRS).  It has responsibility to administer Companies Income Tax Act, Petroleum Profits Tax Act, and Value Added Tax Act.  In addition, FIRS also administers the Personal Income Tax Act in respect of residents of the Federal Capital Territory, members of Nigeria Police Force, members of Armed Forces of Nigeria as well as staff of ministry of foreign affairs and non-residents.  Furthermore, FIRS has responsibility for the Capital Gains Tax Act and Stamp Duty Act in respect of residents of the Federal capital territory, corporate bodies and non-residents.   

At the state level, the Personal Income Tax Act, 1993 established the States Board of Internal Revenue (SBIR) with responsibility for personal income taxes of individuals and non corporate bodies except residents of the Federal Capital Territory, members of Nigeria Police Force, members of Armed Forces of Nigeria as well as staff of ministry of foreign affairs and non-residents.   In addition, it has responsibilities for Capital Gains Tax Act and Stamp Duty Act except those aspects relating to residents of the Federal capital territory, corporate bodies and non-residents.

The foregoing had been the situation until towards the end of the last regime when the country embarked on a World Bank inspired economic reform agenda.  One of the fallouts of the agenda was the suggestion for a comprehensive tax reform the pivot of which was a central tax administrative system for the country not minding the fragile federal nature of Nigeria.   Though the idea of a central tax agency for the country was very unpopular as it might compromise the federal nature of the country, the promulgation of a new law establishing the Federal Inland Revenue Service has effectively given birth to a central tax administrative agency. 
The purpose of this paper is to highlight the implications of the recently released Federal Inland Revenue Service (Establishment) Act, 2007 (hereinafter referred to as the Act) on tax administration at the state level in Nigeria.  The Act was silently signed into law on 16th April, 2007 (the first working day after the 2007 general election!).

The Act created the Federal Inland Revenue Service (FIRS) and, by virtue of its Sections 2, 25 and 68, effectively put under its administration the Personal Income Tax Act No. 104, 1993 (PITA) and other tax laws.  The said sections 2, 25 and 68 are to the effect that the FIRS has henceforth taken over the control and administration of taxes and laws specified in the seven legislations listed in the First Schedule  of the Act among others.  The legislations are:

  1. Companies Income Tax Act, 1990;
  2. Petroleum Profit Tax Act, 1990;
  3. Personal Income Tax Act, 1993;
  4. Capital Gains Tax Act, 1990;
  5. Value Added Tax Act, 1993;
  6. Stamp Duty Act, 1990; and
  7. Taxes & Levies (Approved List for Collection) Act, 1998.

A study of the above list leaves no one in doubt as to the intention of the Act which is nothing but unification of tax administration in Nigeria albeit through the back door.  The Act has completely wiped out the division of tax administrative responsibilities that hitherto existed between the FIRS and the SBIR.  Unlike the previous tax legislations that clearly specified responsibilities of the FIRS or the SBIR as the case may be, the new Act does not even recognize the existence of the SBIR as a revenue collection agency not to talk of identifying where they belong in tax administration under the new dispensation.  The Act only recognizes the SBIR in section 8 (q) as if they are clerical outfits only created to assist the FIRS in issuing tax payer identification number to every taxable person in Nigeria.  In fact, Section 8 of the Act lists among its functions all the functions of the SBIR as provided in the PITA as if the SBIR are already extinct.  Given the fact that the SBIR were created by the PITA, the enactment of the Act seriously calls into question the continuous relevance of the SBIR if not their legitimacy.

A quick glance at the Act will effortlessly reveal that its main objective is to pave way for the FIRS to take over the functions of the SBIR.  It sought to do this by introducing a centralized tax administration as being canvassed in the dying days of the last regime.  That could have been the only reason why an Act meant to create a federal tax agency would contain many provisions that are meant to take over the basic functions of State revenue agencies and make them redundant.  For example, Sections 26, 27, and 28 of the Act practically plagiarized Sections 46, 47, and 48 of the PITA by empowering the FIRS to call for returns, books, documents and information from taxable individuals preparatory to assessing them to income tax. 

In addition to the foregoing duplication of functions of the SBIR by the FIRS, Section 28(1) of the Act went further by compelling banks to deliver returns to the FIRS in respect of transactions above five million naira involving taxable individuals.  Of course, SBIR’s powers to call for returns from banks in respect of taxable individuals under Section 48 of PITA are not as wide as those given to FIRS by the Act.   In order to further rub it in to the SBIR that there is no place for them in the current dispensation, Section 59 of the Act empowers the Minister of Finance to establish a Tax Appeal Tribunal.  The Act specifically extends the tribunal’s jurisdiction under Section 11(1) of the Fifth Schedule to cover disputes and controversies arising from the Personal Income Tax Act, 1993 and other tax laws.  This is an effective way of transferring the powers of the State Commissioners of Finance under Section 59 of PITA to the Federal Minister of Finance.  In view of the wanton disregard for recognition of responsibilities of SBIR by the Act, it is pertinent to ask whether the National Assembly had a place for the principle of federalism in their scheme of things as entrenched in our Constitution when enacting the Act.           

The inclusion of the Taxes and Levies (Approved List for collection) Act, 1998 in the list of legislations to be controlled by the FIRS is very ridiculous.  The main objective of this particular legislation is to eliminate multiple taxations by specifying the relevant tax authority that can collect specified types of taxes and levies.  It is not a tax law per se.  Rather, it is a law that only identifies tax collection responsibilities among different revenue collecting agencies taking into consideration the federal nature of the country.  Unlike other tax laws, its administration was never put under the supervision of any agency.  The mischievous inclusion of this particular legislation in the Act under the complete administration and control of the FIRS as if Nigeria is a unitary republic is instructive.  This is nothing but a comical way of telling the States and Local Government Authorities that their revenue collecting agencies had been decreed out of existence.  It is just a question of time before an overzealous head of the FIRS will direct all the state and local government revenue agencies to be remitting their collections into the designated federation account in accordance with Section 162 of the 1999 Constitution of Federal republic of Nigeria.  It should be realized that should the FIRS be allowed to collect personal income taxes without restriction as implied in Sections 8 and 69 of the Act, the 1999 Constitution does not provide for where the revenue arising from these functions will be paid into other than the federation account and can only be shared like any other revenue paid into the same account.

It is pertinent, at this stage, to note that Section 4 of the 1999 Constitution (items 58 and 59 of the Part I of the Second Schedule) makes imposition of stamp duties and taxation of incomes, profits and capital gains exclusive preserve of the Federal Government.  It is also noteworthy that the assessment and collection of such duties and taxes in respect of individuals and non corporate bodies are under the Concurrent List thus can basically be controlled by both the federal and state governments.   However, item 7 of part II of the Second Schedule to section 4 of the 1999 Constitution (Concurrent Legislative list) states that

          In the exercise of its powers to impose any tax or duty on –

  1. Capital gains, incomes or profits of persons other than companies; and
  2. Documents or transactions by way of stamp duties,


The National assembly may, subject to such conditions as it may prescribe, provide that the collection of any such tax or duty or the administration of the law imposing it shall be carried out by the Government of a State or other authority of a State.

Having enacted the PITA and having provided in its Section 85 the establishment of the SBIR with the responsibility of administering the taxes and duties mentioned in the above quoted item 7 of part II of the Second Schedule to section 4 of the 1999 Constitution, the National Assembly has ceded its assessment and collection responsibilities in respect of the personal income taxes to the States.  Effectively, therefore, collection of taxes mentioned in the Concurrent List now is residual to the States unless the PITA is amended to reflect otherwise or repealed.  As long as the PITA is in existence, the enactment of the Federal Inland Revenue Service (Establishment) Act 2007 is unconstitutional.  This is so because both the Act and the PITA are mutually exclusive and cannot coexist in their individual present forms.  The Act is also against the spirit of true federalism which we have been striving to achieve for a long time hence our concern and the need to seek ways of correcting this anomaly.

In conclusion, we wish to reiterate our belief in the need to carry out a comprehensive tax reform.  There is no doubt that most of our tax laws are outdated and retrogressive.  However, the review should take cognizance of our Constitution and other existing tax laws.  The enactment of the Act would have been a right direction towards the tax reform of our dream if not for the unwarranted centralization of tax administration implied by its contents.  What the Act has done is to grant more powers to the FIRS at the expense of our fragile federalism.  The Act has effectively taken away from the States the powers willingly conferred on them by the National Assembly out of the Concurrent List.  The conferment was made through the enactment of various tax laws which are still operational in line with Section 4 of the 1999 Constitution.  The Act, on the other hand, has concentrated tax administration in the hands of the FIR with little or nothing left for the State Board of internal revenue to be doing.  The Act, if implemented in its current form, is not only unconstitutional but also a recipe for confusion and chaos.  We therefore call on the National assembly to repeal or, at least, amend the Act to make it constitutional and federalism compliant.