The tax law and constitutional questions in the Finance Act 2020

The Finance Act 2020 is not only about taxation. It contains various other non-tax provisions. It appears as if the Finance Act is now a short-cut to the wholesale amendment of various other laws that should have been amended independently by a conscious amendment of their enabling statutes.

THE Finance Act of 2020 has many tax law and constitutional questions that requires answers. The provisions raise various issues of legality that needs to be responded to. The Finance Act 2020 is not only about taxation. It contains various other non-tax provisions. It appears as if the Finance Act is now a short-cut to the wholesale amendment of various other laws that should have been amended independently by a conscious amendment of their enabling statutes.

The tax provisions in the Finance Act amends various provisions in the Capital Gains Tax Act, Companies Income Tax Act, Industrial Development (Income Tax Relief) Act, Personal Income Tax Act, Tertiary Education Trust Fund (Establishment) Act, Customs and Excise Tariff (Consolidation) Act, Value Added Tax Act, Stamp Duties Act and The Federal Inland Revenue Service (Establishment) Act.

In these issues the basic principle and rules for the interpretation of taxing statutes needs to be restated. What is this basic principle for the interpretation of taxing statutes?

The cardinal principle for the interpretation of taxing statutes was laid down by the Court of Appeal in the case of Alhaji Ibrahim and Alhaji Aliyu Ahmadu v. Governor of Kogi State; Attorney-General and Alhaji Musa Abubakar (1960-2010) 1 NTLR 247. On how charges are to be imposed on a subject the court held that “It is a well settled principle of law that all charges upon the subject must be imposed by clear and unambiguous language because in some degree they operate as penalties; the subject is not to be taxed unless the language of the statute clearly imposes the obligation. See Russell v. Scott, 1948 AC 422: (1948) 2 All ER I (HL) per Lord Simonds. (Per Oduyemi JCA, 260, para. H; 261, para. A.)

On the construction of taxing legislations, the court stated that “A law which imposes pecuniary burden is, under the rule of interpretation, subject to the rule of strict construction. All charges upon the subject must be imposed by clear and unambiguous language because in some degree they operate as penalties. Thus, the subject is not to be taxed unless the language of the statute clearly imposes the obligation. The language of the statute must not be strained in order to tax a transaction which had the legislature thought of it, would have been covered by appropriate words. In a taxing legislation, therefore, one has to look merely at what is clearly said”. (Per Oduyemi JCA, 258, para B-G.)

On whether tax can be presumed in a statute or taxation legislation, the court further stated that “There is no room for any intendment. There is no equity about a tax. There is no presumption about a tax. Nothing is to be read and nothing is to be implied. One can only look fairly at the language used”. But the strictness of interpretation may not always enure to the subject’s benefit for “if the person sought to be taxed comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind” per Lord Cairns in Partington v. Attorney General, (1869) LR 4 HL 100 (HL), 122. See, Maxwell on the Interpretation of Statutes 12^th Edition by St. J. Langan, P. 256. In the instant case, Law No.7 of 1992 of Kogi State, being a taxing legislation which imposes a pecuniary burden, is subject to the rule of strict construction. (Per Oduyemi JCA, 261, paras. B-C.)

In view of the above and some constitutional provisions the amendments to the Capital Gains Tax Act, Personal Income Tax Act and the Stamp Duties Act raises fundamental questions of interpretation and constitutionality.

First, the amendment to section 36 (2) of the Capital Gains Tax Act provides that “Sums obtained by way of compensation for loss of office, up to a maximum of ten million naira shall not be chargeable gains and subject to tax under this Act”.

The first question of policy is, were the states consulted through the Joint Tax Board on the possible effect this provision would have on their revenue? The reason is that pursuant to section 163 of the 1999 Constitution all Capital Gains Tax collected by the Federal Government is to be returned to the states on the basis of derivation. Hence can the Federal Government propose a statutory amendment that affects the revenue of the states without their consent in view of the concept of fiscal federalism? In any case, how many Nigerians get beyond ten million naira as compensation for loss of office?

Secondly, the amendment to the Personal Income Tax Act by inserting after section 6 a new section “6A” that “where an individual, executor, or trustee outside Nigeria carries on a trade or business that comprises the furnishing of technical, management, consultancy or professional services to a person resident in Nigeria, the gains or profits of the trade or business shall be deemed to be derived from and taxable in Nigeria to the extent that the individual, executor or trustee has significant economic presence in Nigeria” and that “the Minister may by order, determine what constitutes the significant economic presence of a non-resident individual, executor or trustee” contradicts the rules of interpreting taxing statutes as enunciated in the case of Alhaji Ibrahim v. Governor of Kogi State. How is the imposition of a tax to be deemed and the basis of taxation to be determined by a Minister? The provision also ignores the distinction between trading IN Nigeria and trading WITH Nigeria. Who bears the tax of a foreigner who is not subject to Nigerian tax law and whose country has no obligation to enforce a foreign tax law as well stated in the case of Government of India v. Taylor, [1995] AC 491, also known as the Revenue  Rule. Indeed the traditional position as held in this case is for the courts to decline exercising jurisdiction to entertain a suit for the enforcement of the revenue law of a foreign state. The principle extends to an indirect attempt to enforce a foreign revenue law as is shown by the Irish decision in Peter Buchanan Ltd and MacHaig v. Mctey [1954] IR 89. The basis for this is that, what is a revenue law is a matter for the lex fori and therefore territorial and jurisdictional.

The amendment to Section 37 of the Personal Income Tax Act granting exemption from tax to any person who “earns the National Minimum Wage or less from an employment” is a good policy decision but it derogates from the constitutional obligation of citizenship of the Nigerian State that each citizen should pay tax. It also raises the question whether those exempted can hold the various governments in the Federation accountable in any manner?.

The amendment to the Stamp Duties Act is the most profound and raises many questions. The provision in section 2 of the Stamp Duties Act that where an adhesive stamp is to be used by the Federal Inland Revenue Service the “Service shall utilize adhesive stamp produced by the Nigerian Postal Service pursuant to its enabling Act.” Does the NIPOST enabling Act allow it to produce adhesive stamps simpliciter for purposes of stamp duties or only postage stamps for postal purposes?

The insertion of a new section 89A to the Stamp Duties Act which imposed a levy referred to as the “Electronic Money Transfer Levy” on electronic receipts or electronic transfer of money raises a host of questions as follows – which agency of the Federal Government is the collection agency? Is it the FIRS, the CBN or NIPOST? Where it is not only the FIRS then the enabling Act of the CBN or NIPOST would need to be amended. In view of the introduction of this levy, the Taxes and Levies (Approved List for Collection) Act of 1998 would require an amendment to accommodate it or is the levy still a stamp duty in which case the States Internal Revenue Service remains the collection agency for electronic transactions between individuals? What is the legality of section 89A revenue sharing formula with regard to the derivation principle under section 163 of the 1999 Constitution without a Constitutional amendment?

Lastly, the amendment of section 8 of the Federal Inland Revenue Service (Establishment) Act for the Federal Inland Revenue Service “to provide assistance in the collection of revenue claims or any other administrative assistance in tax matters” under an agreement between  the Government of the Federal Republic of Nigeria and the Government  of any other country contradicts the “Revenue Rule” enunciated above on the territoriality of taxation and the persuasive decision in the case of Government of India v. Taylor. Hopefully, should this arise then section 12 of the Nigerian Constitution should come into play for the National Assembly to approve such an agreement.

In the final analysis in tax matters in Nigeria the fortress for the citizen’s protection lies in the decision of the Court of Appeal in Alhaji Ibrahim v. Governor of Kogi State that citizens are not to be taxed unless the language of the statute clearly imposes the obligation.