May 26, 2021
On 7th April, 2021, the Federal Inland Revenue Service (FIRS or “the Service”) issued a Public Notice informing the general public, tax practitioners and all taxable persons including individuals, trustees, partnerships, companies, corporations, etc. of its intention to deploy an automated solution for tax administration.
The Notice was issued pursuant to the provisions of Section 25(4) of the FIRS Establishment Act (as amended) which empowers the Service to deploy proprietary technology to automate the tax administration process including tax assessment and information gathering provided it gives 30 days’ notice to the taxpayer.
Based on the foregoing, the Notice states the following:
The Public Notice emphasizes the provisions of Section 26(3) of the FIRS Establishment Act which prescribes penalties for taxpayers that fail to grant the FIRS the necessary access. Based on Section 26(3), defaulting taxpayers will be liable to pay any tax assessed as well as interest and penalties where the default relates to tax liability. However, where the default relates to issues other than tax liability, the taxpayer will be liable to pay ₦25,000 in the first month of default and ₦10,000 for every subsequent month in which the default continues.
This issuance of this Notice is a significant step by the FIRS towards enforcing its powers to deploy technology in improving tax compliance through automated access to taxpayer records and information. However, even though the powers of the Service to deploy technology in its tax administration process has a basis in the law, this automated connection to taxpayer systems and devices may raise concerns as to whether the administrative powers of the tax authorities extend to invasive monitoring of the internal control systems of taxpayers and other privacy related issues. The FIRS may therefore need to carry out taxpayer enlightenment to clarify the nature of records it will access and the extent of access it will have. Additionally, the FIRS may need to assure taxpayers of the security of the systems that will be deployed and that the privacy of their records will be guaranteed and not passed on to third parties other than as required under the tax laws. While taxpayers await further developments from the FIRS on the modality of the proposed connection, it is important for taxpayers to liaise with their tax and data protection advisors to ensure compliance with the law in fulfilling any legal or statutory obligation.