In the recent decision of the Federal High Court (“FHC”) in Joseph Bodunrin Daudu SAN v. Minister of Finance Budget and National Planning & 2 Ors (2023) , the court ruled on a significant point of law by declaring unconstitutional, null and void and contrary to the principle of fair hearing the provisions which mandatorily require an alleged tax debtor to deposit the judgment sum or 50% of the disputed tax amount as a condition for pursuing an appeal at the FHC or Tax Appeal Tribunal (“TAT” or the “Tribunal”).

This decision affects the following subsidiary legislations, Tax Appeal Tribunal (Procedure) Rules (2021) (“TAT Rules 2021”), the Federal High Court of Nigeria (Federal Inland Revenue Service) Practice Directions (2021) (“Practice Direction”) and the Federal High Court of Nigeria (Tax Appeals) Rules (2022) (“Tax Appeal Rules 2022”).

Prior to the judgment of the court, Order V Rule 1(a) and (b) of the Tax Appeal Rules 2022 directs a party challenging the judgment of the TAT with respect to an assessment issued by the Federal Inland Revenue Service (“FIRS”) to deposit the sum contained in the judgment into an interest yielding account maintained by the Chief Registrar of the FHC as a pre-condition for the hearing of the appeal. The provision in the Tax Appeal Rules 2022 replaced the former requirement in Order V Rule 3 of Practice Direction for any taxpayer who intends to challenge a tax assessment served on him by the FIRS to pay half of the assessed amount into an interest yielding account of the FHC.

Similarly, Order III Rule 6(a) of the TAT Rules 2021 also requires a tax debtor to pay 50% of the disputed amount into a designated account by the Tribunal before hearing as security for prosecuting the appeal at the Tribunal.

In the facts leading to the commencement of the suit at the FHC, the FIRS alleged the Applicant’s tax liability to be N1,226,115,562.33 for the period of 2010-2017 in respect of assessments for personal Income Tax, Withholding Tax and Value Added Tax. Being dissatisfied with the assessments, the Applicant instituted an appeal before the TAT and judgment was entered in favour of the FIRS. The Applicant then appealed the judgment before the FHC. While the matter was pending at the FHC, the 1st Respondent in the suit, the Minister of Finance, Budget and National Planning, made the TAT Rules 2021. Also, the 2nd Respondent, the Honourable Chief Judge of the FHC, issued the Practice Direction and the Tax Appeal Rules 2022.

Following the enactment of the above cited rules and Practice Direction, the Applicant filed the suit at the FHC by an Amended Originating Summons dated 10th March 2022 challenging the subsidiary legislations on the grounds that the 1st and 2nd Respondents acted beyond their powers in enacting the rules and that the same, place an excessive and onerous burden on the alleged tax debtor. The Applicant therefore prayed the court for an order striking down the offending provisions in the rules and Practice Direction.

After considering the position of the parties in this suit, the court resolved the issues in dispute in the suit in favour of Applicant and made the following significant findings and orders :

“In the final analysis, I therefore do not hesitate to strike down the offending provisions which in the opinion of this Court substantially takes away the right of appeal of a tax debtor such as the Applicant. Consequently, it is hereby ordered as follows:

1. That the provisions of Order III Rule (6)(a) of the Tax Appeal Tribunal (Procedure) Rules, 2021 issued under the hand of and by the authority of the 1st Respondent, which prescribes that an aggrieved person challenging the tax charged by the Federal Inland Revenue Service or any relevant tax authority shall pay 50% of the disputed amount into any account so designated by the Tax Appeals Tribunal before such appeal can be heard, purportedly as security for prosecuting the appeal is unconstitutional, null and void and contrary to the provisions of section 36(1) and (2), section (6)(a) of the 1999 Constitution of the Federal Republic of Nigeria (as amended) and the doctrine of separation of powers.
2. That the provisions of Order V Rule 3 of the Federal High Court of Nigeria (Federal Inland Revenue Service) Practice Directions, 2021 issued under the hand of and by the authority of the 2nd Respondent, which prescribes that where a Respondent intends to challenge an assessment served on him he shall pay half of the assessed amount into an interest yielding account of the Federal High Court, pending the determination of the application/proceedings is unconstitutional, null and void and of no consequence having regard to the provisions of sections 251(1), 6(6)(a) and (b), 36(1) & (2) of the 1999 Constitution (as amended), Paragraph 17(1) and 21 of the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act, 2007 and is contrary to the principles of separation of powers and the Rule of law.
3. That the provisions of Order V Rule 1 of the Federal High Court of Nigeria (Tax Appeals) Rules, 2022 issued under the hand and authority of the 2nd Respondent, which prescribes that where an Appellant is appealing against the Decision of the Tax Appeal Tribunal, the sum contained in the Decision shall be deposited in an interest yielding account maintained by the Chief Registrar of the Federal High Court is unconstitutional, null and void and of no consequence having regard to the provisions of sections 251(1), 6(6)(a) & (b), 36(1) & (2) of the 1999 Constitution (as amended), Paragraph 17(1) and 21 of the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act, 2007, and is contrary to the principles of separation of powers and the Rule of law.
4. An order of this Honourable Court is hereby made striking down (deleting) the provisions of Paragraph V Rule 3 of the Federal High Court (Federal Inland Revenue Service) Practice Directions 2021, or any ither similar provision therein, for being unconstitutional and in excess of the powers of the 2nd Respondent to issue practice directions, and Rules of Court.
5. An order of this Honourable Court is hereby made striking down (deleting) the provisions of Order V Rule 1 of the Federal High Court of Nigeria (Tax appeals) Rules 2022, for being unconstitutional and in excess of the powers of the 2nd Respondent to issue practice directions and Rules of Court.
6. An order of this Honourable Court is hereby made striking down (deleting) the provisions of Order III Rule 6(a) of the Tax Appeal Tribunal (Procedure) Rules 2021, directing the payment of 50% by aggrieved persons into designated account by the Tax Appeal Tribunal for being unconstitutional, null and void and in excess of the powers of the 1st Respondent to make Rules prescribing the procedure and conduct of appeals before the Tribunal."

We believe this judgment is sound and reflects the position of many tax debtors in appeals at the TAT and the FHC. We agree with the decision of the court that the offending provisions confer an unfair advantage on the FIRS and unduly fetter the constitutional right of appeal of an alleged tax debtor.

This decision provides relief for tax debtors who wish to challenge assessments by the FIRS or appeal TAT judgments at the FHC as they can now freely exercise their constitutional right of appeal without undue restrictions. We note that while the Respondent in the suit retains a right of appeal against the judgment of the FHC, until that right is exercised, this judgment stands as the current legal position in Nigeria.

Please contact the authors if you have any questions or seek any legal advice regarding issues raised in this article.