THE CHALLENGES OF THE APPLICATION OF ALTERNATIVE DISPUTE RESOLUTION TO TAX DISPUTES IN NIGERIA

BY BENITA RIAGBAYIRE

ABSTRACT

It is trite that Alternative Dispute Resolution (ADR) serves as an adequate surrogate to litigation. As a result, the resort to ADR is highly recommended by the Nigerian judicial system as a whole, in resolving disputes cutting across various facets of law including Contract Law, Land Law, Maritime Law inter alia. In recent times, attempts have been made to apply ADR in resolving tax disputes in Nigeria. However, this is not without its challenges. It is premised on this backdrop that this essay seeks to examine these challenges while considering the prospects of including arbitration into the tax enforcement system.

1.0. TAX DISPUTE RESOLUTION IN NIGERIA

Discord is a normal occurrence and an unavoidable result of human interaction. Therefore, there are bound to be instances of conflict between the taxpayers and the tax authorities in every tax administration system. This could be as a result of a tax assessment or a tax payer's outright refusal to pay tax. Also, disputes arise from time to time between the federal and state governments, mainly over tax-imposition-and-collection authorities. A prominent example of this sort of discord lies in the recent back and forth between the federal and state government on who is to collect Value Added Tax (VAT). Consequently, tax authorities that are supposed to enforce tax rules and resolve tax disputes promptly have been established.

In Nigeria, tax issues are heard and decided by the Federal High Court (FHC), State High Courts (SHC), Revenue Courts of the several Local Government Councils, and the Tax Appellate Tribunal (TAT). Appeals from the TAT are heard by the FHC, then from the FHC and the States' High Courts are heard by the Court of Appeal, and appeals from the Court of Appeal are heard by the Supreme Court, which is the apex court. The Constitution of the Federal Republic of Nigeria, 1999 (as amended) and the Taxes and Levies (Approved List for Collection) Act, also provide for the assessment and collection of taxes by the federal, state, and local governments.

2.0. THE APPLICATION OF ALTERNATIVE DISPUTE RESOLUTION TO TAX DISPUTES IN NIGERIA: PROSPECTS AND CHALLENGES

Litigation has not proven to be the best or fastest approach to resolving conflicts over time. It is, nonetheless, the constitutionally mandated method of conflict resolution. This is why the resort to ADR has become attractive as a means of resolving disputes. The most sought–after mechanisms of ADR include, Negotiation, Mediation, Conciliation, and Arbitration. It is therefore pertinent to examine the application of each of these branches of ADR to tax disputes in Nigeria.

2.1. Negotiation In Tax Disputes In Nigeria

Negotiation is defined as a consensual bargaining process in which the parties attempt to reach an agreement on a disputed matter. It usually involves complete autonomy for the parties involved, without the intervention of third parties. By virtue of Nigerian Tax Laws, Negotiation is the first recourse concerning tax dispute situations. A classic example of this instance is in Section 58 of the Personal Income Tax Act (PITA) and Section 69 of the Company Incomes Tax Act (CITA). Summarily, these provisions discourage taxpayers contesting an evaluation from rushing to the TAT or the courts. Rather, such taxpayer can file a written notice of objection with the appropriate tax authorities to have the assessment reviewed and revised.

2.2. Mediation In Tax Disputes In Nigeria

Mediation is a non-binding dispute resolution approach using a neutral third party to assist disputing parties in reaching a mutually accepted solution. The informality of mediation poses a challenge to its utility in tax dispute resolution. Due to its lack of statutory backing and unenforceability of agreements, parties may not be inclined to subject themselves to a mediation process. This reluctance is also bound to be more from the tax authorities end.

2.3. Conciliation In Tax Disputes In Nigeria

Conciliation is defined as a process in which a neutral person meets with the parties to a dispute and explores how the dispute might be resolved, especially a relatively unstructured method of dispute resolution in which a third party facilitates communication between parties in an attempt to help them settle their difference. From this definition, conciliation seems similar to mediation. However, they are different in the sense that conciliation decisions have legal backing. Sections 37-42 and the third schedule to the Arbitration and Conciliation Act provide for the use of conciliation in the resolution of disputes.

Even though conciliation is statutory, the laws do not specify how a settlement agreement may be impeached or enforced. Tax matters are commercial, and as such, the lacuna on enforceability in conciliation discourages concerned individuals from taking part in such dispute resolution methods.

2.4. Arbitration In Tax Disputes In Nigeria

Arbitration involves a process of resolving disputes using one or more impartial third parties who are usually agreed upon by the opposing parties and whose decision is binding. Arbitration is also given a rather inchoate definition in the Arbitration and Conciliation Act as commercial arbitration whether or not administered by permanent arbitral institutions. Although arbitration seems to answer the prayers of tax dispute parties in Nigeria, the courts are yet to see this breakthrough while still frowning at arbitral awards in tax dispute resolutions. In the case of SNEPCO & 3 Ors v FIRS, The Court of Appeal recently confirmed the FHC's conclusion that disputes over corporate taxation are exclusive to the FHC and thus not arbitrable because they concern revenue accruing to the sovereign government. Similarly, the Court of Appeal, Abuja Division held in Esso Petroleum and Production Nigeria Limited & SNEPCO v NNPC and Shell (Nig) Exploration and Production Ltd. & 3 ors v Federal Inland Revenue Service that arbitral tribunals have no jurisdiction to determine any dispute with tax implication as the same is exclusively vested in the Federal High Court.

Another challenge to arbitration being utilized in tax dispute resolution is the fact that arbitration is largely contractual and more often than not, there is the requirement that both parties agree to adopt arbitration as a means of resolving such dispute or including an arbitral clause in such contractual agreement.

3.0. RECOMMENDATIONS

From the above juxtaposition of the various ADR mechanisms with tax dispute resolution in Nigeria, it is evident that the Nigerian courts are inherently hostile towards the inculcation of ADR into Nigeria’s tax enforcement system and this hostility is understandable. However, the worries of the Nigerian judiciary can be put to rest by implementing these recommendations.

The challenge of unenforceability, which is the major challenge with inculcating ADR in the tax enforcement, can be remedied by amending the various tax legislation to make arbitration an option to turn to for tax disputes as opposed to the already existing structure which only provides for just the TAT and the Courts. Since arbitration judgements are enforceable, taxpayers and tax authorities can rest assured that their arbitral awards and judgements would be enforceable.

Although some tax disputes are criminal in nature which restricts the application of arbitration, this is where the TAT can successfully come in to settle the worries of the Nigerian tax administration system.

4.0. CONCLUSION

In conclusion, the majority of tax-related issues revolve around the assessment and computation of taxable income. As a result, if an expert sits on an ADR panel, he may resolve the assessment and computation issue faster than a judge. It is also proposed that the statute and rules governing the Tax Appeal Tribunal be changed to allow parties to choose one of the Alternative Dispute Resolution Mechanisms to resolve their disputes.