The IGR Initiative
TAX DISPUTE RESOLU TION is core to effective tax administration and internally generated revenue expansion by further clarifying and interpreting applicable tax laws and how the implementation of those rules should be within the bounds of fairness, impartiality, and the rule of law. By strengthening taxpayers’ trust in the tax administration, higher levels of tax compliance become achievable. Disputes generally refer to disagreements with taxpayers on tax liabilities and compliance with tax obligations. Typical examples could be disagreements on the correct tax treatment of a transaction or on what is legally a due tax. In addition to the traditional civil tax, disputes are criminal tax prosecutions, objections to tax assessments, the recovery of overpaid taxes, challenging administrative tax decisions, etc. Taxpayers typically comply better when there are adequate procedural and retributive fairness levels in tax administration. In the former, the expectation is that tax administrations adhere to fair procedures in dealing with taxpayers.
In the latter tax, administrations must demonstrate sufficient fairness in applying punishments where infringement on rules exists. Therefore, tax dispute resolution helps ensure the restoration of these expected levels of fairness and trust in the tax administration where there are infractions. Additionally, an effective dispute resolution mechanism also helps in engendering dispute avoidance. The reason for this is the expensive nature of tax disputes. Secondly, because the dispute resolution infrastructure typically maps out the correct route to taxpayer compliance and administrative fairness, either party always does well to avoid clashes that would require a return to the clarification of the rulebooks and the attendant financial and other inconveniencing costs.
Therefore, one of the significant considerations in evaluating the effectiveness of tax administration is assessing the quality of dispute resolution architecture available to the taxpaying ecosystem. Essentially, an efficient dispute resolution mechanism must possess a reasonable level of fairness in the process, procedures, form, and substance. That means that the taxpayer has the right to challenge a tax assessment and can independently access this justice infrastructure with the guarantee of a fair hearing on time. When necessary, such a mechanism will also be open to relevant and timely reviews. The tax dispute resolution architecture is ineffective when taxpayers cannot easily access it. Typically, taxpayers seeking redress incur varying degrees of costs depending on the size of disputed claims, length of time the dispute resolution process takes, tax dispute review with or without professional assistance, and whether there are fees for accessing the redress process. Out-of-pocket expenses such as application fees, professional assistance fees, and other personal disputes-related expenditures are generally explicit. However, the time loss’s opportunity or implicit cost beyond the acceptable threshold can be high. The presence of any or all these implicit and explicit cost factors may significantly constrain taxpayers from seeking redress. Therefore, while the existence of a robust tax dispute resolution mechanism is a necessary condition, a satisfying requirement for an impartial tax dispute redress process is the minimization of these constraints to its access.
Time losses in a lengthy tax dispute resolution process can be expensive. The opportunity costs of such losses sometimes far outweigh the monetary expenses on resolving them. On aggregate, they comprise time losses of applicants and unpaid professionals and helpers. Ideally, there should be a timeframe to resolve varying types of tax disputes. That should also not provide a window for hasty decisions that might injure justice. Ideally, one should expect a time extension, such as in the lodgment of objections, but it should not impose an unnecessary cost burden.
Aside from access to a tax dispute resolution mechanism, taxpayers must possess the right to challenge tax assessments and other areas of infringement on their rights. Interestingly, the Nigerian judicial system has substantially cleared the fog in this essential criterion and subsequently provided enormous headroom for tax justice. For instance, in June 2018, the Lagos High Court, in its ruling on Chemiron Nigeria Limited versus Lagos State Board of Internal Revenue, upheld the rights of taxpayers to challenge any tax assessment of the High Court even when they fail to object to the assessment or file an appeal at the Tax Appeal Tribunal. Similarly, in the August 20, 2019, case of Polaris Bank Plc versus Abia State Board of Internal Revenue, the Tax Appeal Tribunal sitting in Enugu held that tax audits conducted by relevant tax authorities, which violate statutorily laid down procedures, are not binding on taxpayers. The Tax Appeal Tribunal also rules that taxpayers can object to a defective assessment even if paid. Consistent with the expectation of retributive justice, there should also be ample room to review dispute resolution. Any dispute parties, such as the taxpayers, can appeal Judgments on tax disputes when not satisfied. The opportunity for judicial review of judgments made on a particular tax dispute is critical in reaffirming taxpaying stakeholders’ trust in the administration.