Distrain under the Personal Income Tax Act:

An Analysis and Evaluation of Principles and Practice

Bidemi Daniel, Olumide

Delivered at the in-House Training of Legal Officers of the Lagos State Internal Revenue Service on August 25, 2015

Our RoadMap:

• The Power of the Tax Authority/Officer to Collect Taxes

• Introducing the Tax Collector

• The Power to Distrain: Evaluating Section 104

• Practical Considerations in Distrain

• The Case Study

• Let’s Discuss

1. The Power to Collect Taxes

• Intrinsic to the Tax Authority.• Power can be exercised in any of the

following manners:– The Tax Authority prosecuting the tax payer

in a Criminal Court;– The Tax Authority suing the Tax Payer in a

Civil Court (including an action brought under the Undefended List Procedure);

– The Tax Collector entering into any premisesduring day time to collect information;

– The Tax Collector distraining the Assets of the Tax Payer;

– The Tax Collector selling the distrained Assets of the Tax Payer.

2. The Tax Collector

• A Person authorised by the TaxAuthority to exercise the functions ofa Tax Collector under Part 12 of PITA

• The Functions recognised under Part12 are that of the Tax Collector:– entering into any premises during

day time to collect information;

– distraining the Assets of the TaxPayer;

– selling the distrained Assets of theTax Payer.

3. Section 104: The Conditions 1. Enforcement is against the taxable

person.

2. The taxable person must have been served with an assessment.

3. The assessment must have become final and conclusive.

4. The taxable person must have been served with a demand notice

5. Payment must still be owing at the expiration of the notice period.

3. Section 104: The Conditions … cont’d

7. The tax collector may distrain and sellany of the following assets of the taxpayer: “goods”, “other chattels”, “bond”, “other securities” (“Moveable Assets”); “land”, premises” and “places”, (“Immoveable Assets”); where ever they may be found in Nigeria.

8. The tax authority must specifically authorize its officer to proceed with the distrain.

9. The officer must thereafter apply, under oath, to a High Court Judge for the issue of a formal Warrant of Distress.

3. Section 104: The Conditions … cont’d

10. The Warrant authorizes the tax collector to, if necessary, break into any building or place in the daytime for the purpose of the distrain.

11. Any police officer called upon must aid and assist in the execution of the Warrant.

12. Sale of Moveable Assets can, on the application of the owner, be delayed for 14 days to allow for payment of the tax, at the expiration of which period the Assets would be sold if the tax, including the charges and cost of the distrain (altogether, the “Debt”), have not been paid.

3. Section 104: The Conditions … cont’d

13. Sale of Immoveable Assets must be authorized by a court of competent jurisdiction.

14. The Debt shall be deducted from the sale proceeds and any outstanding amount is:

(a) remitted to the tax payer; or

(b) where cannot be found, paid to the appropriate court;

all within 30 days of the sale.

4. Practical Considerations

• Do I intend to proceed against a tax payer within the contemplation of PITA?

• Is the tax due for collection? In other words:– has an assessment been left unpaid for a

period in excess of 2months or the period limited by the tax authority;

– has a demand notice been issued after the expiration of the 2 months payment period in which no payment was received; and has 1 month elapsed since the service of the demand notice on the tax payer?

4. Practical Considerations … cont’d• Does the tax payer have Assets worth seizing?

In other words:

– Are there Assets that have been targeted?– Do they belong to the tax payer?– Where are the Assets?– Are they Moveable or Immoveable Assets?– Will the amount to be realized from the sale of the

Assets defray the Debt?– Is the cost to be incurred in the keeping of the

Asset manageable?– Can the Asset be easily sold?

• Have adequate security measures been put in place, for example, sufficient police presence to prevent any reprisals from the tax payer?

C A S E S T U D Y

L E T’S D I S C U S S