Integrating Alternative Dispute Resolution (Adr) In The Management Of Tax Disputes In Nigeria: Challenges And Way Forward (Series Two)

By Edim Effiong Edim


The Federal Inland Revenue Service (FIRS) and Internal ADR

Companies Income Tax Act (CITA)[1] empowers the taxpayer to explore an administrative option in resolving a potential conflict where he disputes an assessment raised on his taxes through an objection raised against such an assessment. Similarly, the Personal Income Tax Act (PITA)[2] empowers an individual to seek for an administrative review of its assessment through the objection mechanism.

The aforesaid sections clearly stipulate that a taxpayer is entitled to an objection where it disputes an assessment made by the Federal Inland Revenue Service on it. The object of the objection is to review or revise the assessment. Such an objection must be in writing and must be brought within 30 days. The objector is however entitled to an extension of time where the Service is satisfied that failure to file within time was as result of circumstances ordinarily not within the control of the objector. A proper ground of objection must include and assessable and total profit of the company for the relevant year and the amount of tax payable as claimed by the company.

On receipt of the Assessment, the Service may ask for necessary particulars[3] and if convinced that the objection is valid, it may issue a revised assessment. Where the assessment is revised, notice is then given to the taxpayer to that effect. Where the Service is not convinced by the objection, it shall issue a Notice of Refusal to Amend (NORA) to the taxpayer.

Section 60 of Federal Inland Revenue Service Establishment Act (FIRSEA)[4] empowers the Service to make rules and regulations as in its opinion necessary to give effect to the provisions of the Act. Flowing from its powers in the above provision and other provisions enabling it, the Service is empowered to from time to time deliver its opinion on a given provision of the law through public or private rulings.  The public rulings come by way of public circulars or public notices while the private rulings are confidentially delivered to taxpayers who requested for same. Private rulings may be obtained by writing the Executive Chairman-FIRS and drawing the attention of the Director, Tax Policy and Advisory Department.

Furthermore, there is a body known as the Decision Review Panel (DRP).[5] The panel comprises of the head of Transfer Pricing function of the Service, the representative of the Legal Department not below the rank of a Deputy Director, and three other employees of the Service not below the rank of a Deputy Director. The panel was set up for the purposes of settling or resolving any issue arising from the application of the Regulations. A taxable person who objects to a Transfer Pricing assessment may within 30 days of the receipt of such assessment lodge such an objection with the Decision Review Panel through the Head of Transfer Pricing Function. The panel is then expected to sit over the objection and make determination. The panel in rendering its decision, must consider the adjustment or assessment issued, the basis of issuing such adjustment or assessment, the objection raised, and the evidence presented to back up the objection. The decision of the panel constitutes the final position of the Service and the taxpayer if still unsatisfied may explore other independent dispute resolution options or proceed to seek redress in court

In view of the aforesaid, it is clear that the FIRS has its internal mechanisms put in place to internally address issues of dispute arising from the disagreement on assessment and computation of taxes due to be paid by a taxpayer.

Tax Appeals Tribunal (TAT)

The Tax Appeal Tribunal was established by Section 59 of the Federal Inland Revenue Service Establishment Act (FIRSEA)[6] with the powers to adjudicate on disputes arising from the administration of all federal tax laws. The Tax appeal Tribunal is the court of first instance on all disputes relating to federal tax[7] and other laws that may be made from time to time by the National Assembly.[8]

Tax Appeal Tribunals are located across about 8 regions of the country and are empowered to determine disputes arising from the administration of all the tax laws. The TAT consists of a panel of 5 members drawn from tax-relevant professionals which must be headed by a lawyer.  A taxpayer aggrieved by an assessment or demand notice from the Service may appeal same to the TAT either by himself or through a legal representation within 30 days of the receipt of such an assessment or demand notice. The Service may also utilize the TAT where aggrieved by non-compliance by a taxpayer.

Proceedings are commenced in the Tribunal by filing the relevant processes with the secretary to the Tribunal. Documentary and oral evidence may be adduced before the Tribunal. Where a different amount is determined by the Tribunal as payable, the Service would proceed to serve the taxpayer with a fresh assessment bearing the amount. It is important to state here, that the Tax Appeal Tribunal does not have criminal jurisdiction and as such, any dispute having a flavor of crime is immediately referred to the appropriate prosecution authority for action.

Traditional Courts

The taxpayer is at liberty to proceed to the Federal High Court in the event that the internal ADR channels of the FIRS do not satisfactorily resolve their grievances. The Federal High Court is established by Section 249 of the 1999 Constitution.[9] Section 251 of the 1999 Constitution[10] clearly stipulates the jurisdiction of the Federal High Court.

Unlike the Tax Appeal Tribunal, in the Federal High Court or any other Court, taxpayers can only be represented by legal practitioners. Actions are commenced before the court by filing relevant processes at the court registry. Litigants are expected to file their cases in the division of the court in charge of the geographical location from where the dispute arose. Oral or documentary evidence may be adduced to support one’s view or counter opponents’ deposition. Decision of the court can be appealed to the Court of Appeal and then to the supreme court. Any decision of the Court where not stayed, can be enforced using the mechanisms provided by the law.

In judicial process, alternative dispute resolution manifests as out-of-court settlement and consequently, consent judgements. Order 18, Rule 1 of the Federal High Court (Civil Procedure) Rules empowers the Federal High Court Judges to encourage out of court settlement in appropriate cases. The terms of agreement upon which a consent judgement is based upon, must not be against public policy or public interest.


Over the years, the use of Alternative Dispute Resolution (ADR) Mechanisms have become attractive, because it gives the parties to a dispute the opportunity to use other means of resolving their dispute other than litigation. ADR methods involve negotiation, mediation, conciliation, arbitration etc. we shall examine the possibility of applying these methods in the resolution of tax disputes in Nigeria.


Negotiation has been defined as a consensual bargaining process in which the parties attempt to reach an agreement on a disputed matter. Negotiation usually involves complete autonomy for the parties involved, without the intervention of third parties.[11] Negotiation can therefore be said to be a process, where the parties to a dispute attempt to resolve the disputes themselves without the assistance of a third party.

It would seem that tax laws in Nigeria clearly allow the use of negotiation to resolve tax matters. As a matter of fact, negotiation is the first step in the tax dispute resolution mechanism in Nigeria. For instance, by the provisions of section 69 of the Company Income Tax Act[12] and Section 58 of the Personal Income Tax Act[13], a person that is disputing an assessment is not expected to rush to Tax Appeal Tribunal or the Courts. He can apply to the relevant tax authority by notice of objection in writing to review and revise the assessment. On receipt of the objection, the tax authority may request for more particulars or books and may invite any person who may be able to give information for examination. Where the tax payer and relevant tax authority reach an agreement on the right amount of tax to be charged, the assessment shall be accordingly amended. This is clearly a form of negotiation, and the fastest way of resolving disputes relating to tax assessment. Where this fails and it is clear that an agreement is practically impossible, the tax payer will be left with no other option than to seek other ways to resolve the dispute.


Mediation has been defined as a method of dispute resolution involving a neutral third Party who helps disputing parties reach a mutually agreeable solution. This will be necessary for instance, where negotiations have reached a deadlock, and it has become obvious that the parties cannot resolve the disputes themselves. The informal nature of mediation poses a challenge to its utility in tax dispute resolution. Thus, parties may not be inclined to subject themselves to a mediation process. In most cases, the reluctance to adopt mediation in the settlement of tax disputes may be from the part of the tax authorities.


Conciliation has been 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.’[14] It can be argued that mediation and conciliation mean the same thing; as they both involve the process of a neutral third party helping the parties to arrive at an amicable settlement of the dispute. The difference between mediation and conciliation may be mere semantics. There is hardly any known instance where parties have resorted to conciliation in tax matters. Tax matters are commercial and therefore the lacuna on enforceability in conciliation discourages parties from adopting such dispute resolution method for the resolution of tax disputes.


Arbitration has been defined as ‘a method of dispute resolution involving one or more neutral third parties who are usually agreed to by the disputing parties and whose decision is binding.’[15]Party autonomy is the hallmark of arbitration.

Being that there is no codified law on arbitrability in Nigeria as is the case in some other jurisdictions, case law therefore becomes a good source to look to when describing the arbitrability situation in Nigeria. Since this work focuses on integrating ADR into management of tax dispute, we shall consider Nigerian case laws on arbitrability of tax dispute.

Recently, the Nigerian Court of Appeal decided on the arbitrability of tax disputes in Nigeria by virtue of its recent pronouncements in Esso Petroleum and Production Nigeria Ltd & Anor vs. NNPC (Esso)[16] when it held that the dispute was a tax dispute clothed in the apparel of a contractual dispute. The Court noted that any dispute against tax assessments made by FIRS could only be addressed in line with the provisions of  Sections 38, 41 and 42 of the Petroleum Profit Tax Act (“PPT Act”). The Court observed that tax laws do not permit arbitrating over tax disputes and added that after exhausting the remedies provided under the Act, only the Federal High Court can exercise jurisdiction over tax disputes in line with Section 251 of the Constitution of the Federal Republic of Nigeria, 1999, which provides for exclusive jurisdiction of the Federal High Court over tax disputes. The Court proceeded to affirm the Federal High Court’s decision which held that the dispute as submitted to arbitration, was a tax dispute and therefore not arbitrable.

It is necessary to point out that the extant National Tax Policy encourages the use of ADR. The National Tax Policy 2017[17] provides as follows:

“In the event of any dispute, the tax authority and relevant stakeholders shall leverage on all amicable means of dispute resolution including arbitration and only resort to judicial determination as a last resort.”

However, in practice, tax authorities frustrate the use of arbitration in tax disputes. For instance, in Federal Inland Revenue Service v. Nigerian National Petroleum Corporation & 4 Ors,[18] the Plaintiff (tax authority) brought an action seeking the determination of whether the Arbitral Tribunal had jurisdiction to determine the subject matter of taxation of the Defendants by the Plaintiff; a jurisdiction which is ordinarily conferred on the Federal High Court by section 251(1) of the 1999 Constitution. The 2nd to 5thDefendants had dragged the 1st Defendant to an arbitral panel pursuant to the arbitration clause in their production sharing contracts. Before the awards were given, the FIRS approached the Federal High Court to stop the arbitral proceedings on the grounds that tax issues were raised in the arbitral proceedings, which are not resolvable by arbitration. The Federal High Court upheld the contention of the FIRS and voided the arbitral awards given while the court was still sitting.

Benefits of Integrating ADR in the Management of Tax Disputes

  1. ADR enhances access to justice by contributing to respect for the Rule of Law.
  2. Both the tax payer and the state do not benefit from prolonged litigation of tax disputes because a great amount of revenue may be locked up in dispute. However, if the dispute is resolved amicably, the revenue that was locked up could significantly affect the economy.
  3. ADR promotes quick and effective dispensation of tax disputes which in turn, guarantees a healthy business environment as well as high yields in taxes.
  4. The implementation of ADR in solving tax disputes is aimed at fast tracking resolution of disputes. Undue delays in resolution of tax disputes may threaten amount of revenue collected by the States.
  5. The availability of a fair, independent and impartial mechanism for the resolution of tax disputes is proof of advancement in tax administration of a country.

The challenges of integrating ADR in management of tax dispute in Nigeria:

  1. During negotiation, parties must compromise in order to reach amicable settlement. Thus, the tax authority may be required to vary the tax rate payable by the tax payer in order to reach a settlement and save time and cost. The challenge herein is that any variation of tax rate by the tax authority in ADR process would be contrary to the Tax statutes which has already stated the exact rate of tax payable by the tax payer which must be complied with.
  • Conciliation is statutory, but unfortunately, the rules failed to provide for the mode of impeachment and enforcement of settlement agreement. The lacuna on its enforceability is a major challenge and it may not be suitable for the resolution of tax disputes.
  • Mediation has no statutory backing at this time and as such the agreements may not be enforceable. Thus, parties may not be inclined to subject themselves to a mediation process. Tax authorities, being public agencies will naturally not be inclined to subject themselves to an informal third party especially when the outcome of the process may be difficult to enforce.
  • The Court of Appeal’s decision in Esso Petroleum and Production Nigeria Limited & Anor v NNPC[19] and Shell (Nig) Exploration and Production Ltd. & 3 ors. V.  Federal Inland Revenue Service, to the effect that arbitral tribunals have no jurisdiction to determine tax related disputes, has foreclosed the use of arbitration in the resolving tax disputes (although the decision of the Supreme Court is still awaited to finally put this matter to rest).  The implication of these decisions of the Court of Appeal is that arbitral clauses usually included in production sharing contracts are not enforceable.


From the above, it is evident that Nigerian courts are inherently non-responsive towards the inculcation of ADR into Nigeria’s tax management system. The reason for this non-responsiveness as can be seen in this work, is clearly understood.

The challenge of unenforceability as stated above in this work, can be remedied by amending the various tax legislations to include arbitration and mediation as viable alternatives for resolution of tax disputes as against the already existing structure which makes provision for just the Tax Appeal Tribunal and the Courts. Since arbitration awards and mediated settlement agreements are enforceable, both the taxpayer and tax authority can be rest assured that their arbitral awards and settlement agreements would be enforceable.

As can be seen in this work, the major reason why Nigerian Courts insist that tax disputes are not arbitrable is because of the exclusive jurisdiction of the Federal High Court over tax matters as provided in section 251 of Constitution. It is therefore recommended that there is an urgent need for a constitutional amendment to ensure that the powers of the Federal High Court to adjudicate over tax disputes can be shared and is not exclusive to the Federal High Court.

It is recommended that the Federal Inland Revenue Service Establishment Act (FIRSEA) be amended to allow disputing parties to choose from the various ADR mechanisms, which one would best fit their needs and go with it.

Finally, it is proposed that the Federal Inland Revenue Service should be more welcoming in allowing tax disputes to be settled through ADR and avoid action or policies that would frustrate efforts aimed at integrating ADR in the management of tax disputes.

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