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Tax Intermediaries Management: A Review of Three Jurisdictions

Document Cited authorities 3 Cited in Related
Vincent
Date01 November 2019
Pages522-545
DOI10.3366/ajicl.2019.0289
Author
Published date01 November 2019
INTRODUCTION

Tax intermediaries are persons or entities who act as go-betweens or provide services to taxpayers in the course of the latter's interaction with the tax authority.1 Although referred to by different names,2 their distinct characteristic is that their role is a corollary to and a creation of the tax system. For the purpose of this review, a tax intermediairy is the relevant professional who provides services relating to company registration (or incorporation),3 the preparation of financial accounts and tax return as well as their filing (hereafter collectively referred to as bookkeeping) and tax advisory services. For methodology, content analysis is utilised. This facilitated the examination of text like legislation, relevant literature for the purpose of drawing inferences therefrom as well as conclusions with regard to the management framework for tax intermediary practice in the jurisdictions of interest.4 With regard to scope, the review is limited to practice or service relating to incorporation, bookkeeping and advisory.

That said, tax intermediaries should be seen and recognised as a force to reckon with because of their hold on and the role they play in the economic systems of nations. For example, the accounting profession (spearheaded by the ‘Big 4’5), through private sector entities like the International Accounting Standards Board (IASB) and the International Federation of Accountants (IFAC), issue global accounting standards with little or no public oversight. Notwithstanding the benefits associated with the adoption and utilisation of these standards,6 sight should not be lost of the fact they oftentime contend with as well as change municipal principles and law relating to accounting, auditing and taxation.7 Furthermore, by being the provider of the statndards (which are essentially a template for the regulation of the financial sectors of economies), IASB and IFAC as well as the standards could be deemed as having infringed into domains which are indicative of the sovereignty of the state.8 It is against this background that this article reviews the framework for the management of tax intermediaries in Nigeria, Kenya and South Africa with a view to highlighting features in the tax intermediaries management framework of the latter two jurisdictions that may well be adapted by Nigeria.

 TAX INTERMEDIARIES' ROLE Theory and Fact

In most jurisdictions, the tax and related legislation which create and or maintain the function of tax intermediaries also use them as a means of providing guarantees within the tax system and the larger economic systems. For example, compliance with the rule that a chartered accountant must certifiy a financial statement or audit report provides assurance to the tax authority (and other users of such documents) that the prepatation of relevant documents was done in accordance with accounting standards.9 In addition, by virtue of their training, they possess the expertise required to navigate the complexity of the tax system10 and keep up with the frequency of changes therein and the administrative processes associated with compliance. These create the niche occupied by tax intermediaries and put it beyond conjecture that tax intermediaries play a vital role in the tax system. The OECD captured the importance of their role thus:

Tax service providers operate in many jurisdictions, conducting a range of tasks that aid the functioning of the tax system. These include providing taxpayers with advice on the application of tax laws, assisting them in the preparation of returns, and representing them in their dealings with the tax administration, often involving tax audit and disputes. While it is generally taxpayers who initiate and make the arrangements for tax services from providers, the providers remain an important potential partner that can assist administrations in improving compliance rates, meeting service demands, and lowering the administrative burden and cost of tax administration.11

From the above, the inference is that tax intermediaries operating in a tax system co-administer the same with the tax administrator.12 This makes them indispensable in the tax system. In the context of tax compliance, at the least they ought to function as ‘gatekeepers’, protecting both the state and the taxpayer from fictitious and adverse claims.13 In this capacity, they provide an important public service because of their location between the taxpayer and the tax authority as well as facilitating the creation of what Schobel described as ‘“a more constructive relationship” between all three’.14 With regard to legal practitioners who provide tax intermediary services, Lavoie opined that while discharging their ‘duty to provide zealous representation of clients’ and complying with ‘the law of lawyering’,15 they are obligated to create, nurture and promote a fair tax system.16

The pertinent question, in today's terms, is whether tax intermediaries are functioning in the above capapcity or acting in a manner that can be deemed to be in the interest of the public.17 It seems the reality is otherwise.18 It is surmised that the reason for the variation between reality and theory is none other than the fact that taxation, albeit a product of law, involves money. This has different corollaries. For the state, since taxation is the source of funds for public expenditure, it is vigorously pursued, hence the ever-changing landscape of taxation. From the perspective of the taxpayer, it is a cost which must be kept to a minimum since it negatively impacts on profit or disposable income.19 It is this perspective that makes taxpayers gravitate towards the ever-diversifying alchemy of tax minimisation and avoidance schemes provided by tax intermediaries.20

The current reality is that tax intermediaries unabashedly side with the taxpayer with little or no thought of their obligation to the state. Also of less consideration is the impact of their provision of tax avoidance services on the tax system.21 More recently, they seem to be disposed to avoiding situations where they would be bound to act as gatekeeper between the taxpayer and the state (represented by the tax authority).22 However, the actions of tax intermediaries with regard to taxpayer compliance behaviour have come to the fore of the collective consciousness. This awareness has been heightened by the recent spate of media leaks which have illuminated tax avoidance schemes and arrangements employed by taxpayers around the world.23 Similarly, the fact that tax intermediaries were always at the centre of each of the controversies24 has not helped matters.

 Assuming the Role in Nigeria

The presence and role of tax intermediaries is directly and indirectly a product of the tax system. It is direct where extant tax and related legislation creates and maintains the function of tax intermediaries25 and indirect where the mechanics and/or pecularity of the tax system make them sine qua non. Examples of the latter includes the now famous complexity of the tax system and the desire to minimise tax so as to improve profit after tax and disposable income.

To assume the role of tax intermediary in Nigeria, qualification as a chartered accountant, tax practitioner or legal practitioner is a condition precedent. The requirement for qualification as a chartered accountant in Nigeria is in accordance with the provisions of the Association of National Accountants of Nigeria Act26 (ANANA) or the Institute of Chartered Accountants of Nigeria Act27 (ICANA) which respectively established the Association of National Accountants of Nigeria (ANAN) and the Institute of Chartered Accountants of Nigeria (ICAN). The provisions of both Acts are substantially similar though the latter pre-dates the former by 28 years28 and they create two parallel professional groupings of chartered accountants in Nigeria. Although the criteria for qualification and the roles of ANAN and ICAN members are similar,29 they are subject to separate but similar professional regulations under the respective legislation.30 Worthy of reiteration is that the possession of the ANAN or ICAN qualification (or their equivalent) is a condition precedent to practising as a professional accountant (which section 77 of the Financial Reporting Council of Nigeria Act 2011 (FRCNA) defines as ‘a person who is a member of a professional accountancy body established by an Act of National Assembly and registered with the Council’) and or auditor (defined by section 77 of the FRCNA as ‘a professionally qualified accountant or firm of accountants appointed to conduct an examination of the records of an enterprise and to form an opinion as to whether the accounts have been prepared in accordance with generally accepted accounting principles’) in Nigeria.

The qualification and role of a tax practitioner is also a product of legislation. The Chartered Institute of Taxation of Nigeria Act31 (CITNA), pursuant to which the Chartered Institute of Taxation of Nigeria (CITN) was established,32 vests CITN with the responsibility of determining the standard of knowledge and skill that is to be attained by persons seeking to be registered as members of the taxation profession in Nigeria.33 Accordingly, a tax practitioner is subject to the professional regulatory regime established pursuant to the CITNA.34 The case of a legal practitioner is no different, being a person who has been called to the Nigerian Bar after undertaking a course of legal study approved by the Council of Legal Education established under the Legal Education (Consolidation, etc.) Act35 and/or entitled to so practise in Nigeria pursuant to the Legal Practitioners Act (LPA).36

From the foregoing, it is clear that the qualification for and entrance into the role of a tax intermediary is determined by law in Nigeria. The respective legislation established the first level of the regulatory regime for the management of these...

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