Checking Tax Evasion
The recent revelation by the Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler, that Nigeria loses about $15 billion (N5.4 trillion) annually to tax evasion is mind-boggling. The FIRS boss made the disclosure at the recent seminar of the West Africa Tax Administration Forum (WATAF) in Abuja, where global tax experts converged to find solutions to offshore tax evasion. In spite of the huge loss, the government is planning to check the development through the implementation of the Automatic Exchange of Information (AEOI), a strategic tool for checking offshore tax evasion by wealthy persons in the society.
The government, according to the FIRS boss, is determined and committed to improving transparency in tax revenue collection. The loss of $15 billion annually to tax evasion is worrisome. It is sad that in spite of the number of listed companies in Nigeria, wealthy individuals and a large population, the revenue from tax represents only seven percent of our Gross Domestic Product (GDP). This shows that many companies and individuals that ought to be paying tax are defaulting. This sharply contrasts with Ghana, a country with a much smaller population and incorporated firms, but with higher revenue from the tax, which accounts for about 21 percent of her GDP.
The disclosure by the FIRS boss raises serious issues about the transparency and efficiency of our tax administration as well as the inability of our laws to deal with tax evaders. Tax evasion is a criminal offense and offenders should be treated as such. We believe that the FIRS and other relevant government agencies that should rein in tax defaulters have not done enough to check the menace. The low number of Nigerians and companies that pay tax is an indication of the high prevalence of tax evasion. This cuts across the formal and informal sectors, as well as the wealthy and those, who operate offshore accounts.
The loss of $15billion per annum to tax evasion confirms the World Bank’s earlier statistics on the issue. In 2012, the global bank report showed that Nigeria had struggled on the bottom rung of global tax assessment index, and dropped to 155 out of 185 countries in the world. Although Nigeria is reported to have improved from 2015, the incidence of tax evasion is still rated very high at about 72 percent.
Therefore, we need stricter measures and stiffer penalties to rein in tax evaders. This should be part of the implementation of the Automatic exchange information regime, which takes effect in September 2020. Its effectiveness and efficiency delivery will require countries in the ECOWAS sub-region to take necessary steps to implement the AEOI standards.
It is not clear how the federal government has gone with the Voluntary Offshore Assets Regularisation Scheme (VOARS), unveiled last year to woo owners of undeclared foreign assets with amnesty and permanent waiver of criminal prosecution. The plan was given a legal backing through Executive Order 8 signed by President Muhammadu Buhari. The move is also to complement the Voluntary Asset Income Declaration Scheme (VAIDS). These measures are part of the government’s strategic plan to broaden the revenue base of the economy and track millionaire tax debtors.
Without checking tax evaders and bringing them into the nation’s tax net, the government may find it difficult to generate enough revenue to finance growth-enhancing infrastructure and social programs. Currently, Nigeria’s six percent tax ratio to GDP is one of the lowest in the world. Also, Nigeria is still ranked 124 out of 138 countries on the Global Competitiveness index. This is despite the recent improvement of Nigeria in the Ease of Doing Business index (EoDB) released recently by the World Bank group which saw Nigeria moving 15 places.
This gap can be closed if economically active people, including the very rich and companies operating in the country, pay tax. We maintain that if rich Nigerians pay tax as they should, especially on luxury items, the government will have substantial revenue for infrastructure development.
There is no doubt that an increase in mobility of income and assets have created a challenge for tax administration. At the same time, it offers a global response to the issues of international tax avoidance, tax evasion, illicit financial flows, money laundering, and other harmful practices. Therefore, the FIRS should explore all legitimate means and use of advanced technologies to tackle tax evasion. However, the drive to increase revenue should not be used as an excuse to impose multiple taxes. The government should also note that judicious use of tax revenue would curb tax evasion.