After a flurry of barking without biting, the Federal Inland Revenue Service has issued a fresh threat to tax defaulters to pay up or face dire consequences. With the aim of beefing up government’s worsening fiscal situation, which is defined by higher expenditure, lower income and high cost of debt servicing, the the FIRS has again bared its fangs against tax evaders, with a warning that it will move against them. This is long overdue. In Nigeria, individual and corporate tax defaulters have been living large without any retribution for their misdeeds.
For the uninitiated, the FIRS’s caveat is a sign that the defaulters will finally answer for their crime. In turn, government’s flagging revenue will experience a boon, seeing that it (the government) is intent on generating more income from non-oil sources. With a new broom at the helm, the FIRS stated that at the expiration of the weeklong notice, all defaulters would face prosecution. The taxes include the Petroleum Profits Tax, Companies Income Tax, Withholding Tax, Value Added Tax and Stamp Duty.
Nevertheless, because of its antecedents, there is really nothing to get excited about the latest injunction. The bitter reality is that enforcement of tax laws has been fitful. Annually, government loses huge revenues to tax evaders; many others underpay, denying the treasury of the much-needed income. The FIRS’s record in the past few years has been anything but encouraging to the millions of others who comply.
Although the FIRS has grown the number of taxpayers in the past four years, critically, it has also missed its target by at least 45 per cent since 2015, government data show. As of 2017, 14 million Nigerians paid taxes, said Vice-President Yemi Osinbajo. Additionally, just 914 Nigerians paid taxes of between N10 million and N20 million annually, with 912 of them resident in Lagos and two based in Ogun State. This is implausible because there are many billionaires across the country and many more than the 914 in the two states mentioned.
A 2018 World Bank report averred that out of the 65 million taxable adults, only 19 million were paying as of that year. It translates to 30 per cent, an abysmally low figure in the face of crashing oil revenues. The vital issue, therefore, is that the FIRS has been weak in bringing the 70 per cent (defaulters) to book.
This is against the norm in other jurisdictions in which economies are built around tax revenues. In Nigeria, it is the reverse. A United Nations study stated that in 2018, Nigeria’s VAT collection rate was among the poorest in Africa. The immediate past FIRS chairman, Babatunde Fowler, lamented in October that Nigeria was losing $15 billion or about N5.4 trillion annually to tax evasion. This is half of the N10.59 trillion 2020 budget.
In a compelling reminder of the FIRS being a toothless bulldog, the Voluntary Assets and Income Declaration Scheme, a 2017 initiative for tax evaders to declare and pay outstanding taxes, recovered just eight per cent of the arrears. Several multinationals owe the country vast sums. In a landmark judgement, the Supreme Court ruled in 2018 that the Federal Government should recover $62 billion from the major international oil companies, which is its share of the profits they made in the production-sharing contracts.
This leaves the country with one of the lowest tax-to-GDP rates in the world, which was six per cent in 2016, far behind South Africa’s 29 per cent, Ghana’s 18 per cent, Egypt’s 15 per cent and Kenya’s 18 per cent, says the Organisation for Economic Cooperation and Development. The World Bank says Nigeria’s tax-to-GDP ratio was 3.4 per cent in 2016, and inched to 4.8 per cent in 2017. The Senate alleges that the banks are withholding N20 trillion stamp duty they collected. It is the same scenario with the sub-national governments. Former Lagos state governor, Akinwunmi Ambode, stated in 2017 that out of the 22 million residents of the state, less than 600,000 were tax compliant.
Instead of the government to widen the tax net and clamp down on evaders, it is barking up the wrong tree. The first is to increase the tax rate at every opportunity. The second is the recourse to borrowing. From January, Nigerians are set to pay more for VAT. Currently, VAT is five per cent, but will jump to 7.5 per cent from next month. The Central Bank of Nigeria just imposed new charges on electronic bank transactions. This is lazy; it will provoke more economic distress.
The second option is just as importunate. The Major General Muhammadu Buhari (retd.) regime is to borrow $29.96 billion. Already, the country, which negotiated a national debt relief from the clutches of international creditors in 2005/06, is back in the red with the Federal Government’s stock of $66 billion (about N20 trillion), says Debt Management Office data.
Ordinarily, governments elsewhere have scant tolerance for tax evasion. Recently, the Spanish tax authorities have prosecuted soccer icons like Lionel Messi, Cristiano Ronaldo, Luiz Suarez, Neymar and Jose Mourinho (a coach), for dodging tax. The FIRS should implement this strategy. Apart from naming and shaming high net-worth Nigerians and companies involved in cheating the taxman, they should also be publicly prosecuted as is being done in Spain
The lessons from the United Kingdom are equally relevant. In 2015, Her Majesty’s Revenue and Customs introduced a new legislation that empowered it to collect due tax directly from the bank accounts of defaulters “provided the tax exceeds £1,000, as a last resort.” The law authorises it to seize the assets of defaulters, prosecute, demand tax from employers, use debt collection agencies or take tax from the pension fund.
Therefore, this time, the FIRS should walk its talk. It has ammunition in the law and examples from other climes to succeed in its assignment. The National Assembly should wake up and tighten the laws on taxation to make it easier for the FIRS to do its job.
