President Goodluck Jonathan recently brought the problem of tax evasion in Nigeria back on the front burner with his disclosure that a large number of corporate organisations and individuals, who amount to about 65 percent of all registered taxpayers in the country, do not pay their taxes. This high tax evasion rate in the country is outrageous and worrisome. It is a glaring fallout of the loopholes in our tax system that make it possible for registered businesses and individuals to get away with tax evasion.
The President’s concern was amplified by the Minister of Finance, Dr. Ngozi Okonjo-Iweala, at a recent conference organised by the Institute of Chartered Accountants of Nigeria (ICAN), in Abuja. The conference was also told that 75 percent of Micro, Small and Medium-scale Enterprises (MSMEs) in the country are not in the tax system, while 35 percent of companies operating under the Pioneer Status Incentive abuse their tax exemption privilege. Although these latest statistics on the scope of tax evasion in the country did not give the nation’s exact loss to tax defaulting firms and individuals in monetary terms, the reality of the situation is that Nigeria loses so much money to the problem. The economic malaise is, indeed, a profound threat to the nation’s economy.
Last year, the Finance Minister said that government lost over N80 billion to tax dodgers, while about 350,000 registered companies in the country consistently failed to file their tax returns to the Federal Inland Revenue Service (FIRS). Worse still, an audit report by the Nigeria Extractive Industries Transparency Initiative (NEITI) stated that multinational oil companies in the country defaulted in tax payments to the tune of N1.3 trillion in five years (1999-2004). Also, N85.2 billion was reportedly lost within the last four years in the automobile industry as a result of tax evasion. This is economic sabotage that is capable of stifling socio-economic development of the country.
Tax evasion is a challenge to government institutions charged with tax collection and administration in the country. It is a sign that our tax laws are not being properly enforced. This is the main reason that Nigeria has been ranked low by the World Bank on the tax compliance index, where the country emerged 170th out of 189 countries, according to a survey done in 2012. Yet, government has not done much to check this abuse, in particular, by incorporated companies.
Raising an alarm on tax evasion is not enough. Concrete measures must be put in place to plug the loopholes that make it possible. An American-based tax consultant, McKinsey, has been reported to be working with the FIRS to plug these loopholes. Government should match words with action to address the problem.
President Jonathan had last week promised to unveil a seven-point action plan to improve non-oil tax revenue collection in the country. This is a wise step, in view of the dwindling revenue from oil which has been made even more challenging by persistent crude oil theft. No stone should be left unturned in ensuring that evasion of this statutory obligation is minimised, if it cannot be stopped completely.
It is regrettable that tax evasion is on the rise despite the newly-introduced National Tax Policy. One reason for this is the problem of collusion between defaulting companies and tax officials. Our laws should be strengthened so that non-compliance with tax laws will attract stiffer penalties, while measures are put in place to address underhand dealings by tax officials.
If our tax system is strengthened, and appropriate regulatory policies are put in place, taxes should be a huge chunk of public revenue. At the moment, according to figures from the FIRS, revenue from taxes represents just seven percent of Nigeria’s Gross Domestic Product (GDP).This means that many firms and individuals are defaulting. This is in contrast to a country like Ghana with far lower number of registered companies, but with revenue from taxes representing 21 percent of its GDP. The truth is that tax avoidance and evasion have become the culture of some individuals and businesses operating in the country, especially in the informal sector which drives the economy.
Altogether, it has become imperative to rebuild Nigeria’s fiscal buffers to take care of the uncertainties of key revenue sectors, such as oil. But, more importantly, government should show evidence of what it is doing with the money it gets from taxes. This will motivate tax dodgers, whether corporate or individual, to promptly pay their taxes.
