The centrality of tax and effective tax administration to a nation’s economic growth cannot be overemphasised. Tax is not only pivotal to economic growth; it is also illustrative of the social contract between the governed and governors. It can be described as the contribution made by inhabitants of a nation to its sustenance and growth, albeit compulsory. The right the citizenry possess to question the actions of their leaders, especially in a representative or democratic society stems from the sense of stake that they possess in the running of the government. To that extent, the governing class only serves as custodians of the commonwealth. There is however a fundamental ambivalent element of tax, of which utility considerablydepends on one’s frame of interpretation. Tax is compulsory, it is not optional. On the one hand, the compulsory nature of tax, from the perspective of the government, guarantees steady income to fund projects aimed at developing the nation – at least in an ideal society. Citizens also expect revenues from taxes to be used for their welfare; however,the individual taxpayer’s liability is independent of whether the government provides the expected benefits or not. On the other hand, for citizens who are compelled to make this payment, sometimes deducted from the source of their income, it is usually an unwanted obligation that many would boycott at the slimmestopening.
Nevertheless, taxation has remained a reliable revenue source for modern governments. Many advanced economies are practically run on their effective tax administration system. By way of instance, the United Kingdom’s central government expects to generate £702 billion from income tax, national insurance, and indirect taxes in the year 2018. Tax alone contributes nearly 35% to the Gross Domestic Product [GDP] of the UK. Countries like Finland, Denmark and Norway have attained over 50% contribution to the GDP. This is indicative of the effectiveness of their tax administration. Pleasingly, effective tax administration is not synonymous with western nations. In Africa, a country like Lesotho has attained 42% contribution to GDP and there other countries that are also doing relatively well.
Here in Nigeria the contribution of tax to GDP is just about 6% compared to an average of 17% for sub-Sahara African countries. This prevailing situationsignals a poor tax administration system in Nigeria, which the current Minister for Finance, KemiAdeosun has consistently lamented at diverse forums within and outside the country. There is no doubt that successive administrations in the country have attempted to, in some form, make our tax administration system more effective. One of such reforms is the TIN, [unique Taxpayer’s Identification Number], which formally became effective in 2008, introduction of e-payment systems, the constant narrow repeals of the nation tax laws among many of other initiatives that have been introduced to advance our tax system. To further maximise the opportunities in tax administration, in 2013 the then federal government contracted McKinsey &Co to provide technical support to the Federal Inland Revenue Service [FIRS] towards the enhancement of non-oil revenue taxes. The government also had a plan to progressively increase the contribution tax from 7% at the time to 22 per cent of GDP by the end of 2015.
Whereas past administrations perhaps focused more on bringing additional people, especially SMEs into the tax net, the current government seems to be extra concerned about curbing the outflow of taxable income. Fittingly, whilst theMinister of Finance, KemiAdeosun concurs that tax revenue in Nigeria has been lamentably poor, she argues that much of it is attributable to illicit financial flow or money that has left the shores of Nigeria through tax evasion. For proper understanding, according to the Canadian Department of National Revenue, tax evasion is “the omission or commission of an act knowingly with intent to deceive so that the tax reported by the taxpayer is less than the tax payable under the law, or a conspiracy to commit such an offence. This may be accomplished by the deliberate omission of revenue, fraudulent claiming of expenses or allowances, and the deliberate misrepresentation, concealment or withholding of material facts.”Taking the argument further the minister believes multinational corporations are the biggest culprits in these unfair and illicit dealings in Nigeria.
At the Platform for the Collaboration on Tax [PCT] Conference on February 14-16 in New York, Mrs.KemiAdeosun delivered a passionate call to the international community on the need to support Nigeria in its drive to fully maximise the country’s tax revenue potential. She noted that multinationals companies [MNCs]operating in Nigeria are hugely involved in tax malpractices.According to the minister, “It is disheartening to note that many of these multinational corporations [MNCs] operate a completely different standard in Africa, compared to what obtains globally. These defaulting MNCs often take advantage of slow legal/judicial processes to avoid doing what is right.”The minister argues that the funds Nigeria could have generated from tax evasion were sufficient to develop the nation without foreign aids. In other words Nigeria would not need any form of aid if companies comply with tax regulations in the country.
The Vice President, Prof. YemiOsibanjo was quoted last year to have estimated Nigeria’s loss to tax evasion by MNCs in the last 10 years at $178billion. It was this reality that informed the government’s decision to ratify the multilateral convention on tax related treaties to end profit shifting and tax evasion by multinational companies. Buoyed by selfish and greedy interest to increase profit and maintain positive public image, especially among shareholders, organisations explore various schemes to short-change the government and reduce their tax burdens. To sustain this malpractice the MNCs in collaboration with financial experts and institutions have in some instances created structures such as tax havens to perpetuate their illicit activities. It is estimated that $1 trillion of illicit money flows into the global banking system through tax havens and offshore financial centres annually. The amount of money stolen by government officials is nothing compared to the money that is lost to tax evasion. If corrupt practices were to be ranked, tax evasion would rank higher that embezzlement.
The foregoing helps in understanding the frustration of the Minister of Finance and her outburst at the PCT conference, which some media platforms have rightfully captured as “reporting MNCs to global bodies.”She particularly called on OECD, World Bank, IMF and United Nations to designate the tax malpractices of the MNCs as “foreign corrupt practices” in order to allow for international collaboration. Some of the measures the minister proposed are for other countries to adopt the United Kingdom’s “Unexplained Wealth Orders (UWO)” policy that requires a person who is reasonably suspected of involvement in, or of being connected to a person involved in, serious crime to explain the nature and extent of their interest in particular property, and to explain how the property was obtained. The measures advanced by the minister, if adopted, will surely aid Nigeria in its quest to mitigate the incidence of tax evasion. However, the pertinent question is: how much effort is the government putting in place to fight tax evasion within the country? The best way to deal with this unpatriotic practice would be to address it from the source and prevent the multinationals from repatriating the money in the first place.
The local entrenched structure that has aided tax evasion should be our first point of call in the battle. The MNCs employ experts in different fields to exploit loopholes in our tax provisions to their benefit. Studies have shown that many of the accomplices in this malpractice are members of respectable chartered institutes in the country, and highly placed legal practitioners. To that extent the government needs to employ the carrot and stick approach to reduce the incidence. The ongoing VAIDS policy is a proactive carrot approach that should significantly encourage individuals and corporate bodies to come forward and embrace transparency. Beyond this, there is need to collaborate with relevant institutes such as the Institute for Chartered Accountants of Nigeria (ICAN), Chartered Institute of Taxation of Nigeria (CITN), Nigerian Bar Association (NBA), Chartered Institute of Bankers of Nigeria (CIBN), Economic and Financial Crimes Commission (EFCC).The collaboration between these institutes and the government will, perhaps, propel them to take issues of ethics more seriously.
In the same way, there is urgent need for a review of our tax laws and a more vigorous approach to tax related prosecutions. In some countries tax defaulters have been jailed for many years, while company’s asset are confiscated or sold to the tune of tax evaded. But in Nigeria the laws are weak or weakly implemented such that savvy MNCs are having a field day evading tax in the country. To change the current tide we must rigorously institute measures that deter organisations from succeeding in their drive to rip-off the nation. And in the short term there is a need to make a scapegoat of one of the defaulting companies. That will send a clear message to other culprits. Finally, the government also needs to review the current tax structure to eliminate unfair provisions such as multiple taxation and over-taxation. These are counterproductive provisions that must be extirpated for the benefit of all.
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