The recent disclosure by the Co-ordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, that the Federal Government loses over N80 billion to tax evasion by 75 percent of the registered companies in the country has once again highlighted the scope of the problem of tax evasion in Nigeria. The figure is worrisome, and it might not even capture the nation’s total loss to tax defaulting firms. Evasion of this statutory obligation has become regular fare of both organisations and individuals in the country. Yet, the government has not designed a mechanism for checking the defaulting firms and making them meet up with their tax obligations. Just raising an alarm is simply not enough. The problem of tax evasion remains a big threat to the economy and must be viewed and treated with the seriousness it deserves. Okonjo-Iweala, while speaking on this problem at the National Council for Finance and Economic Development meeting in Minna, Niger State, also said that about 65 percent of registered taxpayers in Nigeria didnot file their tax returns in the past two years. Again, this is not surprising considering the loopholes in our tax system which both individuals and corporate organisations always take advantage of. The government has become very disturbed by this problem now because of dwindling oil revenue occasioned by oil theft. Oil companies are the worst culprits in tax evasion as a recent audit by the Nigeria Extractive Industries Transparency Initiative (NEITI) showed. The audit report indicated that oil majors in Nigeria defaulted in tax payments to the tuneof N1.3 trillion between 1999 and 2004.This is a sabotage of the economy. Something urgent must be done to checkmate tax dodgers.It appears that those saddled with ensuring strict compliance with the prompt payment of taxes are either slothful in their duties or have compromised their position. Not long ago, the Federal Ministry of Finance stated that at least 350,000 registered companies in the country have consistently failed to file their tax returns to the Federal Inland Revenue Service (FIRS). That could be adeliberate act to evade payment of tax. It speaks volumes of the laxity in tax administration in the country. It is regrettable that this situation persists in spite of the newly-introduced National Tax Policy. This could not have been possible without collusion between defaulting companies and tax officials. However, there isvery little FIRS can do in the absence of registered firms submitting their tax returns. Statistics from FIRS show that total revenue from tax represents only seven percent of theGross Domestic Product (GDP). This means that many companies that ought to be payingtax are defaulting. In contrast, collected tax earnings in Ghana, a country with fewer incorporated firms, is about 21 percent of its GDP. The truth is that tax evasion has become the culture of businesses in the informal sector, which actually ought to be the engine of the economy. With this penchant for tax evasion, no matter the much-touted slogan of Nigeria being the “investment destination in Africa”, the benefits will count for little without prompt payment of taxes. For instance,a whopping sum of N85.2 billion was reportedly lost within four years in the automobile industry through tax evasion. No country that tolerates a high level of tax evasion will generate the much-needed revenue for its development. In many developed economies, the trend is to tax the rich and big firms heavily and use part of the earnings to provide safety nets for the poor and for other development purposes. Unfortunately,the opposite is the case in Nigeria, as NEITI reports have constantly indicated that the trend is for oil majors and foreign airlines operating in the country, including the Nigerian National Petroleum Corporation(NNPC), to frequently underpay their taxes and other statutory remittances due to the Federal Government. This is a major challenge to government. It is high time government began to tighten the relevant laws on tax evasion. Mere identification of the defaulting firms and the amount they owe is not enough. Stricter measures should be put in place, with stiff penalties for evaders. Overall, accurate reporting tax code standard is necessary. Presumptive tax system, under which tax liability is inferred from simple indicators such as turnover, assets and value of land have proved no longer effective. With a better tax framework for all companies in the country, particularly those in the informal sector of the economy, there will be hope for significant increase in revenue from taxation in the country. To encourage firms and individuals to promptly pay their taxes, the government should demonstrate that the huge revenue from taxation is being deployed to projects that can make positive impact on the lives of the people.
Posted on: Sat, 24 Aug 2013 08:30:35 +0000
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