Hard times await tax evaders this year, the Federal Inland Revenue Service (FIRS) has said. The agency has launched a national intelligence gathering system to prevent tax evasion. The system will gather data that will be used to expose tax evaders. FIRS Executive Chairman Muhammad Nami stated this recently in Abuja during a visit to the Independent Corrupt Practices and Other Related Offences Commission (ICPC) Chairman, Prof. Bolaji Owasanoye. Nami added that the service is restructuring its system to enable it surpass its 2020 revenue target. He said: “The intelligence gathering system is Information and Communication Technology (ICT)-based and is being implemented in close collaboration with the ICPC and other anti-corruption agencies as well as financial institutions to tackle economy-based crimes, including money laundering.” Nami explained that the FIRS is improving its “collaboration with the ICPC to track tax fraud and block all revenue leakages to ensure that we raise the revenue for the government to fund its budget. We need the data and intelligence which you have to help us track tax evaders and bring them into the tax net”.
Prof. Owasanoye said the ICPC was open to share data with the FIRS to track tax evaders, defaulters and tackle illicit financial flow in Nigeria to raise the revenue profile of the government. “The collaboration between the FIRS and the ICPC is very important to Nigeria. One of the cardinal objectives of this Board of the ICPC is to widen the tax net. When we come across any company that is not tax compliant, we refer such companies to the FIRS. We have referred over 500 companies to FIRS. We want them to be captured in the tax net so that they continue to pay their taxes,” he added. Nami said the FIRS Board had approved many reform projects, which the Management of FIRS tabled before it, noting that repositioning the service is being anchored on four cardinal pillars, namely, “rebuilding FIRS’ institutional framework, robust collaboration with stakeholders, building a customer (Taxpayer)-centric and data-centric institution.”
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It would be recalled that, the Federal Inland Revenue Service (FIRS) has launched an initiative to block multinational corporations from siphoning $10 billion from Nigeria. The agency is also targeting a minimum of N8.5trillion tax this year, its executive chairman, Mr. Muhammad Nami, said recently. The $10billion is the amount which the African Union Illicit Financial Flow Report said Nigeria was losing. But speaking at the opening of the 2020 Corporate Plan Retreat in Abuja on Friday, Nami said he had embarked on a comprehensive tax collection reform process “anchored on four cardinal pillars of rebuilding FIRS’ institutional framework; robust collaboration with stakeholders; building a customer or taxpayer-centric institution; and making the FIRS data-centric institution.”
He explained that the N8.5trillion tax target would be made up of N3.7trillion oil tax and N4.8trillion non-oil taxes. He said that FIRS was gradually weaning Nigeria off its dependence on oil revenue with non-oil taxes accounting for 60% contribution to the total collection of taxes in 2019. Reviewing the agency’s performance in 2019, he said it “achieved a total tax revenue collection of N5.26trillion against a target of N8.8trillion which translated to about 60% target achievement for the year.”
This performance, he said “was slightly lower than the 2018 collection of N5.3trillion by N57billion or 1.07%. Oil tax collection for the year was N2.1trillion which was 49% achievement of its annual target of N4.3trillion. This accounted for 40% contribution to the total collection.”
He put non-oil taxes collection for the year at N 3.2trillion which was 70% achievement of the annual target of N4.5trillion. This also accounted for 60% contribution to the total collection.
The FIRS chief pledged that the service would play its “strategic role in the nation’s political economy, including supporting the actualization of President Muhammadu Buhari’s administration’s commitment of moving the country up on the Ease of Doing Business Ranking and taking 100 million Nigerians out of poverty over the next 10 years and rebuilding Nigeria’s critical infrastructure.” Addressing the press on the sidelines of the retreat, the Director, Communications, FIRS, Dr. Abdullahi Ismaila, noted that “the FIRS Chairman, his board and team have also set a target of improving the agency’s performance over the next four years by a “minimum target of $5 million staff-to-revenue- ratio and a 10% tax-to-GDP ratio.”
Recalled too that, the ex-Executive Chairman of Federal Inland Revenue Service (FIRS), Mr. Tunde Fowler, recently disclosed that the agency has set a target to realize about N750 billion from about 55,000 defaulting taxpayers. This is coming as the federal government yesterday unveiled the Voluntary Offshore Assets Regularization Scheme (VOARS) aimed at providing tax amnesty and permanent waiver of criminal prosecution to owners of offshore assets, who are willing to voluntarily declare those assets. Fowler made the disclosure while addressing the House of Representatives joint committees on Finance, Appropriations, Aids, Loans and Debt Management, Legislative Budget and Research and National Planning and Economic Development on the 2019/2021 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). According to a statement issued by FIRS spokesman, Mr. Wahab Gbadamosi, the FIRS chairman told members of the committees that the recent substitution exercise carried out by the service led to recovery of N23.25 billion.
According to him, “From the bank accounts substitution exercise, we used banking information to bring non-compliant taxpayers with N1 billion and above turnover to comply. It has so far resulted in the recovery of N23.35 billion. “The exercise has been extended to cover those with turnover of N100 million and above. “To date about 500 of them have come forward and they have paid and we have collected in the region of about N24 billion. We believe we should be able to go through the 55,000 before the middle of this year which will be the middle of this year. “In terms of estimates, which we should be able to generate from this exercise alone, that will be about N750 billion.”
Similarly, the Federal Government has said it will take over 30 properties linked to companies that have not been paying taxes. The former Executive Chairman, Federal Inland Revenue Service, Mr Babatunde Fowler, stated that out of the 2,000 properties of corporate entities identified early this year that were not paying taxes, 561 of them had come forward to make payments. Fowler said 116 companies claimed not to own any of the properties, adding that 30 of them had actually written to the FIRS that the properties in question did not belong to them. He said based on the law, the properties would be taken over by the government. He said, “We have certain private organizations that own properties in Nigeria and have not been paying any taxes. “So we took a review of all properties and we have about 2,000 that were under corporate ownership and those corporate entities have not paid any tax. “By law, where a company has not filed or paid any taxes, we have to use estimated assessment based on turnover. “Out of the 2,000, about 569 have come forward to pay taxes. We have done an assessment of N8bn, while the others have asked for payment by installment. “Also, 116 claimed not to own those properties. 30 of them have put it in writing claiming that they do not own the properties in question. “We have written accordingly to the Ministry of Finance and we believe that the government will take those properties over in line with the law.”
Also, Nigeria should widen its tax revenue base to finance growth-enhancing upgrades to the nation’s infrastructure and social programs, said a senior International Monetary Fund official. While the administration of Muhammadu Buhari has made progress in addressing issues such as corruption, the West African country needs to pick up its reform efforts if it wants to boost economic growth, said Abebe Aemro Selassie, director of the Africa department at the Washington-based fund. “To address the education, health, road, electricity and other infrastructure needs they have, they have to have a much higher revenue base than they do now,” said Selassie. “There is tremendous scope to broaden tax bases,” he said, citing property tax as an example.
Sub-Saharan African countries could increase tax revenue by an average of 5 percent of gross domestic product — much more than what they receive in international aid — if they reform their tax policies, the International Monetary Fund said. Key steps would be to strengthen value-added tax systems, streamline exemptions and expand coverage of income taxes, the Washington-based IMF said in its regional economic outlook released recently. Developing new revenue sources, such as property levies, and using technology that could ensure access to more reliable information would also help, it said. Despite substantial progress in revenue mobilization over the past two decades, sub-Saharan Africa remains the region with the world’s lowest ratio of revenue to GDP, the IMF said. Its average tax frontier — or the highest level of tax income that a country could achieve given certain underlying macroeconomic and institutional conditions — is about 7.5 percentage points of GDP lower than the average for the rest of the world. “Domestic revenue mobilization is one of the most pressing policy challenges” in the region, the IMF said. There is “considerable potential to collect higher taxes through reforms,” it said.
In the same vein, the Federal Inland Revenue Service went after the bank accounts of defaulting taxpayers, who are raking in billions of naira in Nigeria and are not paying taxes, according to the immediate past FIRS Chairman, Tunde Fowler. In doing that, the FIRS, through all banks in the country, would do substitution on the accounts, Fowler said, adding that over 6,772 of such defaulting billionaires had been identified by the agency through bank data.
Fowler, who disclosed this at a stakeholders’ meeting, according to a statement, noted that most of such taxpayers, who had between N1bn and N5bn in their accounts, had no Taxpayer Identification Number, or had TIN but were not filing any tax returns.
The FIRS chairman stated, “What we have done is what we call substitution, which also is in our laws, and which empowers us to appoint the banks as collection agents for taxes. So, all these ones with TIN and no pay, and no TIN and no pay, totaling 6,772 will have their accounts frozen or put under substitution pending when they come forward. “First, they refused to come forward in 2016; they refused to come forward under VAIDS and are still operating here. So, we are putting them under notice that it is their civic responsibility to pay tax and to file returns on these accounts.”
Fowler further explained, “We looked at all businesses, partnerships and corporate accounts that have a minimum turnover of N1bn per annum for the past three years. First of all, the law states clearly that before you open a corporate account, part of the opening documentation is the tax ID. From the 23 banks, we have analyzed so far, we have 31,395 records, out of which effectively, minus duplications, we had 18,602. “We broke those into three categories. Those that have TIN tax ID; those that don’t have TIN, and of course, no TIN no pay; and those that have TIN and have not even paid anything. “So, on a minimum, every company or business included here over the last three years has had a banking turnover of N3bn and above. Some of them have had banking turnover of over N5bn and have not paid one kobo in taxes. Now, the total number of TIN and no pay is 6,772.”
It is important to underscore the fact that, the Federal Inland Revenue Service (FIRS) had earlier said, it is targeting N8.5 trillion revenue for the country in 2020. The Executive Chairman of FIRS, Mr Muhammad Nami, disclosed this at the 2020 Corporate Plan Retreat in Abuja. Nami said that the 2020 target was slightly lower than the 2019 target by about N300 billion.
He explained that the N8.5 trillion target was broken down into oil tax target of N3.698 trillion and non-oil taxes target of N4.8 trillion. He stated that assessing the service’s performance in the recent past, one could look at 2020 target as ambitious but it was achievable. The FIRS boss assured that the target was achievable and realisable especially with the ongoing reforms and business process re-engineering that were currently taking place in the service. According to him, these reforms are aimed at improving both filing and payment compliance, re-activation of dormant taxpayers through aggressive intelligence gathering and information sharing and blocking of leakages. “In 2019, the FIRS achieved total tax revenue collection of N5.263 trillion against target of N8.802 trillion which translated to about 60 per cent target achievement for the year.
“The performance was slightly lower than the 2018 collection of N5.32 trillion by N57 billion. Oil tax collection for the year was N2.111 trillion which was 49 per cent achievement of its annual target of N4.301 trillion and accounted for 40 per cent contribution to the total collection. “On the other hand, non-oil taxes collection for the year was N3.152 trillion which was 70 per cent achievements of the annual target of N4.501 trillion and accounted for 60 per cent contribution to the total collection,” he explained. On the retreat, the chairman noted that the event was a flagship in the service’s planning cycle and a platform where staff and management review the performance of the service in the immediate past year and map out goals and strategies for achieving set objectives for the current year. He reiterated the commitment of the service in working to realise President Muhammadu Buhari’s vision at taking 100 million Nigerians out of poverty in 10 years by collecting robust revenue to develop infrastructure.
Taxation refers to the practice of government collecting money from its citizens to pay for public services. Without taxation, there would be no public libraries or parks. One of the most frequently debated political topics is taxation. Taxation is the practice of collecting taxes (money) from citizens based on their earnings and property. The money raised from taxation supports the government and allows it to fund police and courts, have a military, build and maintain roads, along with many other services. Taxation is the price of being a citizen, though politicians and citizens often argue about how much taxation is too little or too much. Taxation is when governments require citizens to pay a certain amount of money to help fund public institutions. Taxes are used to pay for things like public education, welfare programs, transportation infrastructure, defense funds and libraries.
The process whereby charges are imposed on individuals or property by the legislative branch of the federal government and by many state governments to raise funds for public purposes. The theory that underlies taxation is that charges are imposed to support the government in exchange for the general advantages and protection afforded by the government to the taxpayer and his or her property. The existence of government is a necessity that cannot continue without financial means to pay its expenses; therefore, the government has the right to compel all citizens and property within its limits to share its costs. The state and federal governments both have the power to impose taxes upon their citizens.
The basic concepts by which a government is meant to be guided in designing and implementing an equitable taxation regime. These include: (1) Adequacy: taxes should be just-enough to generate revenue required for provision of essential public services. (2) Broad Basing: taxes should be spread over as wide as possible section of the population, or sectors of economy, to minimize the individual tax burden. (3) Compatibility: taxes should be coordinated to ensure tax neutrality and overall objectives of good governance. (4) Convenience: taxes should be enforced in a manner that facilitates voluntary compliance to the maximum extent possible. (5) Earmarking: tax revenue from a specific source should be dedicated to a specific purpose only when there is a direct cost-and-benefit link between the tax source and the expenditure, such as use of motor fuel tax for road maintenance. (6) Efficiency: tax collection efforts should not cost an inordinately high percentage of tax revenues. (7) Equity: taxes should equally burden all individuals or entities in similar economic circumstances. (8) Neutrality: taxes should not favor any one group or sector over another, and should not be designed to interfere-with or influence individual decisions-making. (9) Predictability: collection of taxes should reinforce their inevitability and regularity. (10) Restricted exemptions: tax exemptions must only be for specific purposes (such as to encourage investment) and for a limited period. (11) Simplicity: tax assessment and determination should be easy to understand by an average taxpayer.
Tax Evasion: Tax evasion is a deliberate and willful practice of not disclosing full taxable income so as to pay less tax. In other words, it is a contravention of tax laws whereby  a taxable person neglects to pay the tax due or reduces tax liability by making fraudulent or untrue claims on the income tax form. Tax  is  evaded  through  different  methods  some  of  which  include  the following:
- Refusing to register with the relevant tax authority.
- Failure to furnish a return, statement or information or keep records required.
- Making an incorrect return by omitting or understating an income liable to tax refusing or neglecting to pay tax.
- Overstating of expenses so as to reduce taxable profit or income, which will also lead to payment of less tax than otherwise have been paid.
- A taxpayer hides away totally without making any tax return at all.
- Entering into artificial transactions.
Tax Avoidance: Tax avoidance has been defined as the arrangement of tax payers’ affairs using the tax shelters in the tax law, and avoiding tax traps in the tax laws, so as to pay less tax than he or she would otherwise pay. That is, a person pays less tax than he ought to pay by taking advantage of loopholes in a tax levy. Tax can be avoided in various ways:
- Incorporating the tax payer’s sole proprietor or partnership into a limited liability company.
- The ability  to claim allowances and reliefs that are available in tax laws in other to reduce the amount of income or profit to be charged to tax.
- Minimizing the incidence of high taxation by the acquisition of a business concern which has sustained heavy loss so as to set off the loss against future profits.
- Minimizing tax liability by investing in capital asset (for instance through the new form of corporate financing by equipment leasing), and thus sheltering some of the tax payers income from taxation through capital allowance claims.
- Sheltering part of the company’s taxable income from income tax by capitalizing profit through the issue of bonus shares to the existing members at the (deductible) expenses to the company.
- Creation of a trust settlement for the benefit of children or other relation in order to manipulate the martinet tax rate such that a high income bracket tax payer reduces his tax liability.
- Converting what would ordinarily accrue to the tax payer (employee) as income into capital gain (i.e Compensation for loss of office) the advantage of the employer and employee.
- Manipulation of charitable organizations whose affairs are controlled and dominated by its founders thus taking advantage of income tax exemption. Buying and article manufactured in Nigeria thereby avoiding import duty on imported articles.
- Avoiding the consumption of the articles with indirect taxes incorporated in their prices e.g. tobacco.
Taxation has a key role in a modern economy. Listed below are the ways in which governments can use taxation in a modern economy:- Revenue generation: – Taxation is used by the government to raise revenues for its operations, infrastructure, welfare, education defense. Behavior Discouragement: – Also referred to as social engineering, the purpose of this is to discourage people from antisocial behavior and is often done heavily taxing the commodity there by increasing its price. Reducing Inequality: – Tax money is used to serve the weaker sections of the society through the welfare programs. Resource Redistribution: – Can be used to transfer resources form one section of society to another section of the society and protecting local Industry: – Local industries are normally protected by the government through the use of heavy import tariffs. This makes the imported goods more expensive then the local goods and thereby encouraging the production of local goods.
*** Written by Jide Ayobolu.
