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A new dawn is unfolding in the Federal Government’s tax drive as the authorities move to broaden the tax net and close in on tax defaulters. The objective is to check tax evasion by all Nigerians, especially the moneyed class. Among the modalities being put in place to check this problem is the technology-driven Common Reporting Standards (CRC) which will help the government to obtain every taxpayer’s information directly from Deposit Money Banks in the country.
The CRC is a standard programme for automatic exchange of bank accounts information on individuals and certain organisations, especially the “super rich.” Nigeria, in August 2017, joined about 35 other member countries that have signed up to the CRC. The initiative is driven by the Organisation for Economic Cooperation and Development, an integrated body of the member states. All countries that have implemented the standard are duty-bound to exchange information on annual basis.
We support initiatives that can help to drive the effective implementation of government’s tax policy, provided they are in accordance with our laws and the rules guiding the relationship between banks and their customers, especially relating to the privacy of bank accounts. While it is important for the tax authorities to have information to do their job, it is necessary to protect the requirement for confidentiality between bankers and their customers, except as otherwise determined by a ruling of a competent court. It is, however, disheartening that many Nigerians, especially high-networth persons, dodge taxes. This should not be so as tax revenue is needed for government to execute its developmental projects.
It is heartwarming that the CRS is coming against the backdrop of the warnings that there would be no hiding place for tax defaulters. Just last week, the Minister of Finance, Mrs. Kemi Adeosun, advised Nigerians who are yet to regularise their tax status to quickly do so before the March deadline set by government. The advice to all eligible taxpayers came when government received the report of the National Tax Policy Implementation Committee.
The Minister, in fact, disclosed that government has started receiving troves of documents from a number of foreign governments, revealing the astonishing assets of Nigerians stashed in their countries. The documents reportedly contain information on proceeds of business deals done in Nigeria without the payment of appropriate taxes.
Government’s concern is legitimate. Payment of tax is required by law. Non-payment amounts to breaking the law. Without taxes, government will be greatly handicapped in its ability to provide social services. Looking at Nigeria’s population and the tax ratio to our Gross Domestic Product (GDP) which, at six percent, is one of the lowest in the world, it is not surprising that statistics show that wealthy Nigerians are the biggest tax evaders.
Therefore, government’s determination to broaden the tax net is welcome. Nigeria is far behind other African countries regarding tax ratio to the GDP. For instance, Ghana’s ratio to GDP is 20.8 percent, South Africa, 15.8 percent and Egypt, 15.3 percent. Last year, the Federal Government planned to bring 700,000 tax dodgers into the tax net, with about $1bn (about 363bn) tax revenue. It is not clear if it met that target. The government has also declared every Thursday, throughout the current year, as “Tax Day”. It is a day set aside to create awareness on the payment of tax.
It is understandable that government is trying to close all the loopholes in the nation’s tax system. Our national tax revenue profile is low despite bold efforts in recent years by the Federal Inland Revenue Service (FIRS) to shore up tax intake. For example, in 2016, out of N5 trillion revenue projected from taxation, only N1.2trn was realised, a shortfall of N3.8trn, representing a 12-year low. For Internally Generated Revenue (IGR), only N388 billion was realised, against the projected revenue of N1.5trn. Also, Company Income Tax(CIT) and Value Added Tax (VAT) underperformed. Only N299bn was realised, but N867bn was expected same year (2016).
It is not surprising, therefore, that government last year signed an Executive Order that made the payment of tax mandatory for all eligible Nigerians and provided stiff penalties for evaders. That seems to be yielding results. The FIRS, in a recent statement, said it raked in N4trn in 2017.
While it is indisputable that tax evasion denies the country the much-needed revenue to execute essential projects, government must ensure a judicious and transparent use of the revenue realised from taxation to encourage the payment of taxes.
Many Nigerians currently feel that all levels of government are not doing much to improve their lives by providing infrastructure such as roads, stable electricity, good schools, healthcare, etc. The government should let the people see their tax revenue being used to develop the country.
Expanding the tax net has become inevitable and all Nigerians should strive to pay their taxes. A proper implementation of CRS will help to achieve the objectives of our tax policy. In particular, we advise the government to focus its attention on Company Income Tax, Value Added Tax (VAT), Customs & Excise tariffs, Personal Income Tax (PIT) and other tax revenue streams from both the oil and non-oil sectors of the economy.