The revelation by the Federal Ministry of Finance that an estimated 350,000 incorporated companies in the country have consistently failed to file their tax returns to the Federal Inland Revenue Service (FIRS) speaks volumes of the laxity in tax administration in the country. If this level of default in tax payments can happen in spite of the newly-introduced National Tax Policy, it shows the extent that many of the indicted companies go to shortchange the nation of revenue due from taxation. Tax evasion of this magnitude could not have been possible without the collusion of defaulting companies with tax officials.

Minister of State for Finance, Dr Yerima Ngama, who made the disclosure at a recent forum on tax administration in Africa, in Abuja, was understandably worried by such high rate of corporate tax evasion in Nigeria.

We share this concern. This is more so as figures obtained from the Finance Ministry and FIRS show that total tax revenue in Nigeria represents only seven percent of the nation’s Gross Domestic Product (GDP). In contrast, tax revenue in Ghana, a country with much fewer incorporated firms, is about 21 percent of its GDP. This means that many companies that ought to be paying tax in Nigeria are defaulting.

In fact, the actual number of tax defaulters in the country may exceed the figure quoted. The truth is that tax evasion has become the culture of both the formal and informal sectors of the economy. With this habit, no matter for how long we mouth the much-touted slogan of Nigeria being the “investment destination in Africa”, the corresponding benefits will count for little without commensurate tax payments by both local and foreign investors. For instance, an astonishing N85.2 billion was reportedly lost within four years to tax evasion in the automobile industry.

No country that tolerates a high level of tax evasion can generate adequate revenue for its development. In the more developed economies, the trend is to tax the rich and big firms heavily and use part of the revenue to provide safety nets for the poor, and for other development purposes. The opposite is the case in Nigeria, as reports by the Nigerian Extractive Industry Transparency Initiative (NEITI) show that foreign airlines and major oil companies in the country, including the government-owned Nigerian National Petroleum Corporation(NNPC) frequently underpay taxes and statutory remittances due to the Federal Government.

This is a huge challenge to government. It is high time government tightened relevant laws on tax evasion. Mere identification of the defaulting firms is not enough. Stricter measures and laws which provide stiff penalties for tax evasion should be put in place. Lagos State, for example, has come closer to a good tax system with its emphasis on prosecution of companies found to be defaulting in tax payments. It may, however, have exceeded its bounds with what now appears to be multiple taxation of corporation organizations operating in certain sectors of the economy in the state.

Overall, there is the need for accurate tax code standards. Also, presumptive tax system, in which tax is inferred from simple indicators such as turnover, assets, farm size and value of land, should be considered as a veritable means of checking tax evasion by companies. Whichever way, a better tax framework for all businesses in the country, including those in the informal sector of the economy, has become necessary.

http://sunnewsonline.com/new/editorial/tackling-corporate-tax-evasion/