The recent disclosure by the Executive Chairman, Federal Inland Revenue Service (FIRS), Muhammad Nami, that Nigeria lost over 178 billion dollars (about 5.4 trillion naira) through tax evasion by multinationals doing business in the country between 2007 and 2017 is quite disturbing. The FIRS boss said the foreign companies, which refused to pay the right tax and some complicit Nigeria’s tax officials should be blamed for the heinous financial crime.
However, the malfeasance underscores the absence of due diligence in the nation’s tax system. In other words, the action of the multinationals amounts to economic crime which must be thoroughly investigated by the Economic and Financial Crimes Commission (EFCC), and those found guilty punished. The mere disclosure of the offence is not enough. It must be followed by investigation, prosecution and sanctions.
It would be recalled that in October 2019, the former boss of the agency, Mr. Babatunde Fowler, revealed that the country was losing 15 billion dollars annually to tax evasion. The latest report by Nami indicates that Nigeria loses about 17.8 billion dollars annually because most of the multinational corporations do not pay their taxes voluntarily.
Also, a 2014 report by the high level panel on illicit financial flows from Africa said that Nigeria accounted for 30.5 per cent of money lost by the continent through illicit financial outflows. At this time of acute financial crisis due to revenue shortfalls, everything must be done so quickly to recover the 5.4 trillion naira lost through tax evasion.
There is no doubt that government gets money to meet some of its developmental objectives through taxation. Tax evasion took a chunk of the revenue that would have gone to government treasury. This is why, according to the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, Nigeria suffers more from “revenue problem than debt crisis.” The hefty amount in taxes owed by multinational corporations is denying government the revenue to ramp up economic recovery and growth.
In view of the huge amount lost to tax evasion, this is the right time for the FIRS to implement the first Automatic Exchange of Information Standard it promised to come on stream last year. The mechanism was part of the commitment made in 2019 to improve tax administration, increase tax revenue collection, enhance effectiveness and efficiency service delivery.
Tax evasion by multinationals may continue to fester until the affected corporations are made to comply with national policy on taxation. In 2017, Nigeria demonstrated its commitment to improve transparency in tax matters, when it joined the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information.
However, it is not clear yet if this move has been able to discourage tax evasion by multinational corporations. Sadly, Nigeria is reported to have continued to witness huge illicit financial flows. For instance, between 2002 and 2011, Nigeria lost 140 billion dollars, according to the World Bank.
This was largely due to tax evasion, money laundering and transfer pricing. The negative impact of this malfeasance includes draining of our foreign exchange reserve, reduction of tax revenue collection, poor investment inflows and escalation of poverty in the country. These are some of the major triggers of the present economic crisis in Nigeria.
The ravaging Coronavirus pandemic has also not helped the economy. Until the multinationals are made to comply with our tax laws, so long will the country continue to experience financial losses due to tax evasion and other financial crimes. The amount reported to have been lost within the past six years to tax evasion by multinationals represents over 40 per cent of the 2021 budget. The amount will be enough to take care of the budget deficit of 5.3 trillion naira.
WRITTEN BY ONUOHA UKEH
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