The Roles of Multinational Companies in Tax Evasion and Tax Avoidance in Nigeria
Chapter One
OBJECTIVES OF THE STUDY
Africa is losing more than $50bn (£33bn) every year in illicit financial outflows as governments and multinational companies engage in fraudulent schemes aimed at avoiding tax payments to some of the world’s poorest countries, impeding development projects and denying poor people access to crucial services.
The main objective of the study is to determine the major roles of multinational companies in tax evasion and tax avoidance in Nigeria.
Other specific objectives include:
- To discuss the Nature of Tax Evasion by Multinational Companies in Nigeria.
- To identify the causes of tax evation by Multinational Companies in Nigeria.
- Determine Role of Professionals in Tax Evasion in Nigeria.
- Suggest possible recommendation and solution for reducing tax evasion/avoidance in Nigeria.
CHAPTER TWO
LITERATURE REVIEW
INTRODUCTION
Traditionally, there seems to have been an assumption that with a basic level of assistance to taxpayers, together with an enforcement programme, tax compliance could be maintained at satisfactory levels. However there seems to have been a shift in attitude towards treating the taxpayer as a passive donor who simply has to be billed for taxes due to being recognized as a customer, sometimes requiring particular forms of assistance and support. The primary purpose of taxation is to benefit rather than punish citizens, this would seem to be an appropriate policy. No doubt, sanctions will always have to exist to support tax administration, but there are important questions as to the extent they are needed and the enthusiasm with which they should be enforced. The more modern approach to tax compliance has benefited from many contributions from different disciplines. There is a range of factors that might influence taxpayer’s behavior and the roles of individuals in the society and accepted norms of behaviour have also shown to have a strong influence (Wenzel,2001). Individuals are not simply independent selfish utility maximisers (though this might be partly true), but, they also interact with other human beings in ways which depend on different attitudes, beliefs, norms and rules. It also means that as taxpayers they can normally be expected to act as responsible citizens, that is, in normal circumstances, they should conform to reasonable obligations of the tax system without the need for rigorous application of enforcement activity.
This chapter starts with the history of taxation in Nigeria, followed by the factors affecting tax compliance and equally look at the social approach in understanding compliance as well as the attitude and motivational postures towards tax.
History of Taxation in Nigeria
Direct taxation has been in existence in Nigeria before the advent of the British rule in 1861: particularly in the North where there was an efficient and stable administration based on Islamic system (Abdulrazaq, 1993). There were various forms of taxes in the Northern Nigeria in 1861, such as the “Zakat” ( a tax levied on muslims for charitable, religious and educational purposes ), “Kurdin Kasa” (an agricultural tax), and “Jangali” (a cattle tax levied on livestock). In the South Western Area, there were various forms of taxes such as “Isakole” (tax levied on land used by local communities who are normally expected to pay “tribute tax” to the local chief), “Owo-ori” (tax paid by every individual in the community to the government)
The Eastern Area of Nigeria is said to be premised on the republican nature of the Igbos. The following are some of the form of taxes in this area: “egbu-nkwu” (tax imposed before palm oil is harvested, it is compulsory and there can be no harvest without it), community effort (tax on members of each community for specific purpose, it is also applicable in the Western Area of Nigeria). It is possible for those who are unable to physically take part in the community work to pay their levy in cowries (form of cash), food as well as palm wine.
During the pre-colonial era, taxation functioned more or less on an ethnic basis with a centralized authority, administrative machinery and judicial institutions such as the Northern areas where we have “Emirs”; Yoruba and Benin Kingdom where we have the “Obas”. In the non chieftaincies areas like the Igbo, Tiv, Bura, Igbira and Bachama areas, there exist little or no form of organized taxation (Abdulrazaq, 1993). It should be noted however, that taxes were not necessarily paid in money during this period. They were mostly paid in kind and obligatory personal services otherwise known as “tribute taxes”.
CHAPTER THREE
RESEARCH METHODOLOGY
research design
The methodologies used in this research work are, in the main, doctrinal or library research in nature. The doctrinal method of the research, which is mainly theory-based, would enable this writer to consult, refer to, review, study and fill the gaps in the works of authors, contained in textbooks, journals, and the internet. The data collected through library research in which the researcher reads, writes and gathers pertinent information related to the topic of this project. After having information from relate d documents such as international legal instrument, books, scientific journals, and others regarding the main problem as the object of this research, then the researcher tries to make conclusion.
Population of study
The target population for this study comprised of multinational companies in Nigeria. There is no current document specifying the figure for the total number of MNC in Nigeria, however it suffice to say that there are over 100 mnc in Nigeria.
CHAPTER FOUR
DATA ANALYSIS AND DISCUSSION
Nature of Tax Evasion by Multinational Companies in Nigeria
Corporate tax is one of the major sources of government revenue of most countries including Nigeria, since multinational corporations usually have many subsidiaries and engage in lucrative businesses and earn much income. They represent a major source of tax revenue to government. However, corporate tax evasion remained the greatest problem confronting tax system in Nigeria and other development countries. A study carried out by Christian Aid, a UK based non-governmental organization (NGO) estimated that tax evasion through transfer mis-pricing and falsified invoicing cost, the developing world is $60 billion annually in lost revenue as at 2008. This figure represents 150% of the combined budget of all donations from all donor countries to the continent. In a country like Nigeria multinationals, paying mega tax has become unacceptable business standard. Between 2005 and 2007.
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
Conclusion
Taxation has been expressed to be a tool of social engineering useful in the hands of proactive and perceptive government. The enumerated deficiencies inherent in the Nigerian tax system give room for maneuver by Multinational corporations whereby they are able to circumvent taxes and thus bereave the country of the indispensable revenue for sustainable development. In order therefore to curb the incidence of tax evasion, it is recommended that tax laws be made very efficient by increasing the fines provided in the laws to reflect present economic realities. By so doing, it becomes easier to curb the incidence of tax evasion and thereby induce compliance with the law. Tax authorities and agencies such as FIRS and Nigerian Extractive Industry Transparency Initiative (NEITI), should be autonomous. This will enable them to perform their duties effectively.
Further, corporate tax collection methodology should be reviewed. Tax authorities should have the necessary determination to prosecute tax defaulters and seek collaboration with other relevant agencies in the investigation cum prosecution of indigenous and multinational corporations perpetuating tax evasion and tax avoidance in the country. The courts should heighten their role in the fight against tax evasion and tax avoidance. By and large, it is quite fundamental for our courts to discourage tax evasion. The various professional bodies whose members’ act as tax consultant/advisers should ensure that their members maintain a high ethical standard. The court of Appeal in the instant case decried unethical standards where it observed with displeasure thus;
“The action of the federal Government that brought about pre-shipment inspection of goods that were imported into the country was to bring sanity to the economy of the Country, therefore, agents who are appointed to carry out this assignment owe this nation and all those involved in the exportation and importation of goods to and from the country a duty of care in the performance of their duty. A situation where inspection agents create confusion which ultimately leads to loss of income and profit is not a healthy development for the country.”
In addition, sanction should be placed on culpable members. On the part of government, transparency and accountability in the implementation of policies should be ensured. Revenue generated from taxation should be judiciously utilized to impact positively on the citizenry and multinational corporations, and at the same time attract foreign investment, considering that a good operational environment is conducive to a boom.
Recommendations
- If taxpayers do not understand what their obligations are, any intervention to enforce compliance will be perceived as unfair. Thus, there is a need to provide strong taxpayer’s services particularly during the tax filing stage. This will include dissemination of information in order to enhance taxpayer compliance and also introduce taxpayer education programmes. Taxpayer’s service can also be improved by: providing proper guidance on how the tax return forms are to be completed correctly, introducing automated systems to record and answer tax payers’ queries and wider use of the mass media to publicize important tax deadlines and so on.
- The capability to detect fraud or evasion is crucial to tax compliance. As it would not be practical to audit all cases, the fear of being caught would be sufficient to act as a deterrent. Ideally, when a case is selected for audit a tax official will be required to visit the premises of the taxpayer. The tax returns will have to be scrutinized under the supervision, or be jointly examined with a senior tax official so that the discretionary powers being exercised by tax officials are not abused. The tax authorities should undertake criminal prosecution in respect of cases involving fraud or evasion, and where appropriate publish the names of tax evaders which will act as a deterrent
(iii) It is very important to educate the young (who are the next generation of taxpayers) on the significance and role of taxes. There is need to create an environment for tax education in schools through the establishment of councils for promotion of tax education. Tax education should be viewed in the medium and long-term perspectives, and as a means to enhance taxpayer consciousness. It would be more appropriate to target students in secondary and tertiary institutions. The overall effort should involve both the education and finance ministries in order to come up with an effective tax education curriculum.
- The monarchs (Obi, Oba and Emir) are very close to the people they rule over. The tax authorities should therefore maintain close relationship with the monarch and explore such relationship to bring more people into the tax net and also increase the level of taxpayer’s compliance. Town hall meeting should be encouraged and through this, the general public can more fully understand taxation issues, changes in the law, filing obligations and so on.
- Tax officials should be exposed to adequate and continuous training; both at home and abroad, for a better understanding of recent domestic and international tax issues, which could then be utilized, to formulate successful tax compliance strategies. The working conditions of tax officials also need to be improved in order to motivate them to carry out their duties in a more efficient and professional manner.
References
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- Aguolu, O. (2001). Tax and Tax management in Nigeria, Meridian Associates, Enugu.
- Agyeman, D. E. (1987). Nigerian Taxation Principles and Practice, TPCL, Kano.
- Ariwodola, A. J. C. (1993). Personal Taxation in Nigeria, including Capital Gain Tax and Capital Transfer Tax. JAN Nig. Ltd. Lagos.
- Bakare, M. O. (2005). Tax avoidance, Capital flight and poverty in Nigeria.
- Giaba, R. (2011). Tax fraud and money laundering in
- West Africa, A human and Economic perspective.
- Joyeola, O. (2013). An assessment of Tax Evasion and Tax Avoidance in Lagos State.