The recent disclosure by the Executive Chairman, Federal Inland Revenue Service (FIRS), Muhammad Nami, that Nigeria lost over $178 billion (about N5.4 trillion) through tax evasion by multinationals doing business in the country between 2007 and 2017 is quite disturbing. The FIRS boss revealed this at a workshop on “Effective audit of multinational corporations for domestic revenue mobilisation in Nigeria” organised by the agency in collaboration with the Justice Network in Abuja. The foreign companies, which deliberately refused to pay the right tax and some complicit Nigeria’s tax officials should be blamed for the heinous financial crime. 

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 in accordance with the relevant laws of the land. The mere disclosure of the offence is not enough. It must be followed by investigation, prosecution and sanctions.   

In October 2019, the former boss of the agency, Mr. Babatunde Fowler, revealed that the country was losing $15billion annually to tax evasion. The latest report by Nami indicates that Nigeria loses about $17.8billion annually because most of the multinational corporations don’t 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 N5.4trillion lost through tax evasion. There is no doubt that government gets money to meet some of its developmental objectives through taxation. Data from the National Bureau of Statistics (NBS) showed that the federal government realised N7.8trillion from Company Income Tax (CIT) from January 2015 till the end of the third quarter of 2020. This was far short of the projected revenue for the period. Of this amount, N4.08trillion (52 per cent) was received from local firms, while N3.05 trillion (39 per cent) came from the contribution of non-resident companies doing business in the country.         

The balance of N692.2billion, representing nine per cent, came from other sources such as e-Transact  and the government Integrated Financial Management Information. On the average, government was reported to have earned N1.3trillion annually from CIT in the past six years. 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 much-needed  revenue to ramp up economic recovery and growth at this time of recession.                            

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In view of the huge amount lost to tax evasion, we think that 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. We believe that 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 yet not clear 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 $140billion, according to the World Bank.                                                       

This was largely 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 N5.3 trillion.

Therefore, we urge the National Assembly and the anti-graft agency to take the challenge of tax evasion seriously and put in place necessary measures that will make tax evasion a heinous crime with tougher deterring sanctions for the companies affected and tax officials who may be complicit in the illicit act.