In Nigeria, you can have more than thirty houses in Lagos which you put up for rent and yet pay no personal income tax. There are many secondary schools in our cities where parents pay up two million naira per annum as fees for a single student. In Lagos alone, there are more than one hundred of such schools. Most of these parents pay the fees conveniently and cap it with end of year overseas holiday trip for the family. It is infuriating that many of these parents pay less personal income tax than a level 8 Nigerian civil servant. Isn’t this absurd? The states which are the recipients of Personal Income Tax are thus deprived of revenue. There are billionaire traders in Ariaria market, Aba, Bridge head market, Onitsha and Alaba market, Lagos, carrying on business as limited companies who do not prepare accounts for tax purpose. The few who do, declare next to nothing as taxable income. And against such it appears there is no law.
In the December 10, 2001, edition of Thisday Newspaper, I queried the published financial statement of a foremost construction company in Nigeria. For the financial year 2000 it declared a turnover of N22.75 billion and a profit before tax ofN768.23 million. This result was declared free from queries from shareholders and tax authorities.
It is common knowledge that the contract price is the sum of the estimated total cost of contract and the estimated profit. One advantage of construction contract is that variations in the cost of direct materials are accommodated in the final contract price.The accounting Standard in this regard says; “Claims and variations arise in long term contracts due to changes in design, base prices or completion time. When these are subsequently agreed to by the contracted, they are recognized as part of the revenue derived from the contract.” This privilege is hardly enjoyed by trading concerns. Most of the company’s workers are casual workers who are laid off when there is no work to do. Therefore, there is very little to incur in terms of idle time payments and pension costs. But this company, from the figures stated above, declared a profit before taxation of 3.37% of turnover. In that same year, Union Bank Plc. posted a turnover of N35 billion and a profit before taxation of N7 billion.
This profit before taxation which represents 20% of turnover when compared with the 3.3% of the construction company makes nugatory the possible argument that the two companies are not in the same line of business. Yet, this construction company in that year won the Performance Earning and Returns Leadership (PEARL) award of the Nigerian Stock Exchange for that year. If you are in search of hypocritical awards this is one.
Our sensibilities had been insulted many times that we should be happy that Nigerians now own controlling shares (at least 60%) in these so called foreign companies. What I tell those who canvass this view is that no foreign partner or share holder will remain in Nigeria to earn paltry sums as dividend. In the year under reference, with a gross dividend declared by the construction company of N112.5 million, the dividend due to the foreign shareholders will not yield more than N334,000 US dollars. Will they be so foolish to remain in Nigeria with little earnings?
What remains a mystery to me is how this company was able to walk unscathed through the scrutiny of the Federal Inland Revenue Service and the Inspectorate Division of the then Federal Ministry of Industries. The FMI is responsible for vetting the imported machinery and vehicles used to claim capital allowances as a hedge against taxation. The truth is that these foreign shareholders don’t depend on dividends declared in local currency. They make their money in a big way through the over invoicing of imported machinery, motor vehicles, tools and equipment. In this way, funds are transferred outside the country.
Another area in which surveillance is weak is in regard to donations. Few years ago, one of the richest Nigerians donated the sum of N3 billion at the fundraising of the People’s Democratic Party for the building of the party’s headquarters in Abuja. Firstly, a political party is not one of the approved bodies for donation. The consequence is that the N3 billion should be added back to his taxable income. Donations must be made out of profit and the maximum amount allowable is limited to 10% of the total profits of the company before deducting the donation. Lastly, donations must not be an expenditure of a capital nature. The implication of this is that with the N3 billion donation, this billionaire cannot declare total profits from all sources below N30 billion in that particular year. I doubt if the tax authorities verified all these in his accounts.
Bringing all eligible tax payers under the tax net should be a prime objective of Alhaji Nami. This can be achieved by legislation, surveillance, enforcement and whistle blowing. I am opting to be a whistle blower and I will do this free of charge. In Nigeria it is rare seeing someone sent to jail for tax evasion. People should start going to jail. My prayer is that at the end of Alh. Nami’s tenure, Nigerians would have accepted tax compliance as a way of life.
Osagie-Jacobs writes from Abuja via [email protected]