Caging billionaire tax evaders
Nigeria’s Federal Inland Revenue Service (FIRS) has launched a scheme to cage 6,772 billionaire tax evaders in the country through a ‘substitution’ scheme in collaboration with the banks. According the FIRS Chairman Mr. Tunde Fowler, the substitution scheme entails his agency engaging the banks which are keeping the accounts of these tax evaders, as collection […]
Nigeria’s Federal Inland Revenue Service (FIRS) has launched a scheme to cage 6,772 billionaire tax evaders in the country through a ‘substitution’ scheme in collaboration with the banks. According the FIRS Chairman Mr. Tunde Fowler, the substitution scheme entails his agency engaging the banks which are keeping the accounts of these tax evaders, as collection agents.
Citing the tax laws of the country, Fowler said the banks can be engaged to assist in collecting taxes from their customers. In his words, this measure is to affect all businesses, partnerships and corporate accounts that have a minimum annual turnover of N1 billion for the past three years. The new dispensation was informed by the wide scope of tax evasion by these business concerns, which translates into huge revenue losses for the country.
Justifying the measure, Fowler said most of these tax evading business concerns who make annual turnovers of between N1 billion and N5 billion in their accounts, default to the extent that they either have no Tax Identification Numbers (TIN), or have TIN but are not filing tax returns as tax payers. According to Fowler, “First they refused to come forward in 2016, they refused to come forward under VAT, and are still operating here. So, we are putting them under notice that it is their civic responsibility to pay tax and file returns on these accounts.”
Tax evasion is a crime that is punishable by law in Nigeria. Hence the affected business interests ordinarily stand guilty in the eyes of the law and provide the FIRS the right to adopt any legal measure to force their compliance. A situation where business concerns and businessmen enjoy the overstretched social services provided by government but are not ready to contribute to the services’ maintenance through the payment of tax must be ended as quickly as possible. Meanwhile given that the FIRS has for some time embarked on elaborate tax sensitization, the targeted concerns may be earning for themselves the charge of proving recalcitrant, and makes the substitution initiative by the FIRS gain endorsement by all Nigerians as it resonates with the long-known problem of tax evasion in the country by a wide cross section of business concerns which ordinarily are viable but do not pay tax.
However, while by the substitution initiative the FIRS can be credited with having provided an effective platform for caging the evaders on one hand, it also needs to be appreciated that many of these targeted tax evaders are likely to be operating in the informal sector, comprising mostly self-employed artisans, subsistence entrepreneurs, and other self-managed, small and medium scale business concerns where proper documentation of participants and their operational circumstances is relatively scanty.
Hence while the volume of business may be significant to the FIRS, it may serve a better interest to see much of such financial circumstances beyond the simplistic context of business turnover as determined only by bank balances. As research into the operational circumstances of the informal sector has shown, the endemic incidence of poor business practices has largely distorted the perception of the inner workings of the informal sector by many analyst authorities.
This consideration provides a dimension that may prove critical to the success or failure of the FIRS substitution initiative with respect to the informal sector. A major possible draw back to it is the possibility of bank runs whereby customers may avoid depositing their money in the banks out of fear that such funds may be attached by the FIRS. The FIRS may therefore need to proceed beyond the option of basing tax assessment of the identified business concerns only on the basis of turnover and bank balances, and consider a more sustainable approach of facilitating due reconciliation of the operational financials of those defaulting entities in the informal sector, before imposing tax assessment on them.