Tax Avoidance: the fiscal termite eating away the revenue base of Nigeria
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Date
2022
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Coventry University
Abstract
The need for the Nigerian government to provide social amenities and embark on
developmental projects to improve the living standards of its citizens and to meet its
overhead or recurrent expenditures, necessitate the need for the government to intensify its
revenue generation efforts. Taxation is now generally regarded as an important source of
revenue generation for the Nigerian government, which involve levying taxes on
individuals, corporate entities, and goods and services. This is due to the fact that, through
taxation, the government is able to raise a significant amount of revenue to meet its needs
and provide basic amenities for its citizens. The Nigerian government through its revenue
agency, Federal Inland Revenue Service (FIRS), stated that it generated about 1.97 trillion
Naira (5 billion US dollars) through taxation in the first half of 2015, which represented 98
per cent of the targeted revenue of 2.28 trillion Naira (7 billion US dollars) for January and
June 2015. Likewise, in 2018, the government disclosed that it generated 5.320 trillion
Naira (13 billion US dollars) from taxation. This was said to be the highest revenue
generated from taxation in the history of Nigeria as at 2018.
However, in recent times, the government’s revenue generation efforts from taxation have
been impeded by certain fiscal resistant tactics such as tax avoidance, which has resulted in
huge revenue loss to the government. According to the Global Financial Integrity, close to
100 billion US dollars per year is lost in revenue to tax avoidance in developing countries.
Another report compiled by Christian Aid estimates that revenue lost to tax avoidance each
year in developing countries could rise to 160 billion US dollars.
Tax avoidance, alongside other concepts such as tax evasion and tax planning, has been
described as fiscal termites eating away the potential tax revenue of the government. Unlike
tax evasion and tax planning, which are generally considered as legal and illegal respectively, there is no such clear cut classification for tax avoidance, thereby posing a
serious threat to the government’s revenue generation efforts.
The magnitude of potential revenue lost to tax avoidance is having a significant negative
impact on the government, which requires revenue to improve essential services to its
citizens.7 This has made the government pay closer attention to the issue of tax avoidance,
which has the potential of the depriving the government of the revenue needed to cater for
the citizens.8 This necessitated the need for the government to put in place mechanisms to
prevent tax avoidance. The objective of this article is to examine the concept of tax
avoidance and its underlying incentives. The article also examines the impact of tax
avoidance and the mechanisms to prevent or counter it.
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Citation
Coventry Law Journal 27(2) 37-49