Are you aware that tax evasion and avoidance contributes to what is hindering the growth of the Nigeria’s economy?
The issue of tax evasion and tax avoidance are two common concepts. We shall discuss how these two are growing concerns among the citizens. This article seeks to explain the two terms and how they possibly impact the nation’s economy.
What is Tax Evasion?
This is a term that describes the use of illegal methods to misrepresent one’s tax responsibilities. In such a case, a taxable individual or company tries to use illegal or unlawful means to pay less money than they should have.
Examples of Tax Evasion
When someone is said to be evading tax payments; the payment is doing any of the following:
Underreporting Income
Since tax payments are a certain percentage of one’s income, it is unlawful to underreport one’s income. In this case, the tax evader tries to deceive the tax authorities that he or she earns less so the payments would be lower than they ought to be.
Deliberate Refusal
Someone with a valid means of income is said to be evading tax payments when he or she doesn’t want to pay. This can be in the form of refusing to acknowledge the tax when it’s due or not paying at all.
Tax Avoidance
Avoiding tax payments is not the same as evading these payments when they are due. Tax avoidance as a term refers to the leverage or capitalization of the loopholes in the country’s tax system to pay less.
Generally, this process is not entirely frowned upon which is why the witty taxable persons capitalize on it to set some money aside before paying their taxes.
By lawfully altering one’s taxable income, the person can now have less amount of money to pay as tax.
You can avoid some tax payments if you’re able to use the applicable tax laws to reduce your payments. You can achieve this legitimately in two ways:
- Seeking a professional’s counsel on how to avoid certain tax payments.
- Reducing the taxable income by showing proof of making important expenses from your income.
How Does Tax Evasion and Tax Avoidance Impact Nigeria’s Economy?
The simple answer is usually that non-remittance of taxes reduces funds available to the Nigerian government to provide basic amenities. However, it goes deeper than that. Further downsides include a dwindling international finance outlook and limited revenues for the government.
Below, let’s talk about the number of effects that tax evasion and avoidance will have on the nation’s economy.
1. Absence of Basic Amenities
Through successive governments, Nigerians have continually complained of the absence of basic amenities and infrastructures, such as stable electricity, the building of government-owned/public schools, paving of good road networks, healthcare services and payment of civil servants salaries and gratuities/pensions.
Most of these could have been offset in the shortest time possible if most of the taxable individuals and companies/businesses had been meeting up with their responsibilities.
By avoiding these payments, the government is short of one source of revenue.
2. Negative International Finance Outlook
It’s no news that countries often seek external financing from other countries or financing bodies. The most popular among them are the International Monetary Fund (IMF) and the World Bank. These funds, when obtained, are often used to execute developmental projects.
By taking in less taxes, Nigeria often has to rely on external funding sources to execute some important projects.
The downside is that since the country doesn’t receive much revenue from taxes; it becomes increasingly impossible to meet up with the terms of these taxes, such as financing the loans and paying the piling interests.
The outcome includes:
- The country’s debt ratio will keep piling up.
- More funding sources or financiers wouldn’t be too keen to lend money.
- In some cases, the country may be able to secure more funds, thus, casting it in a bad light as one that doesn’t have what it takes to generate better revenue.
3. Reduction in International Trades
The surplus realized from tax payments could have been used to finance international or cross-border trades, but that doesn’t always happen when funds are limited. As such, Nigeria may be unable to engage in trades that would have generated more revenues for the country.
4. Lower Standards of Living
The middle class in Nigeria may be able to have their heads above water, but the poor are the worst hit when the country doesn’t generate better revenue from taxes.
While the middle class could afford some amenities, the poor often entirely depend on the government to provide these. When the money needed to make these amenities and needs available are not forthcoming; it often leads to a lowered standard of living.
Also Read: How to Know if a Company is in a Deep Financial Distress
Is Taxation Dead in Nigeria?
The tax policies that have been revived by the Finance Tax are expected to breathe fresh air into the country’s taxation system. There is also the issue of attitudinal change on the path of taxable citizens. These taxable citizens for one reason or the other avoid paying taxes.
For more taxes to be paid in Nigeria, the following need to be addressed:
Public Awareness
Awareness programs and campaigns should be conducted to sensitize the citizens on the need to pay taxes. Efforts should also be made to introduce the different benefits of doing so.
Government-induced Confidence
One major reason for tax evasion in Nigeria is the taxable citizens are not convinced of what the money would be used for. Seeing how some of the public facilities have been left to ruins and efforts haven’t been made to fix those; these set of people wouldn’t be convinced that their payments would be put to good use.
Thus, the Nigerian government needs to subtly woo its taxable population by embarking on remarkable projects that would be of immense importance to the public.
Concluding Thoughts
Nigeria has a lower percentage of the taxable population remitting taxes to the government. This has forced the hands of the government to seek external funding or provide limited amenities with the available funds.
While it is possible to avoid taxes to some extent, the government can still take in more and generate higher revenues by convincing the citizens to put the money to good use.
