Tax evasion and good governance –The Nigerian Story

The Federal Inland Revenue Service announced a significant drop in its tax revenue collection in the first quarter of the year 2009 from a sum of N477 billion to N353 billion. This drop was according to a report by the Executive Chairman of the FIRS due to “Nigerians negative attitude to tax as a civic obligation, incomplete and inaccurate tax returns and under assessment by tax officials as well as submission of tax returns by quacks and non-professionals, collusion between tax consultants and tax officials to defraud the government of the needed revenue and diversion and conversion of tax payments by banks and other collecting agents like ministries” source: This Day, May 12, 2009. Taxes are imposed by a state, government or equivalent as dictated constitutionally by the laws of the land on individuals, properties, transactions or organisations. Taxes can be direct or indirect, they are used to support the government in the execution of its duties or responsibilities which are for the general well being of the citizens of a community, state or nation. It is not a voluntary contribution but enforced by the legislative authorities of the land. In developed countries, tax default is a serious offence.

“Funds provided by taxation have been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure (roads, legal tender, enforcement of contracts, etc.), public works, social engineering, and the operation of government itself. Most modern governments also use taxes to fund welfare and public services. These services can include education systems, health care systems, pensions for the elderly, unemployment benefits, and public transportation. Energy, water and waste management systems are also common public utilities. Colonial and modernizing states have also used cash taxes to draw or force reluctant subsistence producers into cash economies.”. Source: Wikipedia
The government in many countries is mainly dependent on this form of revenue generation to keep it going, hence, the reason why it is an offence. For instance, in the United States of America the tax payers money came in handy at the advent of the current global economic crisis, when it was used to fund bail outs for a number of organisations – the objective was to steady the economy, ease the crisis, assist the American citizens to get their lives back in order and minimize the effects of unemployment on the majority.
The focus for the utilization of government revenue accrued by means of taxation is always for expenditure that will support the people of particular countries. The effective utilization of such funds is usually dependent on the degree of good governance. Inefficient utilization borne out of massive and endemic corrupt practices usually helps in the under development of the country in question, this is evidenced by poor health care systems, bad roads, energy poverty and many more ills. The direct consequence is usually lack of trust by the people for its government which again is evidenced in consistent tax evasion. The citizens of this kind of country are often found questioning where the tax payers monies go and how is it used, due to lack of evidence and consistent impoverishment of the larger populace.
In this instance, we believe there is a direct correlation between the degree of tax evasion (not discarding the fact that tax evasive practices are also found existing in the countries where there is a large degree of good governance) and practice of good governance. If the people feel that their hard earned monies end up in private pockets, there is a likelihood, that there will be a reluctance to pay taxes.
Our recommendation, therefore, is improvement in the governance systems, introduction of transparency and accountability where Federal, State and Local governments clearly state how tax payers monies have been utilised, evidence of utilisation in the provision of basic amenities for the people of Nigeria plus continuous improvement in the standards of living. It is believed that once these basics are in place, tax collection will improve to a larger extent and enforcement of tax laws will prove to be more effective and justified when used to ensure compliance.

George

Corporate Social investment

Without a doubt community development intervention by the private sector is and should remain voluntary. This is because the business of business is ensuring that business is conducted in a responsible manner that provides positive socioeconomic contribution for their different operating communities. The one way to do this is to continue to contribute a portion of their profits to the government in their operating communities through “accurate” tax payments. However, for a lot of communities in developing nations this is not enough. Successive years of corruption, wars and coups has led to gross neglect in development, leaving a large percentage of people in Africa wallowing in poverty, there is a dearth of infrastructure, massive energy poverty, illiteracy, poor health system, hunger and many more ills. What has happened is that the people have simply turned to the next best source of wealth for intervention – the private sector. In Nigeria for instance, whilst neglecting to demand for accountability and transparency in the “hows and wheres” of the use of tax money, lawmakers have simply turned again to the private sector to make community development initiatives compulsorily part and parcel of a business purview. By so doing most believe that they are further entrenching corruption, in a situation where there is no accountability, the tax payments made by these businesses will be added to the others that are diverted for the private use of a few.

The worst scenario painted in this instance has been that additional tax payments made by businesses simply means a hike in consumer goods, therefore, the cost of doing business will be transferred to the people, making them poorer still. The cost of doing business in the country will be more expensive, making investments in Nigeria more unattractive whilst other countries are doing all they can to make their countries attractive for foreign direct investments leading to the provision of more sources of employment and better living standards for their people. To this end we need to be extremely careful not to create laws that will make our socioeconomic situation worse.

George

Who can help us?

Talking about sustainable development seems a misnomer from the Nigerian perspective and this is simply because all the indicators pointing towards a conscious or concerted drive towards the creation of a sustainable society seems to be pointing in the wrong directions.

Historically speaking, no society has amounted to much without consistently and please note that the word is consistency, driving an agenda which derives no pleasure from massive changes in policies that affects growth, one through which the livelihood of the ordinary Nigerian man or woman is grossly improved.

Economically speaking the indices that point towards economic growth all show signs of impressive improvement, that is until recently with the downward trend of the crude oil earnings and depletion of the nations foreign reserves, and it is true that in the last decade (especially with the socioeconomic reforms introduced by the entrance of a democratically elected government in 1998) we have seen major positive changes. We saw the influx of FDI which led to wealth creation, this time trickling down to the bottom of the pyramid, we got our debt cancelled and experienced massive reforms in different areas.

The NEEDS document painted a picture of hope, one which showed visionary leadership not perfect but yet still charting a concrete direction to lead us out of massive and unsustainable socioeconomic deprivation. The beauty of having such a document was to also see it come alive in real policy implementation. However, the fact still remains that a huge percentage of the Nigerian populace appears to be in a state of regressive socioeconomic status. The question then is how can we possibly ensure that there is sustainability in the sovereign state?

The successful and continuous development of a nation is dependent on several factors all of which must be activated in order to achieve a particular level of living standard for the general populace of any nation at any given point in time. Issues of quality health care, good infrastructure, sound education, employment generation, law and order must be tackled with aggressive intent which is bent on ensuring that people generally have access to the things that make good living, access to this must be by fair play and merit and not through a selective process that is based solely on who you know (or quota system, ethnic race) or who you are.

Years of self centred rule and a governance system that lacks the discipline of ensuring proper law and order plus a focus on self gratification as opposed to communal well being has left the nation in worst state than it ever was. The infrastructure especially as it concerns power generation and distribution, education, good roads, transportation, health care, provision of portable water supply is almost dead, leadership is comatose, point is right now there seems to be no hope for help. The living or aptly put survival state of the ordinary Nigerian man who earns meagre income such as selling his/her wares on the street is unimaginable, how people live from “hand to mouth” barely existing, living in appalling conditions with no health care to support and environment degradation that begs of attention which no one seems to be looking at. Question is who will help or who can help?

It seems oddly strange enough that the concept of corporate social responsibility has been painted in the same light as the issue of sustainable development, and this may not seem so far fetched to those who have perhaps turned away from the government to begin to look at the private sector to intervene in ordinarily what we have always known to be the purview of the state. However, there is some truth in this, if not in exactly the same way that it is currently been looked at.

There can be no sustainable development without effectively tackling these issues, the continued downward trend of living standards and development is simply a time bomb waiting to explode, the truth is that within any system whether democratic, military rule or otherwise you cannot continue to have some form of affluence in the midst of gross poverty – the danger and high possibility is that the people will turn against those that who say they rule and this is being seen today in a situation where people do not feel safe, where there is high crime rate. Lack of security is the worst thing that can affect development, it turns off foreign investors and stifles productivity in every way. There is simply no freedom and the high walls guarding homes and offices depict an environment where chaos as crept in.

What can the private sector do and why should they be concerned? The concept of CSR in its truest form simply means that organisations should be responsible in every way possible, it can be likened to an individual and this is why sometimes it is also referred to as corporate citizenship, who must in every way possible act responsibly within the society or situation in which it finds itself – therefore it must pay the right tax, not do any thing that contravenes the law, it should also act in a way and manner that will cause no harm to its neighbours – simple acts of responsibility which is carried out through corporate values and principles imbibed.

Looking at the economic terrain and livelihoods, it is not far fetched to see how much economic organisations affect everyone and also everything within the society – it affects education, it affects health, it affects the media, information, innovation, it affects the government, it affects the dynamics of relationships and the obligations that are borne by it. This has been shown in recent times through the effects of the global recession where almost everything has been turned upside because of the crash in Wall Street, in London, Tokyo and other developed nations. Families have been affected through job loss, spending habits have been changed both by people and the different governments, there are now a new set of priorities. This is the power of the private sector. It is therefore very easy to see how socio-political situations can be affected by economic woes or vice versa.

Looking inwards, here in Nigeria, it is very hard to see how far the private sector can go without good governance. Governance in this sense points to the government, however, with sound and sensible advocacy and right motives within civil society organisations much can be done.

The private sector is maverick, the sector is made up of organisations with professional individuals and systems that work within a set of rules and rules because it has been proven with the recent global economic downturn that the sector must work with proper governance or monitoring and not without. Complete deregulation or a completely free market simply leads to a throwing of caution to the wind and catastrophe in the making.

That the public sector in Nigeria for instance needs the skill and expertise that may be found in the private sector is without a shadow of doubt. Looking back at the intervention of the private sector professionals and their performance in the last administration, the likes of Charles Soludo and the bank mergers which brought some semblance of stability, accountability and the gradual re-emergence of the middle class, Dr Okonju Iweala and the debt cancellation, Mrs Due process, it is apt to say that skills transfer is very necessary for continued sustained development. This can be structured and facilitated by putting in place private public partnerships.

We may therefore, look at Corporate philanthropy in this regard, and not just as a give away to communities where it can not be sustained and where the impact will be little or nothing but as a highly strategic partnership between corporate organisations and organisations in the public sector especially government institutions such that there is a structured and systematic approach to supporting communities to develop.

In recent times we have seen a few organisations take up corporate social investment activities in different parts of the country. However, with no proper structure in place and very few having the genuine will power to make a real difference one can’t readily assess the impact of the investments. There is the perception that these organisations make more noise than act. These actions however can be harnessed to do good and support the nation in development. We can build and structure private public partnerships in a systematic way that can be used to empower and revolutionise different sectors of the economy.


There is no better time than now to begin to act, especially with the dwindling price of oil and a future which spells more doom for those economies that are overly dependent on petrol dollars. We need to act aggressively and focus on developing others areas – agriculture, youth empowerment, vocational training etc. If all the companies involved in community development investments will partner with the government and international organisations to zero in on developing agriculture in just a number of states in the next 5 years, do you know how much impact that will make and how these few areas could begin to make the nation self sustaining and even lead to greater and diversified export incomes? I believe this is an area worth looking at.

George

Will CSR still be relevant with the global recession?

Quite a number of projections have been made concerning the relevance of Corporate Social Responsibility (CSR) in the year 2009 especially with the global economic crunch, question has been asked as to why companies who practiced CSR were affected? it has also been said that one of the least relevant roles in these hard times will be that of the CSR practitioner.

First thing that comes to mind is why wasn't CSR effective? why didn't it support the companies in time of crisis? finally why shouldn't it be relevant in these hard times?

Often times the definition and the method by which CSR is practiced within organisations is very different, the most commonly accepted meaning of CSR outside of Europe is community development, corporate social investments or corporate philanthropy. This definition is very limited and will only be relevant to use when organisations are thriving and well i.e. profitable. The greatest benefits businesses derive from practising CSR in this way is the license to operate especially within difficult communities, Brand Value, new markets (and that is only if it is practised as such).

Now because CSR is not approached strategically and is often seen as a add on or a cost to the business, it is usually considered as "fluffy" and of no value to the bottom line. Most CSR practitioners will tell you that they are always fighting for relevance within the organisation. Things are also not made easy as advocates are often demanding that it must be approached with a heart to genuinely give back to the society or to make impact. The reality is that Friedman is right and the business of business is simply to make profit - some of us have had to learn and accept this the hard way.

For CSR to make sense and genuine impact - development experts must recognise the need to make it add value to the business itself in the first place and not be sentimental about the need for CEOs to become philanthropist at heart when they are not. By making CSR add value to the business we can get the best of both worlds - which is genuine drive to make positive social impact by organisations and on the other hand the society itself will benefit from this.

And this why CSR will remain relevant in the year 2009 and beyond. CSR itself is about Corporate positioning, a form of positioning that may assist in guarding the organisation from crisis. It should form part of the regulations that is being looked at as a new corporate structure evolves during this global credit crunch. It must be part of a risk management strategy, where the pulse of different stakeholders are felt intermittently in order to ascertain where things are going wrong with a view to proactively rectifying it.

Take an instance where instead of just looking at CSR as an act of philanthropy, banks have made it mandatory to hold dialogue sessions with different customers from time to time just to know and understand what the issues were and how they could rectify it. These stakeholders would be both internal and external, they would also carry out a highly detailed survey to look into different issues, all of these are to enable the organisation proactively identify the issues which may affect their sustainability in future, then maybe most of the mess may have been avoided.

Sometimes though, its never about the system, management theories put in practice have failed in the past, not because it doesn't have the capacity to succeed but because it was simply not applied with the right intent, and this can be the same for CSR. The point is that CSR must become more technical than it is right now, less fluffy and less sentimental for it to be widely accepted as a relevant part of strategy.

George

The status of corporate social responsibility in Nigeria

It has been globally accepted by all CSR practitioners that defining CSR across board is not and cannot be uniform; this is because what may be deemed as being socially responsible in one place may not be so in another. Different authors at different times have come up with varying definitions and these have all been accepted in good faith.

However, defining CSR can sometimes become very myopic and totally out of context, which means that the actual benefits associated with the practice and use of CSR may not be fully realised. This is currently the case with the Nigerian definition of what CSR is.

CSR in Nigeria is synonymous with CSI which is corporate social investment, corporate philanthropy or corporate community development. For the CSR practitioners who understand that this is just an aspect of CSR and not the totality of it, it is a very short sighted definition. CSR simply means that a business must be found socially responsible not only in one aspect but in every aspect of its business, adopting this definition and practising it means that we as Nigerians can benefit from the things that comes with having companies in the country practice CSR and not just CSI.

Why do we define CSR as CSI? Is it because of the word social that is caught in between corporate and responsibility or is it because of past events during which we have attributed negative environment effects of business activities to their lack of responsibility? Recently a CSR bill was introduced into the National Assembly, this bill seeks to legitimise Corporate Philanthropy by making companies responsible for community development thereby attempting to redefine the context in which businesses should play.

This is not to say that businesses should not play a part in community development issues, but we need to get a proper understanding of whose primary responsibility it is and when it may become mandatory for a company to engage in community development.

Primarily the government is responsible for building and developing communities, they should provide the basic infrastructure that is needed for communities to properly function and this should be done through tax collected from both individuals and companies alike plus other income. So a company’s first social responsibility in this instance is to ensure that it pays taxes. However, there have been instances when companies have played foul with the over riding importance of environmental sustainability and have disregarded the right of a community to exist through employing business methods which have left the environment in a bad state e.g. dredging, use of chemicals, disrupting the habitat/ecosystem and destroying sources of livelihood.

In the instance where a company has been found primarily responsible for destroying its environment through the negative impact of its operations then it must pay for it, this company should be charged with the responsibility of restoring the habitat and also there must be clearly articulated regulations in place to safeguard our environment and its inhabitants. A CSR commission should thus embody a framework that will seek to proffer guidelines according to international best practice and with a local flavour which will outline what a company’s social responsibilities should be; this must of cause be aligned to existing laws and regulations and should not seek to duplicate laws that already exist. Its guidelines must be progressive in nature which means that it must recognise that companies must make profit, but the current emphasis here is to make profit in a responsible manner and not other wise. The commission can also seek to make recommendations for existing laws and regulations to be enhanced in line with international best practice, new findings or to add value to communal sustainable development, it should be geared towards monitoring and ensuring that the various business applications or methods employed by small, medium or large companies should always have positive impact on sustained environmental and socioeconomic development.

Sometimes the problem is simply lack of good governance and not a CSR issue, which is to say that companies pay taxes due and governments do not apply those taxes to develop the communities as they should or on the other it is simply an inability to enforce regulations which will make sure that these companies are compliant or it could be existing laws are insufficient and the companies refuse to apply self regulations and simply capitalise on a bad situation – then it becomes a CSR issue. In the latter instances the company is said to be grossly socially irresponsible and should be engaged in actively paying back to restore any negative impact on its operating environment or stakeholders.

However, here in Nigeria we have found ourselves in a peculiar situation where the primary responsibility of community development is being shifted from the government to corporate organisations irrespective of whether they are to blame for some form of environmental damage or not.

The idea is not to make our communities depend on hand outs from different corporations through philanthropy but to increasing make them self dependent, we want to see these communities encourage entrepreneurs who with the help of infrastructure can build their own present and future existence in a way and manner in which their living standards is comparable or even better than what is been found anywhere in the world. The focus of this CSR bill should not be placed on philanthropy, the world as seen philanthropies been dished out to developing countries for an untold number of years and we are still a set of people who are largely impoverished. Quite frankly this has in effect made the people more dependent on these hand outs and now the philanthropic organisations are constantly burdened with the quest for ensuring sustainability of their different projects as opposed to having them completely handed over to these communities who will in turn make the projects sustainable on the long term.

We all desire to see a situation where a beneficiary can collect these gifts and make them work for the good of the entire community and simply not expect more or become dependent on them. If philanthropy has not worked then what will? The danger with Corporate Social Investment again is how it is currently been practised, asides from a couple of multinational companies who practice stakeholder engagement in order to understand societal expectations or needs, others simply carry out projects that bring no meaningful value to anything or anyone asides from their brand image. If as the bill suggests companies will get requests from communities on proposed CSR (CSI) activities who is to say this is in the best interest of the entire community or even aligned to the potential donor’s (the company) business objectives, we must not forget that a vital aspect of a company’s CSR is that for a company to be considered socially responsible it must remain profitable, otherwise we will have other aspects of irresponsibility to deal with – such as the inability to pay its employees, shareholders and even support the economic objective of the larger society by providing employment or paying its taxes.


The real CSR solution is several but certain things have become very obvious, which is that these handouts have encouraged regression in the area of development, we are yet to experience sustained development, the people always expect more instead of working with what they have been given to increase the value. They expect that others will work and they will be given part of it, majority have become mentally lazy, unable to create anything new that will add value, especially in today’s world of massive innovative growth competing for global economic space. What we want is to encourage the kind of support that will bring about sustained economic independence, innovative spirit through entrepreneurship.

CSR is - compliance with existing laws and going beyond, that is if existing laws are inadequate, sound ethical practices, adoption of environmentally friendly initiatives, sound business practices that continuously reduces its negative environmental impact, one that takes into cognisance and applies good human right methods, that believes in employee development, fair and transparent labour practices, good financial governance, practices health and safety. Ensures that its supply chain adopts same CSR policies, activates reputation risk management which will continuously test the opinions of different stakeholders with the sole objective of ensuring that risk areas are effectively tackled, sets targets which will align its own commercial sustainability with overall societal sustainable development etc.

So what happens to CSI, CSI should evolve into Public Private Partnerships where there is collective partnering between government and the private sector. This will allow the government to continue to drive its primary responsibility whilst bringing in superior expertise and accountability from the private sector. Then it should also be voluntary and incentivised. Companies who engage in CSI stand to gain a number of things which is inclusive of enhanced brand image and license to operate. The primary responsibility of companies is to pay taxes; the primary responsibility of the government is to provide the necessary framework for people to enjoy an increasing standard of good living.

Should there be a commission? – Yes! but what should be its main duties? - Guidelines and monitoring. It should monitor compliance of companies to already laid down regulations that may negatively affect the society, it should make proposals if these regulations fall short of both local and international best practices (and ensure it carries all stakeholders along), it should provide guidelines and also a platform for continuous review of good corporate practices that best serve the interest of the good of the society. It should provide adequate guidelines for the practice of CSR that will support an agenda of national sustainable development. The story of community development, however, is the story of good governance, the involvement of companies in this regard should remain voluntary, supportive, and ethical in terms of paying accurate taxes and also adopting of environmentally friendly practices (this though must be monitored).

George