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