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Nigeria

Tax Reporting Standards (NG0004)

Overview

At-a-Glance

Action Plan: Nigeria National Action Plan 2017-2019

Action Plan Cycle: 2017

Status: Inactive

Institutions

Lead Institution: Federal Inland Revenue Service

Support Institution(s): Central Bank of Nigeria, Ministry of Finance (MoF), Nigeria Customs Service, Nigerian Maritime Administration and Safety Agency (NIMASA), Financial Reporting Council of Nigeria, Federal Ministry of Justice (FMoJ), Nigerian Investment Promotion Council (NIPC), National Bureau of Statistics, National Assembly, Corporate Affairs Commission. Civil Society Legislative Advocacy Centre (CISLAC), Action Aid Nigeria, The Civil Resource Development and Documentation Centre (CIRDDOC), Institute of Chartered Accountants of Nigeria (ICAN), Association of National Accountants of Nigeria (ANAN), Chartered Institute of Taxation of Nigeria (CITN), Nigeria Association of Chambers of Commerce, Industry, Mines & Agriculture (NACCIMA), Manufacturers Association of Nigeria (MAN), Department For International Development (DFID), OXFAM, Council for the Regulation of Engineering in Nigeria (COREN)

Policy Areas

Fiscal Transparency, Private Sector

IRM Review

IRM Report: Nigeria Design Report 2017-2019

Starred: Pending IRM Review

Early Results: Pending IRM Review

Design i

Verifiable: Yes

Relevant to OGP Values: Technology

Potential Impact:

Implementation i

Completion: Pending IRM Review

Description

The commitment seeks to promote increased tax revenues by ensuring the prevention of tax avoidance and evasion. This will address the issues of multiple taxation and make businesses pay their fair share of tax. It will also create equity such that local businesses are competitive, can create jobs and contribute to economic development. Tax avoidance and evasion have resulted in reduction of revenue needed to finance development and created an unfavorable environment for local entrepreneurs. This results in inability of government to provide sound services for citizens’ welfare and failure of small businesses, thereby increasing poverty.

IRM Midterm Status Summary

4. Improving the fairness, transparency, efficiency and effectiveness of the tax system

Language of the commitment as it appears in the action plan:

“The commitment seeks to promote increased tax revenues by ensuring the prevention of tax avoidance and evasion. This will address the issues of multiple taxation and make businesses pay their fair share of tax. It will also create equity such that local businesses are competitive, can create jobs and contribute to economic development. Tax avoidance and evasion have resulted in reduction of revenue needed to finance development and created an unfavorable environment for local entrepreneurs. This results in the inability of government to provide sound services for citizens’ welfare and failure of small businesses, thereby increasing poverty.”

Milestones:

4.1: Signing and formal commitment to Common Reporting Standard (CRS) and Addis Tax Initiative

4.2: Sensitization of corporate organizations on the content and requirements of Common Reporting Standard

4.3: Issuance of directives to relevant stakeholders for compliance with Common Reporting Standard

4.4: Review and enforcement of penalties for non-compliance to standards

Start Date: January 2017 End Date: January 2019

Action plan is available here:

Context and Objectives

This commitment seeks to improve Nigeria’s tax system by committing to using the Common Reporting Standard (CRS) and the Addis Tax Initiative.

Evasion of personal and corporate taxes in Nigeria has been rampant and linked to unscrupulous tax consultants and accounting firms, corrupt tax officials, and a hardened attitude among taxpayers. [49] In 2015, the AU’s High Level Panel on Illicit Financial Flows revealed that N 6.87 trillion had been lost to illicit financial flows traceable to Nigeria. [50] Prior to the commitment, federal, state, and local authorities had attempted to close tax loopholes and deal with tax evaders. At a federal level, the Personal Income Tax Act of 1993, the Companies Income Tax Act of 1977, and the Federal Inland Revenue Service (Establishment) (FIRS) Act of 2007 empower authorities to deal with late or nonpayment of taxes and establish a variety of offences and penalties. [51] According to academic Nwocha Enya, the FIRS Act granted the Federal Board of Inland Revenue “enormous powers” to recover taxes owed to the government. For the purpose of enforcing taxes, the Board may distrain the taxpayer of his possessions, bonds, and securities. [52] Similar powers and enforcement measures were replicated at a state level. For example, in a move to ensure tax remittance, the Lagos State Internal Revenue Service closed the premises of an oil and gas consulting company for failure to remit the personal income taxes of their workers to the value of N4.9 billion. [53]

President Buhari’s administration committed to the OECD’s Common Reporting Standard (CRS), and the Addis Tax Initiative. [54] The CRS was approved by the OECD Council in 2014 and details a common reporting standard for financial institutions that allows jurisdictions to exchange taxpayer information on an annual basis. [55] The CRS set which financial information would be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures. [56] Countries subscribing to the Addis tax initiative are required to declare their commitment to enhance mobilization and effective use of domestic revenue and improve fairness, transparency, efficiency, and effectiveness of their tax systems. [57]

The commitment is specific enough to be measured. Milestone 4.1 is the most specific; it is possible to verify whether directives are issued or reviewed and penalties are enforced (Milestones 4.3 and 4.4). However, Milestone 4.2 could have been more verifiable by specifying which education activities should be conducted. Finally, each milestone lacked the responsible agency or organization.

The commitment was of unclear relevance to OGP values. No milestones appeared to promote access to information or civic participation, and the issuance of CRS compliance directives to stakeholders and the review and enforcement of penalties for non-compliance was internal and had no public-facing element.

If fully implemented, the commitment could have a moderate potential impact on the policy issue. According to Abu Ocheme (Deputy Director, FIRS), if fully implemented, the CRS and Addis Tax Initiative will expose tax evaders and close loopholes in Nigeria’s tax system. [58] This will reduce the erosion of tax base, obtain financial information from each institution, and check illicit financial flows and unexplained wealth. [59] The government will be better able to identify tax avoidance and evasion if there is co-operation between state officials and financial institutions, and if these institutions exchange financial information more effectively amongst themselves. Further, the fair, transparent, effective, and efficient use of tax revenue may reduce the distrust that discourages Nigerians from paying taxes. [60] However, this must be made public and the commitment lacks a public facing element to encourage citizens to pay taxes. It is unclear how this will help change citizen behavior.

Next Steps

Future commitments in this area could include:

  • Specifying which corporations need education about the CRS and the criteria that triggers directives and penalties for non-compliance;
  • Focusing on the tax authority and not only on the taxpayer – federal and state tax authorities should disclose the amount and composition of tax revenue that the government receives from the public, possibly through a portal that is publicly accessible and in a format that is easy to understand;
  • Disclosing the proportion of revenue that goes into the Federation Account and then to the public;
  • Institutionalizing a mechanism for citizens to be sensitized on taxation matters, and to make taxation complaints or requests to the government; and
  • Disclosing the use of tax revenue and explicitly mandating the responsible agency for implementing and disclosing such use.
[49] Abu Ocheme (Deputy Director, Federal Inland Revenue Service (FIRS)), interview by IRM researcher, Mar. 2019; Oladele Rotimi and Dr. Uduma Samuel Aka Udu, “Revenue generation and engagement of tax consultants in Lagos State, Nigeria: Continuous tax evasion and irregularities” European Journal of Business and Social Sciences 1 no. 10 (2013) 25.
[50] Bassey Udo, “N6.87 trillion stolen from Nigeria – AU Report” (Premium Times 2 Feb. 2015), https://www.premiumtimesng.com/news/headlines/176141-n6-87trillion-stolen-from-nigeria-au-report.html.
[51] Nwocha Matthew Enya, “Tax evasion and the law in Nigeria” Problems of Legality 139 (2017) 286, 288, https://www.researchgate.net/publication/321893115_Tax_evasion_and_the_law_in_Nigeria
[52] Enya.
[53] Staff reporter, “Lagos shuts oil firm over N4.9 billion tax evasion” (PM News 19 Jun. 2014), https://www.pmnewsnigeria.com/2014/06/19/lagos-shuts-oil-firm-over-n4-9bn-tax-evasion/.
[54] Garba Shehu, “As AU moves to make Buhari the first ever anti-corruption champion” (The News, 24 Jan. 2018), https://www.thenewsnigeria.com.ng/2018/01/as-au-moves-to-make-buhari-the-first-ever-anti-corruption-champion/.
[55] OECD, “What is the CRS?” (accessed Nov. 2019), http://www.oecd.org/tax/automatic-exchange/common-reporting-standard/.
[56] OECD, “Standard for automatic exchange of financial account information in tax matters” (21 Jul. 2014), http://www.oecd.org/ctp/exchange-of-tax-information/standard-for-automatic-exchange-of-financial-account-information-for-tax-matters-9789264216525-en.htm.
[58] Ifeanyi Egwatu and Nurudeen (Federal Ministry of Finance), interview by IRM researcher, 15 Nov. 2018.
[59] Mr Ifeanyi Egwatu and Mr Nurudeen, Federal Ministry of Finance (FMF), interview with IRM researcher, 15 November, 2018.
[60] Joseph Athanasius, “Causes of tax evasion in Nigeria and effects on the economy” (11 May 2018), https://infoguidenigeria.com/causes-tax-evasion/.

Commitments

  1. Participatory Budgeting

    NG0015, 2019, Audits and Controls

  2. Implement Open Contracting and the Open Contracting Data Standard

    NG0016, 2019, Beneficial Ownership

  3. Transparent Tax Revenue Reporting

    NG0017, 2019, Legislation & Regulation

  4. Open Contracting and Licensing in Extractives

    NG0018, 2019, E-Government

  5. Implement EITI Standard

    NG0019, 2019, Audits and Controls

  6. Establish Beneficial Ownership Registry

    NG0020, 2019, Beneficial Ownership

  7. Strengthen Asset Recovery Legislation

    NG0021, 2019, Anti-Corruption Institutions

  8. Implement National Anti-Corruption Strategy

    NG0022, 2019, Anti-Corruption Institutions

  9. Improve Compliance with Freedom of Information Act with Focus on Records Management

    NG0023, 2019, Capacity Building

  10. Improved Compliance with Mandatory Publication Provisions Requirement (FOIA)

    NG0024, 2019, Capacity Building

  11. Implement Permanent Dialogue Mechanism

    NG0025, 2019, Gender

  12. Aggregate Citizens' Feedback on Programs

    NG0026, 2019, E-Government

  13. Freedom of Association, Assembly, and Expression

    NG0027, 2019, Civic Space

  14. Enhance Participation of the Vulnerable

    NG0028, 2019, Capacity Building

  15. Implement New Computer Program in 6 Government Ministries to Improve Service Delivery

    NG0029, 2019, Capacity Building

  16. Legal Instrument to Strengthen SERVICOM

    NG0030, 2019, Legislation & Regulation

  17. Citizen Participation in Budget Cycle

    NG0001, 2017, Audits and Controls

  18. Open Contracting

    NG0002, 2017, Capacity Building

  19. Extractive Sector Transparency

    NG0003, 2017, Beneficial Ownership

  20. Tax Reporting Standards

    NG0004, 2017, Fiscal Transparency

  21. World Bank Doing Business Index

    NG0005, 2017, Infrastructure & Transport

  22. Beneficial Ownership Register

    NG0006, 2017, Beneficial Ownership

  23. Anti-Corruption Informationi Sharing

    NG0007, 2017, Anti-Corruption Institutions

  24. Asset Recovery Legislation

    NG0008, 2017, Capacity Building

  25. Anti-Corruption Activity Coordination

    NG0009, 2017, Anti-Corruption Institutions

  26. FOIA Compliance for Annual Reporting

    NG0010, 2017, Capacity Building

  27. FOIA Compliance for Disclosure

    NG0011, 2017, E-Government

  28. Permanent Dialogue Mechanism

    NG0012, 2017, Fiscal Transparency

  29. Joint Governmnet-Civil Society Legislation Review

    NG0013, 2017, Oversight of Budget/Fiscal Policies

  30. Technology-Based Citizens' Feedback

    NG0014, 2017, E-Government

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