20 Oct 2014

7 Ways Businesses In Nigeria Do Not Pay Taxes

sijinius.com




The IRS is the most dreaded and terrible governmental organization in the USA. It is a popular saying that if the IRS calls anyone (including the US President), such a person will be shaking in his/her seat because you may just be on your way to jail.

Tax evasion (not to be confused with tax avoidance) is the worst crime to commit as it is difficult to defend against and most likely to land in you jail no matter who you are. It means you are robbing the government and it is frowned at strongly as tax collection is the major income source of the government of  developed countries.  But it is not so in Nigeria. In fact, you are considered a business fool if you pay your taxes, or the full taxes due (if you have to pay).


Many argue that the government fails in its statutory functions of providing good roads, a robust economy and conducive business environment, regular power supply, round-the-clock security, and so on. So it has no moral justification to demand and collect taxes from them.

There is a lot of furore about taxpaying in Lagos state where the state governor BRF wants to enforce compliance, and even wants to force churches to pay taxes on their profit-making ventures such as church bus rental, hall rentals, tapes, CDs and DVDs sales, stocks and mutual funds investments, etc.

Let me show some of the methods by which Nigerian businesses and entrepreneurs/Netpreneurs evade and avoid paying tax. These cover both tax evasion (illegal), and Tax avoidance (legal).

1.      They don’t report their income/profit. There some businesses you do by the side, for example, online businesses in which the government does not know you are engaged in. In developed economies, a blogger, a forex trader and other netpreneurs are required by law to report their profits and pay an income tax. I wonder how many successful bloggers and online traders declare their profits to the Nigerian government. In the US, you are supposed to declare both your trading profits, or losses. A Japanese house wife was fined for evading her taxes. She famously said that she didn't see why she should pay taxes to the government on profit when the government didn't help her when she suffered losses.

2.       The Government does not really care about its taxes, or about you -whether or not you are making profits. This is the sad but true reality in most third world countries. It reflects a reckless and responsible government which is not diligent enough to carry out its statutory duty of collecting taxes from its citizens. It is the government’s duty to not just make tax laws, but also enforce collection and regulation of taxes within its jurisdiction.

3.       They bribe Tax-collectors: Back in 2007 when BRF became governor In Lagos he set about an aggressive tax revenue collection campaign to first identify every single business in Lagos and then enforce tax payments. Of course the campaign was very successful and it generated so much income for the government. But gradually the tax-collectors became greedy, or were  tempted by the business owners not to report them to the government. In exchange, the tax-collector will instead pocket a large chunk of the tax due and the government won’t know anything about the deal. For example, if a business/company owed N10 million in taxes, the tax collector will be given, say, 5-6 million and the government will never hear of the deal.

4.       They doctor their accounts, taking advantage of the negligence and incompetence of the government auditors. Some business owners in collaboration with their accountants falsify their accounts in order to pay less taxes.

5.       Register a charity or Non Governmental Organisation (NGO) and invest your donations/charity funds. Like I pointed out earlier, most churches in Nigeria make money by investing their member’s offerings and tithes in such investments as event centers, transport business, book sales, Media resources sales, etc, but they don’t pay their taxes because they file all such income under charitable donations, which is illegal and also unbiblical (Matt 17:24, 22:17, Rom 13: 6-7). A not-for-profit organization cannot be taxed because it is assumed it isn’t making money. Not too long ago, a popular Nigerian pastor in the UK ran into troubled waters with the British authorities because of this very issue.

6.       Take advantage of legal loopholes: this is a legal method of avoiding/delaying tax payment and it is used mainly by the rich (check the infogram). It involves getting a legal tax expert/consultant to help you find them. My lawyer friends will say that I am unlearned simply because I can’t correctly interpret legal documents. Some of them even use this to their advantage in not paying their taxes as at when due. Generally, there are more opportunities to save on taxes through investments, and that's why the rich keep getting richer. the less you spend, and the more you invest wisely, the lesser taxes you pay, and the richer you be.

7.       Take advantage of Tax breaks and duty free zones. The government sometimes offers tax breaks and tax waivers to businesses, particularly in the export industry. In Calabar, there is Tinapa, a duty-free zone, modeled after what obtains in the whole of Dubai, where businesses don’t pay any import/export taxes.
                                                                                            


Look at your business and reflect; in what ways are you guilty of not being patriotic? Correct them today, be patriotic and pay your taxes.

It is okay to look for ways in which you can legally utilize loopholes, or get tax waivers from the federal or your state government your state or . Consulting a tax specialist/consultant will go a long way to help you so you don’t fall foul of the law. My friend Adegboyega Abass of Deloitte Consulting can assist you, you can contact him on aabass@deloitte.com.

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