Tax Reporting Standards (NG0004)

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.

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.

4. Adoption of common reporting standards and the Addis Tax initiative aimed at 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

This commitment sought to improve Nigeria’s tax system by, among other activities, committing to using the Common Reporting Standard (CRS) and the Addis Tax Initiative. Evasion of personal and corporate taxes is rampant in Nigeria and linked to unscrupulous tax consultants and accounting firms, corrupt tax officials, and a hardened attitude amongst taxpayers. ^[53]

This commitment had a limited level of implementation. Nigeria signed the Common Reporting Standard Multilateral Competent Agreement on Automatic Exchange of Financial Account Information and Intended First Information Exchange Date. ^[54] Under this commitment, Nigeria also agreed to the Multilateral Competent Agreement on Country-by-Country Reporting. ^[55] In 2018, Nigeria issued the Income Tax (Country-by-Country Reporting) Regulations 2018 ^[56] and the Income Tax (Common Reporting Standard) Regulations in July 2019. ^[57] The Federal Inland Revenue Service established a committee in March 2018 to engage financial institutions regarding the new agreements. ^[58] Through these agreements and regulations, Nigeria may now automatically exchange financial information with other tax jurisdictions that are signatories, and facilitate tax management. Authorities now have access to tax information that allows detecting tax evasion. ^[59] However, the Common Reporting Standard deadline for financial institutions was extended to September 2020 as a result of the COVID-19 pandemic. ^[60]

Several of the milestones remain incomplete and were carried forward into the next action plan. Importantly, Nigeria has not yet signed the Addis Tax Initiative declaration. ^[61] Additionally, there is no evidence that the government issued directives regarding the Common Reporting Standards or reviewed penalties for noncompliance.

By the end of the implementation period, this commitment did not open tax administration practices. Government efforts clarified tax administration for businesses by clearly following a globally accepted reporting standard. However, this commitment is not directly aligned with OGP values. Effective government revenue and tax systems are important for good governance. Yet current milestones do not contain civic participation, public accountability, or access to information components. Nigeria is carrying forward this commitment into the next action plan. To incorporate more public-facing components, the government should increase government transparency around tax collection and spending. Additionally, the government should engage citizens in a dialogue about how taxes lead to concrete improvements in their lives.