Nowadays, the streets are hard. People are very reluctant to part with their money even for things that benefit them. Paying taxes that their next three generations might not even smell the benefit of is definitely as hard as fetching water into a bucket with a spoon.
The truth of the matter is that government has not been living up to the citizen’s expectations. People evade tax because sincerely, it is not easy to part with money except you are buying or selling something.
Tax evasion is an illegal way through which individuals and companies escape payment of tax. It entails taxpayers deliberately misrepresenting the true state of their financial affairs to the tax authorities – by claiming less income than they actually received to reduce their tax liability.
It includes dishonest tax reporting, overstating tax deductions, providing false information to the tax authorities, deliberately underpaying taxes owed, etc.
The most common form of tax evasion in Nigeria is failure of taxpayers to render tax returns to the relevant tax authority. Being willful default of tax laws, tax evasion is a criminal offence.
Tax avoidance on the other hand, is a legal way of minimizing taxes that one pays, using methods allowed by the tax laws.
It is reducing tax liability by wisely using all permissible allowances, deductions, exclusions, reliefs etc. that are available under the law. It follows an honest approach – achieving maximum benefits of tax laws by applying the dictates of law.
People evade tax for all kinds of reasons, from opposition to certain tax policies to not recognizing the government’s authority to collect taxes in the first place.
The major reason is the perceived failure by the Government to fulfil its part of the bargain. People don’t need the government to tell them why they should pay taxes, they want to see why they should keep paying taxes.
Pa Udoh is concerned with what the government has done with the money it has been collecting as taxes all these years. He only reads in the newspapers that the tax people collect this billion or that trillion as taxes. Afterwards, everyone is silent.
He does not hear that the government accounts for every penny of the taxpayers monies, he does not see the hospitals and schools get better. The Murtala Muhammed International Airport still seats comfortably on the lists as one of the worst in the world. Maybe like the Companies, he too will go and spend the rest of his days in Ghana.
Why should Mama Adanma who struggled to build a stall to sell wares to feed her family of six, remove a huge chunk of her meagre income for a government who has done not one thing to help her life. It has not provided electricity for her stall nor even manageable roads for her to get home safely. There are kidnappers everywhere and crime is on the rise. She would do everything humanly possible not to pay the tax money to the government because honestly her family needs it more than the government.
Even though all these and many more may makes sense, the cumulative tax evasion of everyone actually does more harm than good in the end. It produces the following effects:
- Contradiction of Tax draftsman’s intention: If everyone took advantage of the law and avoided tax contrary to the plans of the draftsman, where will the revenue come from?
- Contradiction of Equity as a Canon of Taxation: Innocent people that pay their taxes bear a higher burden to compensate for those who avoid their tax. Those who avoid thus pay less than their counterparts who earning the same profit range. This is not equitable.
- Stunted Economic Growth: Government is directly harmed as it doesn’t get enough revenue to function properly and redistribute income. It thus loses hundreds of millions of naira and is rendered largely handicapped.
- Infringement of Socio-Economic Rights: Engaging in Tax Evasion does not only infringe tax laws, it infringes on the socio-economic rights of the people in that jurisdiction. There will not be enough financial resources to allocate and redistribute and this hinders enjoyment of rights to health, education among other things.
In the end, we see that tax evasion is actually unproductive. We have this only me feeling, that it is only you that is not paying tax, that the rest of Nigeria is paying and that everyone will be fine in the end. The problem is that everyone is thinking same as you. So everyone evades tax and things get worse.
Things will be better if tax authorities become more accountable to the people, educate the people about the reasons why they need to pay taxes, ensure access to more tax incentives, holidays and reliefs, among other things.
One of the three happiest countries in the world Norway, Denmark and Iceland have something in common – they’re all highly taxed. Paying taxes are a necessity for a certain quality of life. While taxes can be taxing, it’s importance cannot be overemphasized.
Jumoke Jeje is a self-motivated legal practitioner with a keen interest in Sports and entertainment law, intellectual property as well as tax law. She is a resourceful and dedicated team player. During her leisure time, she enjoys watching football and writing.