Nigeria’s
finance minister Mrs. Kemi Adeosun, in responding to a question by a journalist
on the legality or otherwise of use of offshore tax havens or shelters to avoid
paying tax surprised everyone, herself inclusive perhaps.
She said businesses
and individuals that shipped funds out of the country to places where they were
not required to pay taxes on such funds have not done anything illegal, if
their intention is tax avoidance, not tax evasion.
According to
her, if those who have moved financial assets to take advantage of offshore
shelters have paid their “fair share” of local taxes before taking funds
outside they would have not done anything unlawful.
“Tax
avoidance is legal but tax evasion is a crime”, she explained. “The critical
question to ask all Nigerian tax payers using offshore tax shelters will be
whether all applicable taxes have been paid prior to the transfer of funds or
assets to a tax shelter. If all taxes had been paid, then there will be no
additional liability except tax payable on further income earned on those
funds. However, if taxes had not been paid, then the use of such schemes is
illegal”.
The Nigerian
minister spoke against the latest publication of secretive financial deals
involving world politicians in far flung so called offshore tax shelters.
Entitled “Paradise Papers”, they are the result of a collaborative
investigation by some 380 journalists in 67 countries using leaked data
obtained by a German newspaper, Suddeutsche Zeitung, and the International
Consortium of International Journalists (ICIJ). Their report identified more
than 120 politicians and country leaders, in nearly 50 countries including
Nigeria, as well as hundreds of business people across the world as users of
offshore shelters.Coming after Panama Papers sensationally published in 2016,
Paradise Papers are clearly the biggest leaks in history.
Apart from
playing down the significance of the leaks as something to not lose a night
sleep over, Mrs. Adeosun said offshore tax havens were becoming unfashionable
because of the robust international scrutiny that they have drawn. “With the
increasing global focus on illicit financial flows and tax evasion, offshore
tax shelters no longer offer robust protection against tax authorities”, she
said, adding: “the continued use of such schemes pose enormous risks for the
users; the leaks are just the beginning of what is likely to be a systematic
unravelling of the offshore tax haven system”.
Our problem
with the minister is that she has demonstrated inexcusable naivete with regard
to the challenge of tax administration in Nigeria. Our unique experience is
that a tax avoider is almost also an evader. Otherwise, why would a regular tax
payer now want to avoid a civic duty he has been known to perform diligently
over the years? It is noteworthy that she used the phrase “if they have paid a fair
share of local tax”. The fact is more often than not, that “fair share” is not
paid. Mrs. Adeogu contradicted herself when she observed correctly that the
country’s law tax revenues did not reflect the expensive lifestyles of many
rich Nigerians and the value of the assets they hold in the country and around
the world. “Nigeria’s low tax revenues were at variance with the lifestyles of
a large number of its people and with the value of assets known to be owned by
Nigerians resident around the world”.
It is for
that reason that the federal governemt has introduced what is known as a
Voluntary Assets and Incomes Declaration Scheme (VAIDS). It is “a time-limited
window” for taxpayers to regularise their tax status regarding previous tax
periods. According to the minister, “VAIDS ushers in an opportunity to increase
the nation’s general tax awareness and compliance…..In exchange for fully and
honestly declaring previously undisclosed assets and incomes, taxpayers will
benefit from forgiveness of overdue interest and penalties”.
It was at
that point the Mrs. Adeosun probably recognised the blunder she made. She
appealed to tax defaulters to take advantage of VAIDS and stop running to
offshore tax havens. In the meantime, she said the government would investigate
those Nigerians mentioned in the Paradise Papers. According to her, her
ministry’s “data mining project” would use data provided on Nigerians from such
leaks to crosscheck tax declarations. That was what Nigerians listening to her
had expected to hear: what the government would do to rich Nigerians taking
their assets abroad to avoid tax at home. Usually these are proceeds of
corrruption in political high places. They must be recovered and the thieves
prosecuted.
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