Taxation and The Emergence of a Sharp Eyed Eagle
In recent times, the Nigerian socio-political atmosphere has been consumed by unprecedented vigour in the fight against corruption. This has largely been stirred up by the introduction of the “whistle blower policy”, a policy which encourages the disclosure of information and intelligence on activities that are deemed illegal or unethical. While the major drivers of this policy are anti-graft agencies such as the Economic and Financial Crimes Commission (EFCC) and the Federal government, Nigerians are also not left out as most people are either bemused by the large amounts of discovered loot, or by the depth in which corruption has eaten deep into our systems.
Varying reactions have trailed the government’s efforts at tackling corruption. Some have given it a thumbs up while others a knock. Regardless of this, the fact that corruption is a menace which affects every area of our national life still remains undoubted. Many commentators have made reservations on the procedure of the government’s fight against corruption. They claim that the current effort by the government is personalised, and that if the government intends to reduce corruption in the society, it must fight it on an institutional basis. One of such opinions is held by Femi Falana, a Senior advocate of Nigeria and human rights activist who said “if you want to fight corruption, apart from trying to institutionalise and empower agencies, you must mobilise critical segments of the society to fight corruption.” In simpler terms, their opinion is that deterrents must not only be caught and prosecuted, but the government must remove the system of bureaucratic corruption from every institution of governance and social engineering, be it education, business, governance, or the judiciary. As an attempt to examine corruption in various sectors, this essay is a study on corruption in tax administration.
Taxation and Tax Administration
Taxation and tax administration are vital parts of every society. It is a means through which many countries have achieved development and progress. Due to this, it is very important that a country’s tax administration system must be devoid of unproductive practices such as corruption. In fact according to the Chartered Institute of Taxation (CIOT) “Bribery and corruption represent serious threats to economic growth, individual livelihoods and civil society across the world.” Despite such known fact, corruption still prevails in Nigeria as a system of business and tax administration.
Data collated by the World Bank Group’s “Enterprise surveys”measuring the prevalence of different types of bribery in the manufacturing sector of 139 countries shows that bribery incidence (percent of firms experiencing at least one bribe payment request) in Nigeria stands at 28.9%. In addition, 28.6% of firms were expected to give gifts to secure government contract, while 24.2% of firms were expected to give gifts to get an operating license.
The implications of these on the Nigerian economy are very important. Firstly, investors are discouraged from doing business in Nigeria, businesses (especially SME’s) die as a result of the inability to cope with illegal taxes and fees, and in the long run tax revenue is drastically undermined.
Tax administration and law enforcement institutions in Africa often suffer from high levels of corruption, making the collection and management of public resources very challenging. According to experts, weak and often corrupt revenue administration remains a fundamental barrier to effective and fair taxation and to building trust between government and citizens in many countries (Fjeldstad 2013; Tax Justice Network Africa 2011). In many African countries including Nigeria, the level of trust between tax administrators and tax payers is discouraging. Many taxpayers simply do not pay taxes because they believe that their money would not be used to fund government projects. Majority of these people are more confident that taxpayer’s money would be misappropriated by corrupt officials. Furthermore, the perceptions of corruption among tax officials is high. In Cameroon and Nigeria (59% each) of tax officials say corruption is widespread, in Sierra Leone (57%), whereas in Benin (54%) hold this view -Aiko & Logan 2014.The issue of corruption in tax administration has been on the forefront for a long time due its devastating consequences. Many people have suggested various methods of tackling this vice but the results have still not been achieved.
How then can this endemic problem be resolved?
Tax policy is often used to encourage or discourage certain behaviours and countering corruption is no exception. This is because tax administrations are increasingly involved not only in enforcing tax measures but also in the detection of possible crimes, particularly financial crimes. Why? Tax examiners are highly trained financial investigators and thousands of tax inspectors around the world routinely examine the financial affairs and transactions of millions of individuals, companies, partnerships, trusts, foundations and other taxpayers in the course of tax audits or other tax administration activities. They are thus ideally placed to detect and report suspicions of criminal activity such as payments of bribes to the appropriate authorities (Organisation for Economic Cooperation and Development). The various ways through which corruption can be curbed in tax administration would be discussed in the following paragraphs.
Firstly, for corruption to be reduced in tax administration, the computerisation of procedures cannot be overemphasised. A large number of Illegal payments to tax/custom officials to reduce taxation or to be granted tax exemptions, licenses, and clearances occur majorly because tax administration is conducted in the physical form i.e face to face transaction, and this provides avenues through which tax officials can connive with taxpayers or exercise undue influence. Conducting transactions face to face further makes it hard for corruption to be tracked since illegal payments are often made through cash or gifts which are hard to track or record. In Nigeria for example, rice importers have reported having to pay NGN 2.5 million per truck to custom officials to clear the border (United States Trade Representatives 2014).
Corruption can also be reduced in tax administration through the reformation of tax policies and laws. Although recent reforms such as the introduction of TIN (unique tax identification number) in 2008, introduction of e-payment systems, and special purpose tax officers have had positive impact in tax administration, a lot is still to be done. obsolete tax laws should be amended and replaced with more suitable ones. Disputes on tax authority and jurisdiction should also be determined in order to establish a sense of certainty in our laws, thirdly, incidences of multiple taxation should be resolved as they serve as incentives for tax evasion.
Extortion by Tax/customs officials who take advantage of the lack of knowledge of taxpayers regarding tax laws is another issue. This can be reduced if tax laws are simplified and made available for the easy understanding of the illiterate population. An easy way to achieve this simplification is the production of tax laws and policies in native language. This way, more people would be aware of their rights and obligations, and tax awareness would be improved. Administrative exercises such as recruitment, appointment, transfer and promotion of officials should be monitored to ensure that due procedure is followed and that such exercises are not conducted on the basis of nepotism or favouritism. Tax officials who are caught engaging in corrupt practices should be made to face legal prosecution and penalties for offenders should be severe and just.
Finally, it is important to note that public officials and political leaders play a major role in curbing corruption especially tax evasion. First, the government must be able to show its determination towards the fight against corruption by its language and actions. Public officials must hold themselves accountable to the electorate and they must also fulfil their constitutional and primary duties of providing social amenities and good governance. In simple terms, there must be renewed dedication and commitment towards improvinging social welfare. This would encourage tax compliance; strengthen the existing trust between tax administrators and taxpayers, and give taxpayers value for their taxes. If these recommendations are implemented correctly, the result would be that corruption would be rendered unprofitable, tax revenue generation would begin to live up to its potential, and tax agencies/bodies would experience an unprecedented functionality.
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