Tax evasion and the fear of prosecution

Tax evasion is a lucrative enterprise in Nigeria. It affords the evaders and some corrupt tax officials the opportunity to balance their budgets at the expense of the masses. I believe the government got agitated about the development and decided to introduce the Voluntary Asset and Income Declaration Scheme (VAIDS) in 2017 to enable or compel taxpayers to make good their tax obligations in terms of previous tax periods and pay any taxes due thereon. It was also implicitly meant to bring non-tax payers into the tax net and raise funds for development purposes. The government promised to forgive ‘tax sinners’ and also ‘excuse’ them from criminal prosecution of their delinquency in tax compliance if they would honestly declare previously undisclosed assets and income for the purpose of fair tax assessment. The initially scheduled closing date for the exercise was March 31, 2018. However, following demands for extension of time arising from ‘acceptance’ of the exercise and to enable more compliance, the government in its wisdom extended the closing date to June 30, 2018. The response to the VAIDS as a tax amnesty programme was adjudged effective and successful as in many countries such as the USA, Greece, Italy, Ireland, Portugal, Argentina, Brazil, Spain, and many others.

At the end of July 2018, about five thousand, one hundred and twenty-two (5,122) applications were received and collated in four categories- full payment, no liability, outstanding payment, and inadequate information. Those with inadequate information consist of applications that had no tax computations, declaration of tax liability or information that will enable the applicant to be assessed to tax. This situation speaks to the lack of integrity with which many transactions are handled in Nigeria. Non-the-less, the exercise resulted in the declaration of a tax liability of about N93billion out of which about N35billion had been realized at the end of the exercise while the balance is expected to be paid in agreed installments. This is a good development and a feat for which the tax authorities should be commended.

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There is no doubt that the government was authoritarian in the VAIDS episode and so, resorted to the use of terms such as ‘prosecution’, ‘naming’ and ‘shaming’ tax defaulters. Of course, the strategy was potent as many tax defaulters rushed to fulfill their tax obligations under the scheme. The language of coercion which was adopted and understood, even in the state of low tax morale, is instructive. It is also curious especially so in our context where there has been a callous breach of the social contract between the government and the citizens. There are better and more humane means of ensuring compliance with tax laws in enlightened societies but our case is different. However, there are a number of questions which require answers and include: Why did the tax defaulters embrace the VAIDs arrangements?, what factors militate against tax compliance in Nigeria and what steps should the government take to address or mitigate the low tax compliance attitude in Nigeria? The answers to these questions are evident from the results of our recent study on the compliance with VAIDS.

First, the result of our study shows that many recalcitrant tax defaulters complied with VAIDS for a number of reasons including in the main: fear of prosecution; risk of being detected; fear of being shamed publicly and fear of being named publicly. The implication of this finding is that taxpayers examine the cost and benefit of tax compliance and would evade tax where the cost of doing so is lower than the expected consequences of being detected and prosecuted. Secondly, people evade or are unwilling to pay taxes correctly and as at when due because of the lack of accountability of tax revenue by government; unprofessional attitude of tax officials; taxes perceived as a burden, lack of enforcement of tax laws; lack of knowledge of the benefits of paying tax and lack of knowledge of tax laws among others. Finally, tax morale is low and the easiest way to raise it is for the government to display accountability and transparency in the management of tax revenue. There is also a weak enforcement mechanism due largely to corruption in the system. Where the enforcement is weak, outright evasion or low compliance would. Tax is seen as a burden because the benefits of paying taxes are not evident either in words or actions of the government. What the citizens see and experience are hollow promises made by hollow-minded government officials.

Even though the fear of being detected and prosecuted represent the main reasons for compliance with VAIDS, the government can create the enabling environment for more taxpayers to come into the tax net and pay their taxes without being compelled to do so. And the options include: restoring trust in the social contract between the government and the citizenry via accountable government attitude towards tax revenue; creating awareness of tax laws; ensuring professional behaviour of tax officials; and reviewing of tax laws to reflect current and global realities and ensuring simplicity of the tax system.

As the adage goes, “a drop of honey catches more flies than a gallon of gall.” Taxpayers will comply with tax laws if the environment is right. The government should be seen to be transparent and accountable in the management of tax revenue. If this must be, then the government should do what it has not done previously- dedicate tax revenue to specific and identifiable projects yearly and appropriately give an account of same. This way, the trust of the citizens for government promises and activities and would be restored. Once this is achieved, all other factors will as a matter of course, fall in place. But in the short run, there are strong pieces of evidence that tax defaulters fear prosecution and ‘naming’ and ‘shaming’. In this case, the government should set the machinery in place to ensure speedy prosecution of all identifiable tax defaulters. This will send signals to anyone contemplating default in tax compliance that government has ‘repented’ and no longer ‘business as usual.’

FRANCIS IYOHA