Nigeria, Africa’s largest economy, has been struggling with Tax Evasion and avoidance, resulting in significant Revenue losses. A recent research by Veronica Naa Okaikor Josiah-Aryeh, an international Tax and business consultant, highlights the importance of Exchange of Information (EOI) in combating cross-border tax evasion. The research provides valuable lessons for Nigeria and other developing countries facing similar challenges. The country has been grappling with tax evasion and avoidance, which has resulted in significant revenue losses.
According to a 2021 report, the country lost $178 billion to tax evasion in 10 years, with multinationals being the main culprits. This revenue loss deprives the country of much-needed funds for economic development, Infrastructure projects, and social programs. The country’s tax authorities face significant challenges in tracking and recovering taxes from multinational corporations and high-net-worth individuals who use sophisticated techniques to evade taxes. It is a global tool that enables countries to share financial and taxpayer information to combat tax evasion.
Challenges stalling the implementation of the model.
The Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which Nigeria is a signatory to, facilitates EOI among 146 participating jurisdictions. It has significantly impacted the fight against cross-border tax evasion, with the Organisation for Economic Co-operation and Development (OECD)’s Global Forum overseeing the implementation of the standards, leading to the identification of over €114 billion in additional revenues. There are five types, which include: Exchange of Information on Request (EOIR), Automatic Exchange of Information (AEOI), Spontaneous Exchange of Information (SEOI), Simultaneous Tax Examination, and Tax Examination Abroad. These types enable countries to share information and coordinate efforts to combat tax evasion.
Despite Nigeria’s efforts to enhance Exchange of Information, significant challenges persist. The country struggles to mobilize revenue due to widespread tax evasion and avoidance. The absence of robust sanctions for non-compliance, exploitation of loopholes in EOI standards by tax havens, and limited reporting requirements under Automatic Exchange of Information (AEOI) hinder effective EOI implementation. Furthermore, Nigeria’s tax authorities face capacity constraints, inadequate infrastructure, and limited resources, which impede their ability to effectively implement EOI. These challenges undermine Nigeria’s efforts to combat cross-border tax evasion and hinder its ability to recover lost revenues.
Domestic legislation to comply with int’l standards.
To combat cross-border tax evasion effectively, Nigeria must strengthen domestic Legislation to ensure compliance with international standards, enhance transparency mechanisms within the Federal Inland Revenue Services (FIRS), benefit from international cooperation and technical assistance from organizations like the OECD, IMF, and World Bank, implement robust due diligence procedures to prevent tax evasion, and enhance the capacity of tax authorities to effectively implement it. By adopting these recommendations, Nigeria can improve its Tax Revenue collection, enhance transparency, and contribute to global efforts to combat cross-border tax evasion.
Also, the country can learn from best practices of other countries and strengthen its domestic tax laws to ensure compliance with international standards. International cooperation is critical in combating cross-border tax evasion. Nigeria must work closely with other countries and international organizations to share information, coordinate efforts, and develop effective strategies to combat tax evasion. The OECD’s Global Forum provides a platform for countries to share experiences, best practices, and challenges in implementing the standards.
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In addition, Nigeria can benefit from the experience of other countries that have successfully implemented this model. For example, the United States has a robust system that has enabled it to recover significant tax revenues from offshore accounts. Similarly, the European Union (EU) has implemented a comprehensive EOI system that has facilitated the exchange of information among member states. Nigeria can also learn from the experience of other African countries that have made significant progress in implementing it. For example, South Africa has established a dedicated unit that has enabled it to recover significant tax revenue from offshore accounts. Similarly, Kenya has implemented a system that has facilitated the exchange of information with other countries.