When the new leadership of the Federal Inland Revenue Services, FIRS introduced several tax reforms in 2020 by launching different tax filing portals and automation to track tax remittances, it was not clear the end goal of the government’s agency except for recently on the discovery of massive tax evasion.

The FIRS through its chairman Muhammed Nami, at a meeting to review the report on Illicit Financial Flow concerning tax on Wednesday 3rd of March 2021, has revealed that a total of 52,005 companies with a turnover between ₦100m and ₦1bn are shortchanging the Federal Government by not paying due taxes.

The Discovery

On how it was discovered that companies with turnover of between ₦100m and ₦1bn are not paying taxes, the FIRS boss highlighted that the agency under his watch wrote to all commercial banks, requesting a list of Companies, Partnerships, and Enterprises with a banking turnover of between ₦100m and ₦1bn, hence the discovery.

Nami and his team proposes stiffer laws and regulations to deter future illicit financial flow

Taxmobile.Online gathered that on analysis of responses provided by 23 banks, it was discovered that 52,005 of these companies were not paying taxes while ₦83.216bn had been recovered by the FIRS.

FIRS identifies how tax fraud is perpetrated

The FIRS is not stopping at identifying the problem alone but the methodologies through which tax fraud such as this is carried out by pointing to payments of expatriates staff emoluments and remuneration and failure to declare for personal income tax purposes such emoluments to the relevant tax authorities in Nigeria as some of the natural traits of tax fraud.

Other avenues through which tax crimes are committed according to the FIRS include laundering of funds often sourced illegally through Real Estates transactions to acquire property in choice locations outside Nigeria, and illegal transfer of money out of Nigeria, through unapproved channels such as Virtual Currencies.

Others are mispricing of goods and services transferred between interrelated Nigeria-based companies and individuals to offshore-based entities and individuals, profit-shifting through excessive interest payments on foreign and locally sourced loans, and mis-invoicing of imports and exports.

Nipping the challenges on the bud

To address these challenges, FIRS through its boss revealed it has carried out reforms which include sealing a pact with the Financial Intelligence Unit, FIU, and designated Authorized Officers for the FIUs; set up the first of its kind in Africa, a beneficial ownership register for tax purpose with Independent Corrupt Practices Commission and Other Related Offences which has led to so many forfeitures of asset under a presidential directive.

Nami said that stiffer laws and regulations would be enacted to deter future illicit financial flow actions by people determined to engage in such acts, most especially in the new trend of virtual currencies which is a new typology on illicit financial flows.

Identifying other damages to the economy

Muhammed Nami in his report further revealed that illicit financial flows through cross-border laundering, proceeds of crime, financing of terrorism, the theft of state assets, private sector bribery, and most importantly the abuse of taxation has had so much damage on the economy of Nigeria.

He exposed that unwholesome practices of Multinational Enterprises, Financial Institutions, and Oil and Gas companies remain the biggest component of IFF in Nigeria.

Nami’s comments below,

“To address tax revenue losses through transfer mispricing of goods and transfer, the FIRS has put in place Transfer Pricing regulations in 2012 and established a functional Transfer Pricing Unit focused on ensuring that taxable persons report sales and profits in Nigeria in adherence with globally acceptable standards of arm’s length principle for tax purposes.

“FIRS has developed an in-house capability for trend analysis on banking transactions of taxpayers to provide early warning on transactions that might be a potential for Money Laundering and Terrorism Financing /illicit outflow.”

Comments on Multinational Enterprises, Financial Institutions, and Oil and Gas companies.

“Corruption and abuse of office by both political appointees and civil servants thereby enabling illicit financial flows activities offices remain a factor of money laundering /terrorism financing /tax crimes in Nigeria, and FIRS has ensured collective effort to end this menace.

“We are striving to reduce the Money Laundering/ terrorism financing/ illicit flow of money from Nigeria and effects of beneficial ownership as it is causing economic downturn which has an unprecedented effect on the economy and lives of Nigerians.”

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