Nigeria loses a staggering N3.635 trillion ($10 billion), translating to more than one third of its 2020 budget (estimated to be N10.59 trillion), every year in the form of tax leakage by multinationals operating in the company.
Federal Inland Revenue Service (FIRS) Chairman, Muhammad Nami, opened the can of worms about the illicit profit-shifting activities by multinationals on Friday in Abuja during the opening session of the FIRS’s 2020 management retreat.
Profit shifting refers to strategies employed by multinational corporations to move profits from higher-tax countries to lower-tax countries in order to avoid paying taxes on the profits made in the former, consequently eroding the tax base of the higher-tax countries.
According to Nami, the FIRS is implementing a tax collection reform at the moment that will help stop the $10 billion tax leakage.
“Since I assumed office as chairman, we have revised the organisational structure of the service that reflected management aspiration reviewed and redesigned tax audit and investigations functions and currently we are reviewing all lien cases with a view to closing them and introduce new enforcement strategies.
“In addition, we have initiated several reform projects with a view to reversing our current performance level to a more acceptable level by the government,” the FIRS boss said.
The new policy, Mr Nami affirmed, would help achieve and exceed the FIRS’s revenue collection target of N8.5trillion for 2020. The Federal Government has set the service a target of N8.5 trillion target, divided into N3.7 trillion oil tax target and N4.8 trillion non-oil target for 2020.
He said “Looking at our performance in the recent past, one may look at the 2020 target as ambitious, but I can assure you that it is achievable especially with the ongoing reforms and business process re-engineering that are taking place in the Service.
“These reforms are aimed at improving both filing and payment compliance, re-activating dormant taxpayers through aggressive intelligence gathering and information sharing and blocking of leakages.
“In addition, if we are able to detect and block tax avoidance schemes by multinational corporations, that will also go a long way to improve our tax revenue collection. “
He observed that the $10 billion tax leakage could have been spent on bridging the acute infrastructure deificit in the country by the three tiers of government.
Nami avowed that the $10 billion lost to tax avoidance constituted around 20% of the $50 billion Africa loses every year to multinational companies.
“The African Union Illicit Financial Flow Report estimated that Africa is losing nearly $50bn through profit shifting by multinational corporations and about $10bn of this amount, is from Nigeria alone.”
According to the African Capacity Building Foundation, “retaining Illicit Financial Flows (IFF) would alleviate Africa’s infrastructure, education, health and agriculture deficit.”
Funningly enough, the $50 billion Africa loses annually to profit shifting doubles the Official Developmental Assistance (ODA) it receives from the West and the figure might, in fact, be a conservative estimate given the fact accurate figures are unavailable for all transactions and for all African countries.
Put differently, African countries indirectly receive aids from western countries out of their own money that has been transferred abroad by way of profit shifting.
The unfortunate scenario confirms that we are indeed right in the age of neo-colonialism. The current practice of the West milking poor, vulnerable economies of their money in the form of profit-shifting and sending them peanuts out of it as aid calls to mind the colonial practice of conveying agricultural produce like cocoa out of Africa to Europe and sending back finished goods like exotic chocolate drink powder in return.
According to The Guardian UK, a whopping $3.3 trillion flowed out of developing countries to advanced economies in 2012 alone while developing countries only got $1.3 trillion in aid that same year.
It put the cumulative net outflows (that is the remaining figure after aid has been deducted) from developing countries to the West from 1980 to 2012 at an incredible $16.3 trillion, thus debunking the universally accepted myth that the West is eradicating poverty in the Third World while indeed it is underdeveloping it and compounding its woes.