An Examination of the Legal Framework Against Tax Fraud in Nigeria

Contributed By Chikezie M. Iwu

Introduction

In Nigeria and most other emerging nations, tax fraud has grown to be a serious concern and given its effects on the economy and the challenges it has presented to Nigeria’s tax administration, it has recently drawn the attention of policymakers and the country at large.^[1] Fraud under taxation involves evasion and non-compliance by individuals and firms being involved in fraudulent schemes intended to evade or reduce tax liability.

Nigeria adopts a self-assessment method for tax payment. This method allows the taxpayer to file returns and ensure payment of tax liabilities before the due date in a tax year. The self-assessment method which ought to be an advantage, turns out to be the Revenue Commission’s nightmare, where taxpayers manipulate or falsify records in order to evade tax or reduce tax payment. This attitude of tax evasion and tax fraud is enormous, and it amounts to billions of naira in a year.^[2]

This article will examine a curt overview of the Nigerian tax system and some of the laws against tax fraud in Nigeria, which amounts to evasion and non-compliance of statutory provisions in Nigeria.

A curt overview of Nigeria’s Tax System

Nigeria’s Tax System is a system characterized by tax policies, tax laws, as well as tax administration. These coupled policies and laws are expected to work together in concord with one another in order to achieve the overall objective for economic growth of the country.^[3] However, with reference to the presidential committee set on National tax policy in (2008), the overall focus and primary objective of Nigeria’s tax system is to provide and contribute to the social and economic well-being of Nigerians.

Furthermore, Tax Administration in Nigeria is vested in certain authorities depending on the tax in question. There are three major tax authorities in Nigeria which are^[4]:

1. Federal Inland Revenue Service (FIRS). It was first established as an operational arm of the Federal Board of Inland Revenue (FBIR) in 1993 but became autonomous in 2007 and was saddled with the responsibility of controlling and administering different taxes as well as accounting for all taxes collected;
2. State Internal Revenue Services; and
3. The Local Government Revenue Committees.

The main goal of these tax systems is to support and enhance the social and economic well-being of Nigerians. This goal is achieved in two ways, which are by directly creating new tax policies and refining current ones, and by making the best possible use of tax funds for the advancement of citizens.

The Legal Framework Against Tax Fraud in Nigeria

1. Constitution of the Federal Republic of Nigeria, (CFRN) 1999

By section 24(f) of the 1999 Constitution^[5], it provides that:

“It shall be the duty of every citizen to declare his income honestly to appropriate and lawful agencies and pay his tax promptly.”

This means tax should be paid timeously, and the constitution also allocates taxing powers at the state and local government levels.

1. The Federal Inland Revenue Service Act (FIRS) 2007

Part IV of the Federal Inland Revenue Service Act (FIRS) 2007, laid out the Offences and Penalties for Failure to deduct or remit tax to the government and under section 40 of the Act provides thus:

“Any person who being obliged to deduct any tax under this Act or the laws listed in the First Schedule to this Act, but fails to deduct, or having deducted, fails to pay to the Service within 30 days from the date the amount was deducted or the time the duty to deduct arose, commits an offence and shall, upon conviction, be liable to pay the tax withheld or not remitted in addition to a penalty of 10 per cent of the tax withheld or not remitted per annum and interest at the prevailing Central Bank of Nigeria minimum rediscount rate and imprisonment for a period of not more than three years”.

In addition to this, it is also a criminal offence under Section 41 of the Act^[6] to hinder or assault any authorized tax officer in the performance of his duties. It further provides that anyone found guilty of this can be liable to a fine or three years imprisonment or both.^[7] This punishment is also applicable to offences of Counterfeiting documents^[8], offences by authorized and unauthorized persons^[9], where offenders are armed^[10], and unlawful assumption of character of an authorized officer.^[11]

Section 48 of the FIRS (Establishment) Act, 2007 provides that the Service may compound any offence under this Act by accepting a sum of money not exceeding the maximum fine specified for the offence and also the Service shall issue an official receipt for any money received under subsection (l) of this section^[12].

The Act further provides a general penalty for persons, body corporates or firm or other association or individuals, who contravene any provisions of this Act for which no specific penalty was provided, commits an offence and shall be liable on conviction to a fine not exceeding N50.000.00 or imprisonment for a term of imprisonment not exceeding six months or to both fine and imprisonment.^[13]

1. Personal Income Tax Act 2004^[14]

Under the Act, section 94 under Part XI provides for offences and penalties against non-payment of personal income tax. This offence is associated with a person guilty of an offence under this Act, or a person who contravenes or fails to comply with any of the provisions of this Act or any rule or regulation made thereunder for which no other penalty is specifically provided, shall be liable on conviction to a fine of N5000 and where the offence is the failure to furnish a return, statement or information or to keep records required, a further sum of one hundred naira (₦ 100) for every day during which the failure continues, and, in default of payment, to imprisonment for six months, and the liability to such further sum shall commence from the day following the conviction, or from such other day thereafter as the court may order.

The Act further states that a person who fails to comply with the requirements of a notice served on him under this Act; or without sufficient cause, fails to attend in answer to a notice or summons served on him under this Act, or having attended fails to answer any question lawfully put to him is guilty of an offence against this Act.

1. Company Income Tax 2004^[15]

Under section 94 of the Act, Any person who violates or fails to comply with any of the provisions of this Act or any rule made thereunder for which no other penalty is specifically provided shall be liable on conviction to a fine of N20,000.00, and without prejudice to section 55 (4) or (5), where such offence is the failure to furnish a statement or information or to keep records required, a further sum of N2,000.00 for each and every day during which such failure continues, and in default of payment to imprisonment for six months, the liability for such further sum to commence from the day following the conviction, or from such day thereafter as the court may order. ^[16]

The Act further states that any person who violates the terms of a notice served on him under this Act, or who, without good reason, fails to appear in response to a notice or summons served on him under this Act, or who, after appearing, fails to respond to any question lawfully put to him, shall be guilty of a violation of this Act.

1. Investment and Securities Act, 2007

Under Section 65 (1)^[17] of the Act, it provides that a public company who contravenes the provisions of sections 60, 61, 62, 63 and 64 is liable to a penalty of not less than N1,000,000 and a further penalty of N25,000 per day for the period the violation continues. (2) An Auditor who contravenes the provisions of sections 60, 61, 62, 63 and 64 is liable to a penalty of N100,000 and a further penalty of N5,000 per day for the period the violation continues.

1. The Economic and Financial Crimes Commission Act (EFCC Act) 2004

The Economic and Financial Crimes Commission Act (EFCC Act) also prescribe the scope and definition of tax crimes.^[18] The Act specifically includes tax evasion as an economic and financial crime that attracts some penalties for non-compliance in respect thereof.^[19]

Elements of Tax Fraud^[20]

Four general elements must be present for tax fraud to exist, these are:

1. A material false statement.
2. Knowledge that the statement was false when it was altered.
3. Reliance on the false statement by the victim (Government).
4. Damages (revenue loss) resulting from the victim’s (government) reliance on the false statement.

Conclusion

Nigeria is among the few countries in the contemporary world where evading taxes has become a fashion among taxpayers. Various institutions in the country which are necessary to work collectively to make tax evasion hard for taxpayers are not accurately coordinated. For example, it is possible for a company not to register with tax authorities (FIRS) after registering with the Corporate Affairs Commission (CAC) while it is the same condition for registering process of the companies.^[21] Therefore, tax compliance enforcement (on all taxpayers, including corporate entities) should be assumed as adequate consideration, and different government agencies must work together and share information to reduce tax evasion. This would help in minimizing the noncompliance and discouraging evasion thus, an increase in revenue generation for the country.

1. Adekoya, A. Augustine, Oyebamiji, T. Adewale, Lawal, A. Babatunde, “Forensic Accounting, Tax Fraud and Tax Evasion in Nigeria – Review of Literatures and Matter for Policy” : International Journal of Emerging Trends in Social Sciences’: Consideration Vol. 9, No. 1, pp. 21-28, 2020. file:///C:/Users/USER/Downloads/scipg,+Academ ic+Editor,+IJETSS20209(1)21-28%20(1).pdf accessed on 20 October 2023. ↑
2. Ibid ↑
3. Zakariya’u Gurama, Dr. Muzainah binti Mansor and Abdurrahman Adamu Pantamee, “Tax Evasion and Nigeria Tax System: An Overview” Research Journal of Finance and Accounting. http://repo.uum.edu.my/id/eprint/16182/1/88.pdf accessed on 20 October 2023 ↑
4. Bello, Temitayo, Law and Economics of Taxation, Tax Avoidance and Tax Evasion; A Nigerian Template (May 19, 2017). Available at SSRN: http://dx.doi.org/10.2139/ssrn.2970992 accessed on 20 October 2023 ↑
5. Constitution of the Federal Republic of Nigeria, (CFRN) 1999 ↑
6. Federal Inland Revenue Service Act, 2007 ↑
7. Adeiye Adenekan, Tax avoidance and evasion in Nigeria. https://www.michaelmaschambers.com/insight-page.php?i=14&a=tax-avoidance-and-evasion-in-nigeria#:~:text=It%20is%20a%20criminal%20offence,the% 20performance%20of%20his%20duties. Accessed on 20 October 2023 ↑
8. Section 43 FIRS Act 2007 ↑
9. Section 44 FIRS Act 2007 ↑
10. Section 45 FIRS Act 2007 ↑
11. Section 46 FIRS Act 2007 ↑
12. EHIGIATOR, ‘The Legal Framework, Procedure And Challenges Of Tax Audit And Investigation

    In Nigeria’: A Comparative Analysis Of The United Kingdom And United States Of America file:///C:/Users/USER/Downloads/1826-2492-1-PB%20(1).pdf accessed on 20 October 2023 ↑

13. Section 49 FIRS Act 2007 ↑
14. Cap P8 LFN 2004 (as amended by PITA (Amendment) Act 2011, s.25) ↑
15. Company Income Tax, Cap C21, LFN 2004 (as amended) ↑
16. Section 92 Company Income Tax ↑
17. Investment Securities Act, 2007 ↑
18. Oyesola Animashaun, Howard Chitimira: ‘An analysis of the statutory measures adopted to curb tax evasion in Nigeria after the COVID-19 pandemic’ 2023 De Jure Law Journal, pp 136-156 https://www.dejure.up.ac.za/images/files/vol56-2023/Special_1.pdf accessed on 20 October 2023 ↑
19. Ss 18 & 46 of the EFCC Act. ↑
20. Adekoya, A. Augustine, Oyebamiji, T. Adewale, Lawal, A. Babatunde ‘Forensic Accounting, Tax Fraud and Tax Evasion in Nigeria: Review of Literatures and Matter for Policy Consideration’ Vol. 9, No. 1, pp. 21-28, 2020. file:///C:/Users/USER/Downloads/scipg,+Academic+Editor,+IJETSS20209(1)21-28%20(1).pdf accessed on 20 October 2023 ↑
21. Cited in Zakariya’u Gurama, Dr. Muzainah binti Mansor and Abdurrahman Adamu Pantamee, Ibid pg 210 ↑