Effective Strategies for Prosecuting Tax Offences in Nigeria and Cross-Border Tax Evasions

Contributed By Jesutofunmi Idowu

Introduction

Tax, being a compulsory exertionimposed by the government on citizens, is governed by statutes that citizens must abide by and pay their taxes as at when due. It is a strict liability offence, in which the defence is to provide proof of payment either as an individual or a business entity.

Effective tax administration plays an crucial role in generating revenue for the government to enable it provide basic amenities that would improve the standard of living of the citizenry. The provision of quality welfare, infrastructure and maintenance of high standard of living for citizens would be impossible without adequate revenue backing. Certainly, the level of tax revenue generated by the government to meet its expenditures depends largely on the degree of compliance and the effectiveness of the enforcement measures.

In caseswhere there are a financial crimes and breaches, the law imposes penalties for such offences, including fines and imprisonment. However, some of these offences are not often prosecuted. To ensure tax compliance, prosecution of offences should be treated seriously as the outcome affects taxpayer behaviour.

DEFINITION OF TAX OFFENSES

Tax is a charge usually of money imposed by authority on persons or property for public purposes^[1]. There are different taxes which are payable in Nigeria, some of which are Value Added Tax, Company Income Tax, Capital Gains Tax, Stamp Duties, Withholding Tax, Petroleum Profits Tax, Education Tax, etc.., and there are three major tax authorities in Nigeria: Federal Inland Revenue Services (FIRS), State Inland Revenue Service (SIRS) and the Local Government Revenue Committees^[2].

Generally, an offence is a violation of any law, regulation or legislation. Anyone who participates in an act that constitutes or results in, or forms part of a series of facts which together amount to, or result in something unlawful, is guilty of an offence. In essence, they are acts forbidden by the State, and if committed will attract punishment.

Tax offence therefore is an offence committed in relation to taxation. According to Nigerian tax regulations, tax offencesencompass both civil and criminal vices. While minor infractions may result in smaller monetary fines, significant offences carry harsher penalties.

The tax legislation in Nigeria gives the tax administration the ability to enforce and guarantee tax compliance through the employment of both civil and criminal penalties.

CATEGORIES OF TAX OFFENCES

Tax offences fall under both civil and criminal^[3] offences under the Nigerian tax laws. The serious offences attract severe penalties like imprisonment while the mild offences result in lesser penalties, in the form of fines in monetary terms. The Nigeria tax law empowers tax authorities to use both civil, as well as criminal sanctions to ensure and enforce tax compliance.

The Major tax offences common in Nigeria are Tax Avoidance and Evasion. While Tax Avoidance involves structuring transactions to minimize tax liabilities,tax evasion, on the other hand, involves using fraudulent tactics to reduce tax liability. Tax evasion is a deliberate effort by individuals, organizations, or corporations to avoid paying their full tax liability.^[4]

It is pertinent to note that the Federal Inland Revenue Service (FIRS) is missing out on a significant amount of revenue due to its inability to track down companies guilty of tax evasion. According to available records, Nigeria is home to over 440,000 registered companies, however;only about 120,000 of these companies are tax-compliant. This means that approximately 320,000 companies are not paying their fair share of taxes, resulting in substantial loss of revenue for the government.^[5]

APPLICABLE LAWS

1. Constitution of the Federal Republic of Nigeria 1999 (as amended)
2. Federal Inland Revenue Service (Establishment) Act, 2007
3. Company Income Tax, 2004
4. Tax Appeal Tribunal (Procedural) Rules, 2021. etc.

INSTANCES IN WHICH TAX EVASION OCCUR INCLUDE;

1. Refusing to register with the relevant authority;
2. Failure to furnish a return, statement or information or keep records required;
3. Making an incorrect return by omitting any income liable to tax or refusing to pay tax.

CROSS- BORDER TAX CHALLENGES

Multinational corporations employ tax planning techniques known as Base Erosion and Profit Shifting (BEPS) to fictitiously move profits from higher-tax jurisdictions to lower-tax jurisdictions, thus lowering their total tax obligation.^[6]

Economic equity and tax revenue are significantly impacted by this practice, as it gives multinational corporations an unfair edge over smaller companies who are unable to participate in such tactics and lowers the tax base in higher-tax jurisdictions, which lowers tax income.

The common BEPS strategies include the use of tax havens to move profits to low-tax jurisdictions, and the transfer pricing manipulation, in which connected firms exchange products and services at artificially inflated or deflated prices to shift profits.^[7]

CROSS-BORDER TAX EVASIONS

Cross-border tax evasion takesvarious forms but typically involves the use of anonymous legal structures for the purpose of concealing taxable assets and moving them to offshore jurisdictions. It occurs when an individual brings foreign income accruing to him into the country without reporting it, or where a Nigerian company fails to report income accruing to it from a source outside Nigeria, or where an individual or entity fails to report a gains arising from the disposal of an asset held outside Nigeria. Cross-border tax evasion also occurs when there is a loss of taxable funds due to illicit flows of income across borders. This includes assets that have been obtained illegally, through corruption, or by looting of public funds.

PROSECUTING TAX OFFENCES

Prosecution of tax offences, as was stated earlier falls under both civil and criminal jurisdiction as it’s an offence against the State.

Criminal prosecution involves a process of investigation by the relevant authorities, a report or complaint, the investigation may lead to arrest, detention, and charging, culminating in the arraignment of the accused before a Court, where the accused pleads guilty or not guilty, initiating the trial process, potentially resulting in judgment and sentencing, thereby concluding the criminal case.

Prosecution usually takes place at the request of the appropriate tax authority, which is empowered to bring charges for any offences underthe Act’, subject to the Attorney General of the State or the Federation’s jurisdiction.^[8]Tax prosecution entails the following:

• Filing an Appeal before the Tax Appeal Tribunal. (Civil Matters)^[9]
• Charge defaulter to Federal High Court pursuant to Section 251 of the Constitution.
• An appointment order can be used to appoint a third party as an agent to the taxpayer/ defaulter, this agent may be required to pay any tax payable by the taxable person from any money which may be held by the agent of the taxable person.^[10]
• Where the payment of the tax debt is fully made or an agreement of instalment payment has been reached, the appointment order would be released.

In addition, effective tax prosecution helps recover lost revenue, reduces financial losses, maintains public trust supports government funding for essential services, promotes voluntary compliance, and holds accountable those who exploit tax loopholes or engage in fraud. The fear of prosecution and punishment, including fines and imprisonment, deters taxpayers from intentionally evading taxes or falsifying returns.

It is important to note that whilst tax disputes are primarily civil disputes, where evidence of possible criminality is discovered, such as evasion rather than avoidance, details of the dispute/prosecutions will be forwarded to the relevant criminal authorities for necessary actions. Remedies available to parties involved in a tax dispute include; quashing the contested assessment, damages, costs of action, penalties, fines, e.t.c

COURTS WITH JURISDICTION

It is trite that the jurisdiction of a Court or tribunal is derived from its enabling statute. It is the statute which creates the Court or Tribunal that defines its jurisdiction. Jurisdiction is the authority which a Court or Tribunal has to decide matters which are litigated before it or to take cognizance of matters presented in a formal manner. The jurisdiction of a Court to adjudicate in a dispute, civil or criminal is a sine qua non. Consequently, without jurisdiction, a Court or Tribunal cannot make any valid Order.

By Section 272 of the Constitution of the Federal Republic of Nigeria 1999 (as amended), State High Courts have wide jurisdiction over civil and criminal matters. In line with this provision, it is quite common for disputes pertaining to taxes accruing to the revenue of a State Government to be brought before State High Courts for determination.^[11]

Also, Section 251(1) (b) of the Constitution of the Federal Republic of Nigeria 1999 (as amended) gives exclusive jurisdiction to the Federal High Court in civil causes and matters connected with or pertaining to the taxation of companies and other bodies, establishments or entities carrying on business in Nigeria and all other persons subject to Federal taxation.

Subsequently, in line with the above provision, Section 59 and Item 11 of the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act both empower the Tax Appeal Tribunal (TAT) to adjudicate civil disputes arising from the administration or enforcement of all Federal Tax Statutes (Made by the National Assembly and subject appeals from the Tribunal to the jurisdiction of the Federal High Court).

INGREDIENTS REQUIRED IN PROVING TAX OFFENCES

The basic ingredients for tax offences is the actus reus and mens rea, that is the act itself and the guilty intent (mens rea) of the accused (now defendant). It is for the prosecution, i.e. (FIRS) or ‘the tax authority to prove that’:

• That the evader had a legal obligation to pay a specific tax.
• The evader willfully avoided paying taxes or intentionally submitted a false or misleading declaration on his income return.
• That the evader did not remit taxes owed after filing returns or failed to make payments on time.
• That the evader engaged in practices designed to evade taxes, like setting up shell companies and trying to conceal its true financial status; and
• That the evader reported less income than was actually earned, thereby resulting in a lower tax liability.^[12]

However, the taxpayer bears the burden of proving that the tax assessment is inaccurate upon the tax authority proving fraud or willful default.

OVERVIEW OF CHALLENGES FACED

1. Complexity of Tax Laws: Tax Laws in Nigeria are difficult for the common taxpayer to understand, and in some cases are problematic for even lawyers, who do not have an orientation of the Taxation laws. The Tax Law is not simplified for the ordinary individual to read.
2. Inefficient Judiciary and Slow Court Processes: Nigeria’s judicial system faces significant challenges, particularly in resolving tax disputes and prosecuting tax offences. The judiciary’s inefficiencies and slow Court processes hinder timely resolution, resulting in delayed justice for taxpayers and the government. Overburdened Courts, lack of specialized tax Courts and inadequate judicial training are also contributing factors. Delayed resolution of tax disputes encourages tax evasion, as offenders take advantage of the slow processes to evade accountability.
3. Corruption^[13] and Compromise among Tax Officials and Law Enforcement: This refers to unethical and illegal practices that undermine the integrity of tax administration and enforcement. They include practices such as bribery, extortion, favouritism, embezzlement, and collusion, all of which compromise the fairness and effectiveness of the tax system. Law enforcement agencies, tasked with investigating and prosecuting tax crimes, also succumb to corruption, often accepting bribes, protecting tax offenders, and compromising on penalties. Corruption erodes public trust in tax authorities and law enforcement, encouraging tax evasion and perpetuating a culture of non-compliance. In Nigeria, instances of corruption among tax officials and law enforcement have been reported, including bribery scandals and extortion.
4. Weak Political Will to Prosecute High-profile Tax Offenders: The lack of resolve to prosecute tax offenders is often driven by political interference^[14], corruption, and the influence of powerful individuals or groups. As a result, high-profile tax offenders frequently escape prosecution, undermining the effectiveness of tax laws and the credibility of law enforcement agencies.

EFFECTIVE STRATEGIES/ RECOMMENDATIONS

1. There is a need for comprehensive tax reform legislation which will simplify tax laws, making them sufficiently unambiguous to limit the loopholes that can be exploited by those seeking to avoid tax, while procedures should be enforced to enable investigating and prosecuting authorities to effectively combat tax evasion.
2. Advanced tax administration software should be developed to track transactions and identify evasion.
3. The Tax Authority must take utmost care to ensure that the person seeking to be taxed or prosecuted for tax evasion is not exempted from paying tax, although it is left to the taxpayer to claim applicable deductions and reliefs.^[15]
4. The Tax Authority must take utmost care to ascertain the person against whom proceedings are to be taken and to ensure that it is the proper person under the law. In the instance of a company, it is chargeable to and can be sued in its own name, or in the name of its principal officers, agents, or representatives thereof in Nigeria.^[16]
5. Regular training programs for tax investigators and prosecutors on international cooperation, digital forensics, and financial analysis should be established to enhance their capacity.
6. Joint investigations with foreign authorities on cross-border tax evasion should be conducted to track and recover hidden assets.
7. During trial, prosecutors should effectively communicate financial information to judges using visual aids and expert testimony to simplify evidence, and they should also anticipate potential defence strategies.
8. Prosecutors should also analyze case outcomes and identify areas for improvement.

CONCLUSION

Tax offences are serious acts of sabotage and an impediment to the ultimate growth of the Country. Hence, prosecution of tax offences should be painstakingly and swiftly done. By addressing tax offences Nigeria can enhance the integrity of its tax system and establish a fair and sustainable revenue collection process that benefits the citizens and bolsters the overall economy. These efforts will not only contribute to a more robust and transparent financial framework but also play a significant role in driving sustainable economic growth and development across Nigeria.

Thank you.

1. Merriam Webster ↑
2. O. M. Atoyebi, “An Examination of the Legal Framework Against Tax Fraud in Nigeria”, 23^rd July, 2024 https://omaplex.com.ng/an-examination-of-the-legal-framework-against-tax-fraud-in-nigeria/ accessed 9^th October, 2024 ↑
3. Company Income Tax 2004, Section 92-94. ↑
4. Tax evasion.Available at http://.www.businessdictionary.com/definition/tax-evasion.html/ accessed 14^th October, 2024. ↑
5. Zekeri Momoh, “Federal Inland Revenue Service (FIRS) and Tax Compliance in Nigeria: Challenges and Prospects” International Journal of Multidisciplinary Research and Publications < http://ijmrap.com/wp-content/uploads/2018/10/IJMRAP-PP2436Y18.pdf> accessed 9^th October, 2024. ↑
6. J.O Atadoga & Ors ‘Cross-border Tax Challenges & Solutions in Global Finance’ (2024) available at https://www.researchgate.net/publication/378475965_CROSS-BORDER_TAX_CHALLENGES_AND_SOLUTIONS_IN_GLOBAL_FINANCE#:~:text=One%20of%20the%20primary%20concerns,base%20of%20higher%2Dtax%20jurisdictions accessed on 14^th October 2024. ↑
7. Ibid, pg 254 ↑
8. Federal Inland Revenue Service (Establishment) Act 2007, Section 47. ↑
9. Ibid, Section 59. ↑
10. Ibid, Section 31. ↑
11. Prof,Josephine A.A Agbonika SAN ‘Overview of the Jurisdictional Issues on Tax Related Disputes and Constitutional Bottlenecks’ [2023] TM 1,3. ↑
12. D.S Rita (2019) Prosecution in Criminal Tax Proceeding in Nigeria, Legal Challenges. KAS African Law Study Library Journal. Available at https://www.nomos-elibrary.de/10.5771/2363-6262-2019-4-523.pdf aceessed on 17th October 2024. ↑
13. CMI, “Corruption in Tax and Revenue Collection” < https://www.u4.no/topics/tax-and-revenue-collection/basics> accessed 9^th October, 2024. ↑
14. O. M. Atoyebi, “Assessing the Implementation and Impact of Anti-Corruption Laws sim Nigeria”, 6th September, 2023 < https://lawpavilion.com/blog/assessing-the-implementation-and-impact-of-anti-corruption-laws-in-nigeria/> accessed 9th, October, 2024. ↑
15. Gulf Oil Company Nigeria Ltd v. FBIR (1997) 7 NWLR, part 514. ↑
16. Companies Income Tax Act, Cap C21, Laws of the Federation of Nigeria (2004), Section 47 ↑