Tax evasion crisis: 99% of Nigeria’s super-rich avoid paying their fair share – Report
At least 99% of Nigeria’s wealthiest individuals are evading their tax obligations, contributing to the country’s widening revenue gap.
This is according to a new report by Oxfam International in Nigeria titled “Taxing the Rich: Nigerian Fair Tax Monitor Thematic Report,” which was produced with contributions from several individuals and institutions.
The lead author is Mtwalo Msoni, and it was edited and reviewed by Ishmael Zulu from Tax Justice Network Africa (TJNA) and Martin-Brehm Christensen from Oxfam Novib.
It was supported by institutions including the Civil Society Legislative Advocacy Centre (CISLAC) Nigeria, Oxfam Nigeria, Tax Justice Network Africa (TJNA), and Oxfam Novib
The report noted that based on findings from the Federal Inland Revenue Service (FIRS) and the Joint Tax Board (JTB), out of an estimated 115,000 high-net-worth individuals (HNWIs) in Nigeria, only 40 are compliant with their tax payments, resulting in a compliance rate of just 0.035%.
HNWIs in Nigeria are defined as individuals earning at least N40 million ($126,984) annually. The report exposes significant tax evasion among this group.
The report read: “A governmental report, commissioned jointly by the Federal Inland Revenue Service (FIRS) and the Joint Tax Board (JTB), sheds light on poor tax compliance of High Net Worth Individuals (HNWIs).
“It unveils that only 40 of 130.000 Nigerian HNWIs31 fulfilled their tax obligations accurately, in 2016. The HNWI were defined as Nigerians with income above $131,148 (N40 million) and compliance defined as paying at least $32,786 (N10 million)32 in taxes. This means that more than 99% of the super-rich individuals in Nigeria avoid paying their fair share of taxes.”
Nigeria can boost revenue by taxing the rich
The report highlights the enormous revenue potential from properly taxing Nigeria’s super-rich. It estimates that taxing just 4,690 wealthy individuals, those with a net worth of $5 million or more, could raise over N4.59 trillion ($6 billion) annually.
This additional revenue could more than double the country’s health budget or reduce household health expenditures by 40%.
The report noted: “As estimated by Institute for Policy Studies, Oxfam, Fighting Inequality Alliance, and Patriotic Millionaires, implementing an annual wealth tax in Nigeria would raise more than $6 billion (with rates at 2% on wealth over $5 million, 5% on wealth over $50 million and 10% on wealth over $1 billion). This would be enough to more than double the government’s health budget or reduce households’ out of pocket health expenditure by 40%.
“There are 4,690 individuals with a net worth of $5 million or more, with wealth totaling $107.2 billion. There are 245 individuals with $50 million or more with a combined wealth of $56.5 billion.
“If the wealth tax regime is further extended to individuals whose worth is over $1 million (total of 9,800 people) this would raise revenue additionally.”
The report also pointed out that capital gains tax (CGT) is underperforming as a revenue source, contributing only 0.24% to Nigeria’s total tax revenue.
The country’s CGT rate of 10% is far lower than in peer countries such as South Africa and Ghana, where rates range from 15% to 35%.
It noted that numerous exemptions and loopholes allow the wealthy to avoid paying taxes on their capital gains.
What you should know
The Federal government is looking at imposing a 25% tax rate on individuals earning N100 million and above monthly in the country.
The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele stated this at a breakout session during the Nigeria Economic Summit organised by the NESG.
He also noted that those who earn over N100 million monthly that is the rich should pay a 25% tax.
Oyedele explained that the 25% tax on the rich was needed to strike a balance that eases the tax burden on low-income earners while ensuring that higher-income individuals contribute more to government revenue.
