Nigerian firms that evade tax by moving profits offshore will no longer be able to do so, following plans by the Federal Inland Revenue Services (FIRS) to target them as global concerns on cross border flows which have enabled firms with offshore offices evade taxes at their country of origin increases.
Nigeria through the FIRS is collaborating with other African countries to halt the growing trend of flows, typified by tax evasion and transfer pricing, which is fast impoverishing her citizens.
The FIRS intends to do this through the African Tax Administration Forum (ATAF) which has an agreement on mutual assistance on tax matters that allows for cross border assistance and exchange of information on tax related issues.
It was also learnt that the Federal Executive Council has since given its approval for the FIRS to lead the campaign against unwholesome practices by multinationals, through transfer mispricing and “thin capitalisation.”
It has been discovered that most companies that have offshore subsidiaries often overload them with debt, costing the economy billions of dollars in tax revenue that would have aided development and reduced poverty.
However, analysts are expressing concerns over the ability of the FIRS to provide the needed manpower for the execution of the project that is increasingly gaining regional and international appeal.
However, Emmanuel Obeta, FIRS spokesperson, said that Nigeria has passed the first stage and that due diligence on the country showed that she is ready for the project.
Samir Gadio, emerging markets analyst at Standard Bank, London, was doubtful about the ability of Africa to tackle tax evasion, saying “weaker and less transparent institutions may exacerbate this issue in some countries,” adding that such projects entail a reform of domestic tax authorities that would boost their technical expertise and collection capacity.”
Razia Khan, analyst with Standard Chartered Bank, London, said “The G8 agenda certainly demonstrated that there is now greater global concern about tax havens, as well as a greater resolve to tackle tax evasion. There is now clearer recognition of the costs, and this should help.”
Logan Wort, executive secretary African Tax Administration Forum, (ATAF) told visiting African journalists in Pretoria, South Africa, for the Thompson Reuters Foundation training, recently, that the forum had the agreement which is expected to pave the way for greater and more systematic co-operation among African tax administrators.
He added that the agreement would open the door for tax officials in ATAF member states to request the aid of their colleagues in tackling and rooting out fraud, tax evasion and other mechanisms that have negative impacts on revenue.
Coming at a time that the G8 and G20 are calling for a clampdown on tax havens, and a new approach of the United Nations Model Convention between developed and developing countries and the OECD model tax convention on income and capital, Wort said this presents a defining and game changing moment for Africa to tap into, with good legislation that will assist achieve the objectives of the forum.
He expressed optimism in the economic outlook of the region, saying that various studies have confirmed that growth across the continent would witness acceleration, adding that Africa is prepared to take advantage of the renewed interest shown in her as the emerging investment destination, due to crisis in the developed economies.
The executive secretary said that once all the 26 members have enacted the agreement, the signatories will have the legal basis to assist each on tax, especially through exchange of information.
“This is a big step forward for African tax administrations, in their battle against tax evasion,” he said.
A report by US-based organisation, Global Financial Integrity, estimated that illicit capital flight from developing countries totals over $1 trillion per year, adding that between 1970-2008, Africa lost a whopping $854 billion in cumulative capital flight.
The study recommended that African countries should impress upon the G20, the need for better transparency and tighter oversight of international banks and offshore financial centres which absorb these flows.
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