INTRODUCTION
The objective of every organized society’s government is to provide fundamental social amenities such as adequate roads, health, and security of people and property, amongst others. It is without any doubt that the government needs money to facilitate the provision of these services and taxation is the mainstay of government revenue. The law makes it compulsory for everyone to pay tax and even provides penalties for non-compliance. The payment of tax in Nigeria is backed by Section 24[f] of the 1999 Constitution of Federal Nigeria [as amended]. 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.”The court in the case of Independent Television/Radio v. E.S.B.I.R. [2015] 12 NWLR [Pt. 1474] 442 reiterated the constitutional duty of a citizen to pay tax. It stated that: “Failure of the citizen to pay tax shall strip him of the protection afforded by section 44[1] of the Constitution.”
In Nigeria, the power of the government to impose taxes is statutory and must be anchored on the law. There are sundry legislations in Nigeria of which the major ones are the Personal Income Tax Act, Company’s Income Tax Act, and The Federal Inland Revenue Service Act, amongst others
TAX AVOIDANCE
The 8th Edition of the Black’s Law Dictionary defined Tax Avoidance as “the act of taking advantage of legally available tax-planning opportunities in order to minimize one’s tax liability.” It is a lawful means of altering a person’s taxable income in order to reduce the amount of tax owed. It is usually achieved by claiming tax deductions, tax credits, and positioning for tax incentives. By and large, tax avoidance occurs in a situation where the taxpayer arranges his financial affairs in a manner that would make him pay the least possible amount of tax without infringing the legal rules.
TAX EVASION
This is the unlawful means of concealing taxable income from tax authorities, so as not to remit taxes. It has also been interpreted to mean an illegal practice where a person, organization, or corporation deliberately evades paying their authentic tax liability by deliberately not declaring all taxable income. Some instances of tax evasion are:
- False declaration of one’s financial status.
- Failure to render tax returns as appropriate.
In Independent Television/Radio v. E.S.B.I.R. [2015] 12 NWLR [Pt. 1474] 442 where the taxpayer failed to render tax returns to the relevant tax authority, the court held that was “a despicable way for any taxpayer to act and it is seriously detrimental to the development of any nation.”
LEGAL DIMENSION OF TAX AVOIDANCE AND TAX EVASION
Legislators and tax authorities are very well aware of the way taxpayers seeks to avoid or evade taxes. Therefore, tax legislation and enforcement technique continue to evolve to prevent tax evasion and to ensure tax-avoidance techniques are based on real and reasonable economic activities. Here are some legal measures put in place to prevent tax evasion:
1. Imposition of Sanction: Judicial decisions have recognized deterrence as one of the goals of imposing sanctions. Without the imposition of sanctions for non-compliance with the tax laws, there would be no duty, but an admonition, to pay taxes. It is important to stress that Section 40 of the Federal Inland Revenue Service Act makes tax evasion illegal in Nigeria. Furthermore, obstructing or assaulting any authorized tax officer in the exercise of his responsibilities is a criminal offense under Section 41 of the Act. Any of these infractions attracts a fine or an imprisonment term of three years or both.
2. Tax Audit and Investigation: The law permits tax authorities to conduct tax audits and tax investigations of taxpayers.
3. Deduction at Source: There are two main methods of deducting taxes at source, the Pay-As-You-Earn scheme [PAYE] and the Withholding Tax method. Withholding tax is not a form of tax, but a method of collecting taxes in advance.
4. Reporting and Penalties: Reporting obligations on a controlled transaction or across the N300,000,000 thresholds. Failure to file the necessary disclosure or declaration forms attracts different monetary penalties.
5. The enactment and amendments of existing laws: With the enactment of the new Finance act, it is hoped that these new provisions will bring a lot of changes in the tax administration system.
CONCLUSION
The importance of tax to a nation cannot be overemphasized. It is one of the veritable ways by which the government funds its budget and in Nigeria currently, taxation is one sure way for the government to generate revenue. However, it is rare to find a taxpayer who willingly pays their taxes, and the law is very well aware of that. Hence, legal and regulatory measures are put in place to ensure that any advantages to be gained by a taxpayer over the tax authorities are not artificially induced or illegally procured. While reasons may be advanced to justify avoiding and evading taxes, there is no doubt that in both cases, the government whose anticipated revenue reduces suffers the loss which in turn passes to taxpayers through the increase in tax rates and creation of new forms of taxes.
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