Nigeria’s finance minister Mrs. Kemi Adeosun, in responding to a question by a journalist on the legality or otherwise of use of offshore tax havens or shelters to avoid paying tax surprised everyone, herself inclusive perhaps. She said businesses and individuals that shipped funds out of the country to places where they were not required to pay taxes on such funds have not done anything illegal, if their intention is tax avoidance, not tax evasion.
According to her, if those who have moved financial assets to take advantage of offshore shelters have paid their “fair share” of local taxes before taking funds outside they would have not done anything unlawful.
“Tax avoidance is legal but tax evasion is a crime”, she expalined. “The critical question to ask all Nigerian tax payers using offshore tax shelters will be whether all applicable taxes have been paid prior to the transfer of funds or assets to a tax shelter. If all taxes had been paid, then there will be no additional liability except tax payable on further income earned on those funds. However, if taxes had not been paid, then the use of such schemes is illegal”.
The Nigerian minister spoke against the latest publication of secretive financial deals involving world politicians in far flung so called offshore tax shelters. Entitled “Paradise Papers”, they are the result of a collaborative investigation by some 380 journalists in 67 countries using leaked data obtained by a German newspaper, Suddeutsche Zeitung, and the International Consortium of International Journalists (ICIJ). Their report identified more than 120 politicians and country leaders, in nearly 50 countries including Nigeria, as well as hundreds of business people across the world as users of offshore shelters.Coming after Panama Papers sensationally published in 2016, Paradise Papers are clearly the biggest leaks in history.
Apart from playing down the significance of the leaks as something to not lose a night sleep over, Mrs. Adeosun said offshore tax havens were becoming unfashionable because of the robust international scrutiny that they have drawn. “With the increasing global focus on illicit financial flows and tax evasion, offshore tax shelters no longer offer robust protection against tax authorities”, she said, adding: “the continued use of such schemes pose enormous risks for the users; the leaks are just the beginning of what is likely to be a systematic unravelling of the offshore tax haven system”.
Our problem with the minister is that she has demonstrated inexcusable naivete with regard to the challenge of tax administration in Nigeria. Our unique experience is that a tax avoider is almost also an evader. Otherwise, why would a regular tax payer now want to avoid a civic duty he has been known to perform diligently over the years? It is noteworthy that she used the phrase “if they have paid a fair share of local tax”. The fact is more often than not, that “fair share” is not paid. Mrs. Adeogu contradicted herself when she observed correctly that the country’s law tax revenues did not reflect the expensive lifestyles of many rich Nigerians and the value of the assets they hold in the country and around the world. “Nigeria’s low tax revenues were at variance with the lifestyles of a large number of its people and with the value of assets known to be owned by Nigerians resident around the world”.
It is for that reason that the federal governemt has introduced what is known as a Voluntary Assets and Incomes Declaration Scheme (VAIDS). It is “a time-limited window” for taxpayers to regularise their tax status regarding previous tax periods. According to the minister, “VAIDS ushers in an opportunity to increase the nation’s general tax awareness and compliance…..In exchange for fully and honestly declaring previously undisclosed assets and incomes, taxpayers will benefit from forgiveness of overdue interest and penalties”.
It was at that point the Mrs. Adeosun probably recognised the blunder she made. She appealed to tax defaulters to take advantage of VAIDS and stop running to offshore tax havens. In the meantime, she said the government would investigate those Nigerians mentioned in the Paradise Papers. According to her, her ministry’s “data mining project” would use data provided on Nigerians from such leaks to crosscheck tax declarations. That was what Nigerians listening to her had expected to hear: what the government would do to rich Nigerians taking their assets abroad to avoid tax at home. Usually these are proceeds of corrruption in political high places. They must be recovered and the thieves prosecuted.