It is common knowledge that Nigeria’s tax to Gross Domestic Product (GDP) ratio is one of the lowest in the world. At under 6%, it is far below the sub-Saharan African average of 20%. Nigeria is reputed to be among the countries in the world with the lowest tax compliance rate as recently corroborated by the American billionaire and philanthropist, Bill Gates, who said without the credibility of the Government, Nigerians will not pay tax. Taxation, being a social contract, is expected to be fulfilled by both parties involved, i.e. citizens pay tax while the Government is seen as using such funds for public good. With the relatively low Internally Generated Revenue (IGR) from taxation across the States of the Federation, it is therefore not surprising that the Nigerian economy is heavily dependent on the oil sector to fund its expenditure. According to the International Monetary Fund (IMF), the oil sector accounts for over 95 percent of export earnings and about 40 percent of government revenues. As a result of the low income generated by the government across all levels, the Federal Government and some State Governments have resorted to borrowing to fund health, education and other infrastructural projects. The rising debt profile of Nigeria has been generating concern both locally and internationally. The World Bank recently issued a statement urging the Federal Government of Nigeria to reduce its borrowing and tap private investments as an alternative source of revenue that will yield desired economic growth. Bill Gate in a recent interview also confirmed that one of the challenges that Nigeria has is that the amount the government raises domestically is small compared to other countries. In all of these, the resonating message is that government at all levels should increase tax compliance level in order to generate more income to fund infrastructural projects and effectively run the economy. In an attempt to enhance general tax compliance level in the country, the Federal Inland Revenue Service (FIRS) has established a framework for linking Bank Verification Number (BVN) of taxpayers to their respective Tax Identification Number (TIN). This is also being replicated at the level of State Tax Authorities as well. With the recent introduction of Common Reporting Standard (“CRS” or “the Standard”) in Nigeria, it is very evident that tax authorities across the country will begin to have access to information of taxpayer’s offshore bank accounts and other assets or securities. Given this development, High Net-Worth Individuals (HNIs) in the country (Nigerians and non-Nigerians) could be subjected to tougher scrutiny by various tax authorities. In particular, HNIs with assets, securities and other forms of investments in countries that are signatories to the CRS will significantly be affected by this development. This is largely due to the fact that individuals are taxable in Nigeria based on their place of residence and worldwide income. CRS can potentially be a game changer in the Nigerian tax space going forward, which then calls for wealthy individuals to re-evaluate their investment holding structures in Nigeria and beyond. In addition, CRS will play a major role in checking the activities of multinational companies especially as it relates to base erosion, profit shifting and transfer pricing. This piece examines the increased global era of global information exchange and how this development can impact on the taxation of personal income of HNIs and other taxpayers. Currently, the tax authorities in their aggressive drive for tax collection have devised several schemes to drive tax compliance and enhance tax revenue collection. Integrated Tax Administration System (ITAS) popularly referred to as Project ITAS, increase in Value Added Tax (VAT) rate, online Withholding Tax (WHT) collection, Electronic Tax Clearance Certificate and E – filing platform of the FIRS, are all pointers to integration of technology into the system of tax administration for efficiency and to drive tax compliance. The most recent effort of the Nigerian Government to improve its tax revenue collection is the adoption of the CRS. The CRS was developed by the Organisation for Economic Co-operation and Development (OECD) in 2014. CRS is an information standard for the Automatic Exchange of Information (AEOI) regarding bank accounts between tax authorities of signatory countries. It serves as an agreement to share information on resident taxpayer’s assets and incomes automatically, in accordance with the standard. Its purpose is to enhance tax administration, collection and discourage tax evasion. OECD allows the participating countries to determine what accounts are reportable. The term “reportable account” means a jurisdiction’s reportable account or another jurisdiction’s reporting account, depending on the context, provided it has been identified as such pursuant to due diligence procedures, consistent with the annex in place in either Jurisdiction. This means that either jurisdiction may negotiate and determine its own reportable accounts in its agreement. The adoption of the CRS in Nigeria means that the tax authorities would have access to bank accounts of taxpayers, including details of income earned and transactions carried out by taxpayers outside Nigeria through their bank details. This era of increased exchange of information means that more information is available for the taxman to work with.
Source: This day
