Tax evasion: 99% of Nigeria’s super-rich avoid paying – Report

From Juliana Taiwo-Obalonye, Abuja

Oxfam International in Nigeria, in a report titled “Taxing the Rich: Nigerian Fair Tax Monitor Thematic Report,” has disclosed that at least 99% of Nigeria’s wealthiest individuals evade their tax obligations, contributing to the country’s widening revenue gap.

The report has Mtwalo Msoni as the lead author and was edited and reviewed by Ishmael Zulu from Tax Justice Network Africa (TJNA) and Martin-Brehm Christensen from Oxfam Novib and was supported by the Civil Society Legislative Advocacy Centre (CISLAC).

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 was defined as paying at least $32,786 (N10 million) in taxes. This means that more than 99% of the super-rich individuals in Nigeria avoid paying their fair share of taxes.”

The report stressed 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 the 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 totalling $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.

Executive Director of the Civil Society Legislative Advocacy Centre (CISLAC), Auwal Musa Rafsanjani, noted that as Nigeria grapples with severe socioeconomic challenges, including over half of its population living in poverty, there’s a need for comprehensive tax reforms.

He said indicated that the country faces an annual financing shortfall exceeding $10 billion to meet its Sustainable Development Goals (SDGs).

He noted that a recent report by the Federal Inland Revenue Service (FIRS) and the Joint Tax Board (JTB) reveals alarming statistics: 99% of Nigeria’s super-rich evade taxes, with a mere 0.035% compliance rate. Out of more than 115,000 high-net-worth individuals (HNWIs) earning at least N40 million annually, only 40 are tax-compliant.

He said this concentration of wealth among a small elite, coupled with rampant tax evasion, severely undermines Nigeria’s fiscal capacity. He argued that reforming the tax system is essential not only for revenue generation but also for fostering equitable economic development.

Rafsanjani said the current situation highlights an urgent call for action to ensure that the wealthy contribute their fair share to support essential public services.

“The disparity in wealth distribution is staggering,” he said, adding, “The wealthiest 1% in Nigeria own five times more than the poorest 50%, and this inequality is exacerbated by a tax system that fails to hold the elite accountable.”

Rafsanjani recommended including the establishment of a Dedicated High Net-Worth Individuals (HNWI) Unit within the Federal Inland Revenue Service (FIRS). “Similar to Uganda’s model, this specialized unit would track and audit HNWIs, utilising data from financial institutions and property registries,” Rafsanjani emphasised.

Additionally, he called for the implementation of a Net Wealth Tax on fortunes exceeding $5 million, $50 million, and $1 billion. This measure could potentially raise over $6 billion annually, significantly bolstering government revenues.

Rafsanjani also highlighted the need to reform the Capital Gains Tax (CGT). “Raising the CGT to align with global best practices and eliminating exemptions that disproportionately benefit the wealthy is essential,” he stated.

Further recommendations include progressive VAT exemptions for basic goods while introducing luxury taxes on high-end items like private jets and luxury cars. “This would ensure that essential goods remain affordable for lower-income households,” he added.

He also recommended property tax reforms is also critical. He suggested standardising property valuation and digitising land registries to improve tax collection efficiency.

Rafsanjani proposed a progressive Personal Income Tax (PIT) reform, advocating for full exemptions for Nigerians earning below the minimum wage or less than N840,000 annually. He suggested raising the top tax rate to at least 40% for the wealthiest 1% of earners.

He recommended introducing an inheritance and gift tax targeting estates exceeding N50 million with a progressive tax rate to promote wealth redistribution.

Lastly, they urge the government to renegotiate Double Taxation Agreements (DTAs) that currently favour multinational corporations. Establishing a specialised DTA unit within the FIRS could enhance Nigeria’s tax sovereignty.

“The time for these reforms is now,” Rafsanjani said, adding, “Implementing these measures will not only address Nigeria’s fiscal challenges but also create a fairer tax system that aligns with our developmental needs.”