- As it has been established repeatedly, taxes and tax systems, are important components of government revenue generation.
Africa: Economics of Tax Evasion details the defect of the practice on the building of a solid tax base that helps the government to raise revenue crucial for sustainable poverty reduction in African countries.
However, the refusal of certain business entities to remit tax is hindering the government’s ability to construct a solid base.
Among such entities are large foreign companies in the energy and resource sectors, and small and medium-sized enterprises.
What is Tax Evasion?
Tax evasion is a deceptive action whereby the taxpayer strives to reduce his tax liability through the use of illegal means.
It is a fraudulent, deliberate concealment of facts and figures to avoid the payment of tax or reduce the amount of tax to be paid. It is regarded as a criminal act under tax laws.
Acts of Tax Evasion
- Failure to pay tax.
- Withholding tax.
- Overstating expenses.
- Failure to submit returns.
- Omission or misstatement of items from returns.
- Understating income.
- Documenting fictitious transactions.
The Effects of Tax Evasion on a Country’s Economy
1. Tax evasion has a serious negative effect on government revenue, as a substantial portion of government funds comes from taxation.
This in turn affects the economy as the government won’t have enough money to execute certain plans that would help boost and solidify it.
2. Due to tax evasion, individuals and companies can retain a lot of money and companies declare higher dividends and individuals get to keep a high amount of profit.
Consequently, there is an increase in the quantity of money in circulation but without a corresponding increase in the goods and services, this often leads to inflationary trends where large money chases few goods.
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Africa: Economics of Tax Evasion
According to the Organization for Economic Cooperation and Development (OECD), African countries lose at least $50 billion in taxes annually.
Meanwhile, the United Nations Economic Commission for Africa (UNECA) places the estimate much higher at $100 billion.
Fighting tax evasion is a significant part of this drive to increase government revenue and reduce vulnerability to shocks. capita flight, tax evasion, and tax avoidance are important developmental problems that require urgent attention.
Nigerian Perspective to Tax Evasion
Generally, the government uses taxes to boost the economic and productive efficiency of the state.
Due to a decline in the price of oil in recent years, there has been a shortage of funds for distribution among the Federal and State governments.
This has forced them to look internally for a new source of revenue and taxation seems to be the next option.
Unfortunately, tax remittance in Nigeria has been very discouraging and this is serving as a barrier to the government’s plan to improve the economy.
It has been discovered that the main cause of low revenue is tax evasion, as taxpayers’ habit of evading taxes has continued to reduce the amount of the government budget every year.
Among several problems confronting tax administration in Nigeria is not knowing how to enforce voluntary compliance on the part of the taxpayers.
The taxpayers still see tax remittance as a burden and a way for the government to deceptively take from them.
There is no sense of patriotism when it comes to tax remittance and the government is failing in its duty to enlighten and convince taxpayers to do the needful.
Annually, Nigeria loses billions of naira to tax fraud of different kinds as individuals and companies engage in fraudulent tax schemes aimed at avoiding tax payment, thereby hindering development projects and denying poor people access to crucial services.
Tax evasion is one of the major facilitators of poverty, crime, and corruption.
The huge amount of money lost to tax evasion every year could be spent on healthcare, education, and infrastructure.
Ghanaian Perspective to Tax Evasion
Tax evasion constantly leads to a loss in tax revenue for every country and it continually affects various sectors of an economy.
It tempers the accuracy of microeconomic statistics, therefore, leading to the misappropriation of resources needed to facilitate the growth of an economy.
This notorious act renders most governments incapable of executing their obligations and responsibilities regarding improvement in the standard of living for their citizens.
In Ghana, tax evasion is common due to the lack of effective monitoring techniques for tracking tax revenues from tax officials and taxpayers.
Back in 2012, an additional $36 million was sent abroad largely to non-taxable offshore, accounted on the blind side of tax authorities.
Various media platforms in Ghana label tax evasion as an enormous hit in the Ghanaian economy.
Also, in October 2013, a giant media platform known as Peacefmonline reported that the presidential task force discovered that over $367 million was lost to the state as a result of tax evasion.
In 2014, it was reported that close to $140 million in taxes were lost to the state in the mining sector alone between 2005 and 2007.
It is widely believed that tax officials themselves are part of the problem due to their involvement in several corrupt practices such as issuing fake tax payment receipts to taxpayers and so on.
Some of the other factors encouraging tax evasion in Ghana include; tax rates, income level, tax burden, penalties, tax mentality, tax morale, etc.
To round it off, Tax evasion is wreaking serious havoc on Africa’s economy and it is up to each government to come up with ways to curb this criminal act, to facilitate substantial economic growth.
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