Meaning of tax evasion
Tax evasion is a deliberate avoidance of tax payment through methods that violate tax laws. It is a wilful escape to illegally reduce tax liability. Tax evasion is illegal and there is criminal liability for tax evasion in Nigeria.
Tax evasion usually involves falsifying tax information, withholding or refusing to render correct returns, bribing tax officials, and not abiding by relevant tax laws. It is intentional deceit in a taxpayer’s financial status to tax authorities to reduce or evade tax responsibilities.
Examples of tax evasion in Nigeria include:
- Providing tax authorities with false income, profits, or gains declaration or documents.
- Making false deductions a taxpayer is entitled to in income.
- Refusal to render tax returns to the relevant tax authority.
- Reporting a false value on assets or income.
The liability for tax evasion in Nigeria
Under section 26 of the Value Added Tax Act 1983, anyone who takes steps to evade tax is guilty of an offence. The offender on conviction is liable to a fine of thirty thousand Naira (30,000) or times two of the tax evaded or a term not more than three (3) years imprisonment.
If a person makes a false declaration and delivers it to the authority, the person commits an offence under Section 42 of the Federal Inland Revenue Service (Establishment) Act, 2007. The offender is liable to a fine of not more than two hundred thousand Naira (200,000) which is added to the unpaid tax or overpayment or a term of not more than three years (3) imprisonment or both.
Compare with tax avoidance below.
What is tax avoidance?
Tax Avoidance is the act of taking advantage of legally available tax planning opportunities to minimize tax liability. Tax Avoidance is a method of using the inadequacy of applicable laws to escape tax payment.
Is tax avoidance legal?
Tax avoidance is legal. It involves using strategies in applying complex tax laws when paying taxes and using the complexity and ambiguity of tax Laws to cancel taxes.
In tax avoidance, loopholes and benefits are utilized entirely to the taxpayer’s advantage. In the decided case of Latilla v Commissioners of Inland Revenue 1943,1 Lord Simon gave his opinion on tax avoidance that however elaborate and artificial the methods may be, individuals are entitled to use them as they are within their legal rights.