A recent report by Oxfam International reveals that at least 99% of Nigeria’s wealthiest individuals evade their tax obligations, exacerbating the country’s revenue gap.
The report, titled “Taxing the Rich: Nigerian Fair Tax Monitor Thematic Report,” was authored by Mtwalo Msoni and reviewed by experts from Tax Justice Network Africa and Oxfam Novib. It was supported by various institutions, including the Civil Society Legislative Advocacy Centre (CISLAC) Nigeria and Oxfam Nigeria.
The findings, based on data from the Federal Inland Revenue Service (FIRS) and the Joint Tax Board (JTB), indicate that 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 a mere 0.035%. HNWIs are individuals earning at least N40 million ($126,984) annually.
Key Findings
The report states: “A governmental report, commissioned jointly by the FIRS and the JTB, sheds light on the poor tax compliance of High Net Worth Individuals (HNWIs). It unveils that only 40 out of 130,000 Nigerian HNWIs fulfilled their tax obligations accurately in 2016. This means that more than 99% of the super-rich individuals in Nigeria avoid paying their fair share of taxes.”
Revenue Potential from Taxing the Wealthy
The report emphasizes the significant revenue potential from effectively taxing Nigeria’s wealthy. It estimates that taxing just 4,690 individuals with a net worth of $5 million or more could generate over N4.59 trillion ($6 billion) annually. This additional revenue could double the country’s health budget or reduce household health expenditures by 40%.
It states: “Implementing an annual wealth tax in Nigeria would raise more than $6 billion with rates of 2% on wealth over $5 million, 5% on wealth over $50 million, and 10% on wealth over $1 billion. There are 4,690 individuals with a net worth of $5 million or more, totalling $107.2 billion in wealth. There are also 245 individuals with $50 million or more combined wealth of $56.5 billion.”
Underperformance of Capital Gains Tax
The report also highlights that Nigeria’s capital gains tax (CGT) is significantly underperforming, contributing only 0.24% to the nation’s total tax revenue. Nigeria’s CGT rate of 10% is much lower than in peer countries like South Africa and Ghana, where rates range from 15% to 35%. Numerous exemptions and loopholes enable the wealthy to avoid paying taxes on their capital gains.
Proposed Tax Reforms
In response to the tax evasion crisis, the Federal government is considering a 25% tax rate on individuals earning N100 million and above monthly. Taiwo Oyedele, Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, emphasized that this tax is essential to balance the tax burden, easing it for low-income earners while ensuring that higher-income individuals contribute more to government revenue.
