The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies

Saratu Lassa Jim-Suleiman; Adzor Ibiamke

doi:doi:10.11648/j.ijfbr.20210701.11

| Peer-Reviewed

The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies

Saratu Lassa Jim-Suleiman, Adzor Ibiamke

Published in International Journal of Finance and Banking Research (Volume 7, Issue 1)

Received: 8 November 2020 Accepted: 13 January 2021 Published: 10 March 2021

Views: Downloads:

Download PDF

Share This Article

Twitter
Linked In
Facebook

Abstract

Profitable companies are expected to pay a 30% companies income tax on their profits earned in Nigeria. However, many companies in Nigeria pay far less due to their application of tax avoidance strategies. This paper report how profitable companies in Nigeria are able to successfully employed the loopholes in the Nigerian tax system to significantly lower their effective tax rate over the past five years. The paper examines 68 companies that are consistently profitable in each of the five years between 2014 and 2018, excluding companies that experienced even one unprofitable year during this period. From the analysis, this paper finds that as a group, the 68 companies examined paid an effective companies income tax rate of only 16.45% over the five-year period - far less than the statutory 30% companies’ income tax rate. Based on the evidence, this paper advocate for a strong alternative minimum tax that can do the job it was originally designed to do thereby bring about transparency, equity and fairness in tax payment in Nigeria. This paper adds new knowledge to the understanding of the state of tax avoidance in Nigeria. Finally, identifying firms’ aggressive tax planning strategies will close the tax loopholes and boosting tax revenue in Nigeria.

Published in	International Journal of Finance and Banking Research (Volume 7, Issue 1)
DOI	10.11648/j.ijfbr.20210701.11
Page(s)	1-8
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2021. Published by Science Publishing Group

Keywords

Cash Tax, Company Income Tax, Effective Tax Rate, Long-Run Tax Avoidance, Tax Planning, Tax Avoidance

References

[1]	Fuchs, C. (2018). The online advertising tax as the foundation of a public service internet: A CAMRI extended policy report. University of Westminster Press.
[2]	Adeboyega, A. (June, 2020). Tax evasion: Tribunal orders Ecobank to pay N1.6 billion to FIRS – official. Premium Times Newspaper of 18 June, 2020. Retrieved from https://www.premiumtimesng.com/business/379291-tax-evasion-tribunal-orders-ecobank-to-pay-n1-6-billion-to-firs-official.html
[3]	Appelbaum, B. (January, 2011). Corporate taxes: More winners and losers. The New York Times, January 27. Retrieved from https://economix.blogs.nytimes.com/2011/01/27/corporate-taxes-more-winners-and-losers/ on 02/21/2020
[4]	Obedina, D. A. (2015). Fighting aggressive tax avoidance in Nigeria: An agenda for reform. Ife Juris Review, 4 (1), 38-57.
[5]	Liu, X. & Cao, (2007). Determinants of corporate effective tax rates: Evidence from listed companies in China. The Chinese Economy, 40 (6), 49–67.
[6]	Gallemore, J. & Labro, E. (2015). The importance of the internal information environment for tax avoidance. Journal of Accounting and Economics, 60 (1), 149–167.
[7]	Hanlon, M. & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50 (2-3), 127-178. doi: 10.1016/j.jacceco.2010.09.002.
[8]	Oats, L. & Tuck, P. (2019). Corporate tax avoidance: Is tax transparency the solution? Accounting and Business Research, 49 (5), 565-583, DOI: 10.1080/00014788.2019.1611726.
[9]	Wang, F., Xu, S., Sun, J. & Cullinan, C. P. (2019). Corporate tax avoidance: A literature review and research agenda. Journal of Economic Surveys. doi: 10.1111/joes.12347.
[10]	Brown, K. B. (2012). Comparative regulation of corporate tax avoidance: An overview. In K. B Brown (ed.), A comparative look at regulation of corporate tax avoidance, Ius Gentium: Comparative perspectives on law and justice 12 (pp. 1-24). Springer Science+Business Media B. V. DOI 10.1007/978-94-007-2342-9_1.
[11]	Aronmwa, E. J. & Okafor, C. (2019). Corporate tax avoidance: Review of measures and prospects. International Journal of Accounting & Finance, 8 (2), 21-42.
[12]	Slemrod, J. (2007). Cheating ourselves: The economics of tax evasion. Journal of Economic Perspectives, 21 (1), 25–48.
[13]	Graham, J. R., Hanlon, M., Shevlin, T. & Shroff, N. (2014). Incentives for tax planning and avoidance: Evidence from the field. The Accounting Review, 89 (3), 991–1023. doi: 10.2308/accr-50678.
[14]	Dyreng, S. D., Hanlon, M. & Maydew, E. L. (2008). Long-run corporate tax avoidance. The Accounting Review, 83 (1), 61–82.
[15]	Lee, B. B., Dobiyanski, A. & Minton, S. (2015). Theories and empirical proxies for corporate tax avoidance. Journal of Applied Business and Economics, 17 (3), 21–34.
[16]	Graham, J. R., Raedy, J. S. & Shackelford, D. (2012). Research in accounting for income taxes. Journal of Accounting and Economics 53 (1–2), 412–434.
[17]	Callihan, D. (1994). Corporate effective tax rates: A synthesis of the literature. Journal of Accounting Literature 13, 1–43.
[18]	Zimmerman, J. (1983). Taxes and firm size. Journal of Accounting and Economics 5, 119–149.
[19]	Watts, R. & Zimmerman, J. (1986). Towards a positive theory of accounting. Englewood Cliffs, NJ: Prentice-Hall.
[20]	Gupta, S. & Newberry, K. (1997). Determinants of the variability in corporate effective tax rates: Evidence from longitudinal data. Journal of Accounting and Public Policy, 16, 1-34.
[21]	Schjelderup, G. (2016). The tax sensitivity of debt in multinationals: A review. International Journal of the Economics of Business, 23 (1), 109-121. DOI: 10.1080/13571516.2015.1115661.
[22]	Slemrod, J. (2001). A general model of the behavior response to taxation. International Tax and Public Finance, 8 (2), 119–128.
[23]	Taylor, G. & Richardson, G. (2013). The determinants of thinly capitalized tax avoidance structures: Evidence from Australian firms. Journal of International Accounting, Auditing and Taxation 22, 12– 25.
[24]	Overesch, M. & Wamser, G. (2010). Corporate tax planning and thin-capitalization rules: Evidence from a quasi-experiment, Applied Economics, 42 (5), 563-573, DOI: 10.1080/00036840701704477.
[25]	Møen, J., Schindler, D., Schjelderup, G. & Bakke, J. T. (2019). International debt shifting: The value-maximizing mix of internal and external debt. International Journal of the Economics of Business, DOI: 10.1080/13571516.2019.1599189.
[26]	Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. The Academy of Management Review, 9 (2), 193. doi: 10.2307/258434.
[27]	Dyreng, S. D., Hanlon, M. & Maydew, E. L. (2010). The effects of executives on corporate tax avoidance. The Accounting Review, 85 (4), 1163-1189.
[28]	Hjelström, T., Kallunki, J.-P., Nilsson, H. & Tylaite, M. (2019). Executives’ personal tax behavior and corporate tax avoidance consistency. European Accounting Review, 1–28. doi: 10.1080/09638180.2019.1642222.
[29]	Law, K. K., & Mills, L. F. (2017). Military experience and corporate tax avoidance. Review of Accounting Studies, 22 (1), 141–184.
[30]	Anastas, J. W. (1999). Research design for social work and the human services. Columbia University Press.
[31]	Richardson, G. & Lanis, R. (2007). Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia. Journal of Accounting and Public Policy, 26 689–704.
[32]	Almond, J. & Sullivan, M. (2004). Drug firms park increasing share of profits in low-tax countries. Tax Notes (September 20), 1336–1343.

Cite This Article

Plain Text BibTeX RIS

APA Style

Saratu Lassa Jim-Suleiman, Adzor Ibiamke. (2021). The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies. International Journal of Finance and Banking Research, 7(1), 1-8. https://doi.org/10.11648/j.ijfbr.20210701.11

Copy | Download

ACS Style

Saratu Lassa Jim-Suleiman; Adzor Ibiamke. The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies. Int. J. Finance Bank. Res. 2021, 7(1), 1-8. doi: 10.11648/j.ijfbr.20210701.11

Copy | Download

AMA Style

Saratu Lassa Jim-Suleiman, Adzor Ibiamke. The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies. Int J Finance Bank Res. 2021;7(1):1-8. doi: 10.11648/j.ijfbr.20210701.11

Copy | Download

@article{10.11648/j.ijfbr.20210701.11,
  author = {Saratu Lassa Jim-Suleiman and Adzor Ibiamke},
  title = {The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies},
  journal = {International Journal of Finance and Banking Research},
  volume = {7},
  number = {1},
  pages = {1-8},
  doi = {10.11648/j.ijfbr.20210701.11},
  url = {https://doi.org/10.11648/j.ijfbr.20210701.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20210701.11},
  abstract = {Profitable companies are expected to pay a 30% companies income tax on their profits earned in Nigeria. However, many companies in Nigeria pay far less due to their application of tax avoidance strategies. This paper report how profitable companies in Nigeria are able to successfully employed the loopholes in the Nigerian tax system to significantly lower their effective tax rate over the past five years. The paper examines 68 companies that are consistently profitable in each of the five years between 2014 and 2018, excluding companies that experienced even one unprofitable year during this period. From the analysis, this paper finds that as a group, the 68 companies examined paid an effective companies income tax rate of only 16.45% over the five-year period - far less than the statutory 30% companies’ income tax rate. Based on the evidence, this paper advocate for a strong alternative minimum tax that can do the job it was originally designed to do thereby bring about transparency, equity and fairness in tax payment in Nigeria. This paper adds new knowledge to the understanding of the state of tax avoidance in Nigeria. Finally, identifying firms’ aggressive tax planning strategies will close the tax loopholes and boosting tax revenue in Nigeria.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies
AU  - Saratu Lassa Jim-Suleiman
AU  - Adzor Ibiamke
Y1  - 2021/03/10
PY  - 2021
N1  - https://doi.org/10.11648/j.ijfbr.20210701.11
DO  - 10.11648/j.ijfbr.20210701.11
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 1
EP  - 8
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20210701.11
AB  - Profitable companies are expected to pay a 30% companies income tax on their profits earned in Nigeria. However, many companies in Nigeria pay far less due to their application of tax avoidance strategies. This paper report how profitable companies in Nigeria are able to successfully employed the loopholes in the Nigerian tax system to significantly lower their effective tax rate over the past five years. The paper examines 68 companies that are consistently profitable in each of the five years between 2014 and 2018, excluding companies that experienced even one unprofitable year during this period. From the analysis, this paper finds that as a group, the 68 companies examined paid an effective companies income tax rate of only 16.45% over the five-year period - far less than the statutory 30% companies’ income tax rate. Based on the evidence, this paper advocate for a strong alternative minimum tax that can do the job it was originally designed to do thereby bring about transparency, equity and fairness in tax payment in Nigeria. This paper adds new knowledge to the understanding of the state of tax avoidance in Nigeria. Finally, identifying firms’ aggressive tax planning strategies will close the tax loopholes and boosting tax revenue in Nigeria.
VL  - 7
IS  - 1
ER  -

Copy | Download

Author Information

Saratu Lassa Jim-Suleiman

Department of Accounting, University of Jos, Jos, Nigeria
Adzor Ibiamke

Department of Accounting, Nigerian Defence Academy, Kaduna, Nigeria

Download PDF

Sections

Plain Text BibTeX RIS

APA Style

Saratu Lassa Jim-Suleiman, Adzor Ibiamke. (2021). The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies. International Journal of Finance and Banking Research, 7(1), 1-8. https://doi.org/10.11648/j.ijfbr.20210701.11

Copy | Download

ACS Style

Saratu Lassa Jim-Suleiman; Adzor Ibiamke. The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies. Int. J. Finance Bank. Res. 2021, 7(1), 1-8. doi: 10.11648/j.ijfbr.20210701.11

Copy | Download

AMA Style

Saratu Lassa Jim-Suleiman, Adzor Ibiamke. The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies. Int J Finance Bank Res. 2021;7(1):1-8. doi: 10.11648/j.ijfbr.20210701.11

Copy | Download

@article{10.11648/j.ijfbr.20210701.11,
  author = {Saratu Lassa Jim-Suleiman and Adzor Ibiamke},
  title = {The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies},
  journal = {International Journal of Finance and Banking Research},
  volume = {7},
  number = {1},
  pages = {1-8},
  doi = {10.11648/j.ijfbr.20210701.11},
  url = {https://doi.org/10.11648/j.ijfbr.20210701.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijfbr.20210701.11},
  abstract = {Profitable companies are expected to pay a 30% companies income tax on their profits earned in Nigeria. However, many companies in Nigeria pay far less due to their application of tax avoidance strategies. This paper report how profitable companies in Nigeria are able to successfully employed the loopholes in the Nigerian tax system to significantly lower their effective tax rate over the past five years. The paper examines 68 companies that are consistently profitable in each of the five years between 2014 and 2018, excluding companies that experienced even one unprofitable year during this period. From the analysis, this paper finds that as a group, the 68 companies examined paid an effective companies income tax rate of only 16.45% over the five-year period - far less than the statutory 30% companies’ income tax rate. Based on the evidence, this paper advocate for a strong alternative minimum tax that can do the job it was originally designed to do thereby bring about transparency, equity and fairness in tax payment in Nigeria. This paper adds new knowledge to the understanding of the state of tax avoidance in Nigeria. Finally, identifying firms’ aggressive tax planning strategies will close the tax loopholes and boosting tax revenue in Nigeria.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - The Woebegone State of Companies Income Tax in Nigeria: Evidence from Widespread Tax Avoidance by Profitable Listed Companies
AU  - Saratu Lassa Jim-Suleiman
AU  - Adzor Ibiamke
Y1  - 2021/03/10
PY  - 2021
N1  - https://doi.org/10.11648/j.ijfbr.20210701.11
DO  - 10.11648/j.ijfbr.20210701.11
T2  - International Journal of Finance and Banking Research
JF  - International Journal of Finance and Banking Research
JO  - International Journal of Finance and Banking Research
SP  - 1
EP  - 8
PB  - Science Publishing Group
SN  - 2472-2278
UR  - https://doi.org/10.11648/j.ijfbr.20210701.11
AB  - Profitable companies are expected to pay a 30% companies income tax on their profits earned in Nigeria. However, many companies in Nigeria pay far less due to their application of tax avoidance strategies. This paper report how profitable companies in Nigeria are able to successfully employed the loopholes in the Nigerian tax system to significantly lower their effective tax rate over the past five years. The paper examines 68 companies that are consistently profitable in each of the five years between 2014 and 2018, excluding companies that experienced even one unprofitable year during this period. From the analysis, this paper finds that as a group, the 68 companies examined paid an effective companies income tax rate of only 16.45% over the five-year period - far less than the statutory 30% companies’ income tax rate. Based on the evidence, this paper advocate for a strong alternative minimum tax that can do the job it was originally designed to do thereby bring about transparency, equity and fairness in tax payment in Nigeria. This paper adds new knowledge to the understanding of the state of tax avoidance in Nigeria. Finally, identifying firms’ aggressive tax planning strategies will close the tax loopholes and boosting tax revenue in Nigeria.
VL  - 7
IS  - 1
ER  -

Copy | Download