The Real Cost of Tax Avoidance on Public Services

Imagine this: You're stuck in the endless traffic jam on the Lagos-Ibadan Expressway, your car jolting over yet another pothole, while the sun beats down mercilessly. You curse under your breath, wondering why the government can't fix these roads. What if I told you that part of the reason might be staring back at you from the headlines—tax avoidance by the big players who could be funding these fixes? It's not just a distant policy issue; it's hitting us right where it hurts, in our daily lives across Nigeria.

Tax avoidance isn't the same as evasion—though the line can blur in practice. Avoidance is legally maneuvering around tax laws to pay less, while evasion is outright illegal dodging. But both drain the resources meant for public services like the ones we rely on: hospitals that are understaffed, schools without enough desks, and roads that feel like they're on life support. In Nigeria, where our economy grapples with oil dependency and informal sectors, this issue is particularly acute. Let's dive into why it matters and what it's costing us as a nation.

The Mechanics of Tax Avoidance in Nigeria

At its core, tax avoidance exploits loopholes in the system. For individuals, it might mean setting up offshore accounts or claiming dubious deductions. For corporations, especially multinationals in oil, telecoms, or banking, it's often about transfer pricing—shifting profits to low-tax jurisdictions outside Nigeria. The Federal Inland Revenue Service (FIRS) has been cracking down, but the scale is massive. In 2022, Nigeria's tax-to-GDP ratio hovered around 6-7%, one of the lowest in Africa, compared to over 20% in countries like South Africa. That's billions of naira not collected, directly siphoning funds from the federation account.

Think about it this way: Every naira avoided is a naira less for the budget. Our annual budget, often exceeding N20 trillion, relies heavily on non-oil revenue to bridge gaps left by volatile crude prices. When high-income earners or companies underpay, it forces the government to borrow more or cut services. And who feels the pinch? The average Nigerian, from the market trader in Aba to the civil servant in Abuja.

A relatable scenario: Consider a mid-sized manufacturing firm in Kano. Instead of paying full corporate income tax on local profits, it invoices exports through a subsidiary in Dubai, reducing its Nigerian taxable income. Legally clever, sure, but it means less revenue for local infrastructure. Over time, this erodes trust in the system—why pay your fair share if others aren't?

How Tax Avoidance Undermines Public Services

The ripple effects are everywhere, but let's zero in on key areas. Healthcare in Nigeria is already strained; the 2023 budget allocated about N1.2 trillion to health, but avoidance means clinics in rural Enugu or urban slums in Port Harcourt run short on essentials like drugs and equipment. Remember the ASUU strikes that disrupted universities? Part of the funding shortfall traces back to revenue losses from tax gaps. Education gets about 7-8% of the budget, far below the 26% UNESCO recommends, partly because we're not collecting enough from those who can afford it.

Infrastructure suffers the most visibly. That same Lagos-Ibadan road? Its rehabilitation, promised for years, has been delayed by funding shortfalls. In 2021, the FIRS estimated that illicit financial flows—including avoidance tactics—cost Nigeria up to $18 billion annually. That's enough to build hundreds of kilometers of roads or equip thousands of schools. In the Niger Delta, where oil companies dominate, avoidance by these giants means communities still lack clean water and electricity, despite the wealth extracted from their land.

From a political lens, this isn't just economic—it's a governance failure. Politicians campaign on better services, but without robust tax enforcement, promises ring hollow. Corruption amplifies the problem; when officials overlook avoidance for kickbacks, it perpetuates a cycle where the poor subsidize the rich through higher indirect taxes like VAT, which hit 7.5% recently and disproportionately affects low-income families.

A Stark Example: The Telecom Sector

Take MTN Nigeria, a telecom behemoth. In 2015, it faced a $5.2 billion tax bill from the FIRS for back taxes on profits repatriated offshore—classic avoidance via profit shifting. The saga dragged on, with settlements and appeals, but it highlighted how foreign firms can structure operations to minimize local taxes. While MTN complies now under scrutiny, the lost revenue during those years could have funded mobile health clinics reaching remote villages in the Southeast or digital literacy programs in the North. For everyday Nigerians, it means higher data costs to compensate for untaxed profits, while public broadband initiatives lag.

Personal Stories from the Ground

I recall chatting with a friend, a small business owner in Owerri, who pays his taxes diligently despite slim margins. 'Why bother?' he asked me once, after reading about wealthy politicians with undeclared assets. His shop's taxes go toward local services, yet his kids attend a public school with leaking roofs. Stories like his are common—tax avoidance at the top demoralizes compliance at the bottom, widening inequality. In a country where over 40% live below the poverty line, this isn't abstract; it's families skipping meals to afford private alternatives to failing public ones.

Another angle: During the COVID-19 pandemic, Nigeria's stimulus packages were underfunded partly due to revenue shortfalls. Avoidance meant fewer tests kits in Lagos hospitals or delayed palliatives for vulnerable households in Kaduna. It's a human cost—lives potentially saved if taxes were paid in full.

Breaking the Cycle: What Nigerians Can Do

So, how do we turn this around? It's not all doom; there are actionable steps we can take as citizens, businesses, and advocates. First, for individuals: Ensure your tax filings are accurate. Use the FIRS e-services portal to declare income honestly—small deductions might be legit, but crossing into avoidance erodes the system for everyone. If you're salaried, push your employer for transparent PAYE remittances; many workers don't even know if their taxes reach the government.

Business owners, especially SMEs, can lead by example. Join tax cooperatives or consult FIRS-approved advisors to optimize legally without avoidance. For larger firms, adopt ethical tax strategies—publicly committing to fair contributions builds trust and can attract ethical investors.

On the advocacy front, get involved. Support organizations like the Tax Justice Network Africa, which pushes for transparency in Nigeria. Write to your representatives demanding stronger anti-avoidance laws, like closing transfer pricing loopholes. Vote for policies that prioritize tax reform over wasteful spending. And report suspected evasion—FIRS has a whistleblower hotline (0800-TAX-MAN), offering rewards for tips that lead to recoveries.

Communities can organize town halls in places like Ibadan or Benin City to discuss tax impacts, fostering a culture of accountability. Education is key: Share articles like this on WhatsApp groups or social media to raise awareness. Imagine if every Nigerian demanded fiscal justice— it could pressure multinationals and elites to pay up.

Practical Takeaways for Everyday Action

• Track Your Taxes: Download the FIRS app to monitor your filings and understand where your money goes.

• Advocate Locally: Attend PTA meetings or community forums to link service gaps to tax issues, urging collective action.

• Support Reforms: Sign petitions for a progressive tax system that taxes the wealthy more fairly, easing the burden on the masses.

• Business Compliance Check: If you're an entrepreneur, audit your practices annually with a tax expert to stay legal and ethical.

In the end, tax avoidance isn't a victimless game—it's robbing Nigeria of its potential. By paying our fair share and holding others accountable, we rebuild the public services that bind us as a nation. The roads might get smoother, the hospitals better stocked, and our future brighter. It's time to choose collective progress over individual gains. What will you do today?