Curbing Illicit Financial Flows in Nigeria to Expand the Fiscal Space for delivery of Gender Responsive Public Education 7 th PAC on IFF 2019 Formal Panel Session 0ctober 3 rd , 2019 Celestine Okwudili ODO Manager, Governance ActionAid Nigeria
Presentation Outline 1. Introduction 2. Impact of digitalized economy on IFFs 3. IFFs and the digital economy: the situation in Nigeria 4. The implication of IFFs for financing of public services: the case of education 5. Recommendations
Introduction ❑ Need to curb IFFs in Nigeria in other to raise revenue ❑ Investing on delivery of gender responsive public education ❑ An effective and efficient tax system is required ❑ According to World Bank benchmark, a minimal tax to GDP of up to 18% will help to drive such development,
Introduction: Defining IFFs According to the Trustafrica, the term IFF describes monies that are illegally earned, transferred or utilized, which manifests in four different forms, a. corruption constituting about 3% of the global total, b. criminal proceeds generated mainly through racketeering and drug trafficking constituting about 30-35% of the global total, c. commercial tax evasion through mispricing, this constitute about 60-65% of the global total, and finally d. smuggling,
Impact of digitalized economy on IFFs ❑ Difficulty of the national governments to regulate their economy due to increasing innovation & digitalization of the global economy, especially taxing the online transactions, eg. the online advertising, online payment services, and online App shops ❑ The digitalized economy has also enhanced IFF outflows ❑ Report of the High-Level Panel on IFF from Africa commissioned by UNECA in 2011 and chaired by the former South Africa President, Thabo Mbeki, ❑ An estimated $50b USD leaves the African shores annually ❑ Enough to fill the financing gap of US$68-$108b Africa’s Infrastructure as estimated by African Development Bank 2018
IFFs and the digital economy: the situation in Nigeria 1 ❑ Nigeria, a major source of the outflows; US$140b to illicit financial flows between 2002 to 2011, DG Nigeria Securities and Exchange Commission, Ms Arunma Oteh ❑ Enough to equip basic education facilities and train teachers in all the 774 Local Government Councils in Nigeria, going by the current education sector allocation of 7.04%, a mere USD1.725b in the 2019 budget. ❑ the notion that tax incentive attracts Foreign Direct Investment (FDI). ❑ In 2016, a report from the Centre for Research on Multinationals Corporations (SOMO) Amsterdam, revealed that the Nigerian government lost about $3.3b USD on total potential tax lost to three companies alone: Shell, Total and Eni
IFFs and the digital economy: the situation in Nigeria 1
IFFs and the digital economy: the situation in Nigeria 2 ❑ Due to the 12 years Tax Holiday granted to these companies through the Nigeria Liquified Natural Gas (NLNG) Company, a Joint Venture in which these companies have a majority stake of 51%. ❑ ActionAid, Nigeria government loses 0.8% of GDP from corporate income tax incentives annually, amounting to US$3.3 and around US$327m a year on revenue losses to import duty exemptions. ❑ Tax heaven, case of the Mauritius tax leaks on the Nigerian fintech giant, Venture Garden Nigeria Limited ❑ Challenge of the Double Tax Treaties and the opportunity for transfer pricing ❑ in 2014, ActionAid advised the former Finance Minister, Ngozi Okonjo-Iweala of the danger in ratifying the DTT with Mauritius, given that its cost will outweigh the expected benefits.
IFFs and the digital economy: the situation in Nigeria 2
IFFs and the digital economy: the situation in Nigeria 3 ❑ In Nigeria, the digital economy is on the rise, the Chairman of the Federal Inland Revenue Services, (FIRS), Mr. Babatunde Fowler in an interview with the Premium Times in February 2019 confirmed that the Nigerian government is planning to tax the digital economy, ❑ the Nigeria Investment Promotion Council (NIPC), highlighted the huge potential of the digital economy to generate up to USD$88b and about 3b jobs for Nigeria before the end of 2021. ❑ Improved tax landscape e.g. VAID raised $177.5m, increased revenue from $11.5b to $13.115b in 2017 and $17.443b in 2018
The implication of IFFs for financing of public services: the case of education ❑ The continued deprivation of the much-needed revenue to fund the delivery of free, quality, public education service ❑ lacking political will of government to meet the financing targets outlined in the SDG Framework for action that countries invest up to 4-6% GDP and 15-20% of their national budgets in education ❑ Nigeria has about10.2m children out of school. ❑ ActionAid Report June 2019, the private sector is taking the available space through private investment in the provision of education, thus heightening inequality and poverty, entrenching social inequalities, leading to stratification and huge disparities in education opportunities ❑ For instance, enrolments in private primary schools comprise12.6%, at secondary level enrolments constitute 19% of school ❑ the majority concentrating in Lagos state and other locations where the relatively wealthier people live rather than going to the areas of greatest deprivation.
The implication of IFFs for financing of public services: the case of education
Recommendations ❑ Ensure sustainable revenue to adequately finance a minimum of 9 years of free quality education for all children. This will require the efficient collection of tax revenue, and the tackling of tax evasion and avoidance ❑ Tax incentives should be subjected to the legislative process for it to be granted based on its merit, taking the social cost into account
Recommendations 2 ❑ The policy alternative for the government is to broaden the tax base without increasing the tax rate, close leakages, bring in high net worth individuals into tax nets, and reduced incentives. ❑ There is the urgent need for increased political will of the government to create new rules or amending existing legislations to be able to effectively tax the intangible online transactions, that are generating billions of USD annually across borders. ❑ There is need for a cautious approach to entering tax treaties, which create avenue for tax revenue loss to countries.
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