CHAPTER ONE
INTRODUCTION
BACKGROUND TO THE STUDY
Taxation is considered a veritable source of revenue for financing developmental as well as people oriented programs in virtually all countries, irrespective of whether they are classified as developed or developing economies. History has however shown that individuals often exhibit one form of tax reduction behavior or the other, with series of arguments on the legal, economic and moral consequences of these acts. Tax evasion and tax avoidance reduce government revenues. This has a significant detrimental effect on the provision of infrastructures, public services and public utilities. Multinational companies (MNCs) in the oil, gas, and manufacturing sectors have used various tax schemes, ranging from o-shore intermediary companies to claiming recharges, royalties or technical fees and under-reporting of profit, to avoid paying tax in Nigeria. Stimulated majorly by increased profitability, and intense competition and pressure to increase earnings, capitalist enterprises constantly seek new ways of boosting their earnings by developing complex structures and novel ways of increasing their profits by exploiting ambiguities in the law. The evidence shows that tax havens and offshore financial centres, shaped by globalisation, are major structures facilitating the anti-social tax practices of MNCs. Tax evasion is an unlawful practice which has the effect of reducing the government revenues needed for the provision of infrastructures, and for public services and public utilities.
Tax avoidance, while not regarded by some as being unlawful,has the same effect. Both practices are motivated by different factors and involve a wide range of different mechanisms (Mo, 2003). They are a major feature of national and international fiscal policy and of the global capitalist economy. These tax practices are not the prerogative of developed economies, but are also encountered in developing countries; and huge sums of money are lost to government coers by such practices, Unlike tax evasion, tax avoidance is considered by some scholars to be a lawful activity. However, despite disagreement about whether tax avoidance is an unlawful activity, both practices have negative consequences and eects (Cobham, 2005; Kirchler et al., 2003) and have, similar impacts on fiscal revenues, Through tax havens and offshore financial centres it has been estimated that $1 trillion a year of ‘dirty’ money flows into the global banking system, one half of which comes from developing countries and transition economies. Although public opinion perceives that localized corruption in developing countries is the key cause of global poverty, sixty tax havens and the banking sectors of London and New York have much more to account for. While the World Bank estimates that corruption by government officials costs developing countries a significant US$30 billion a year – this is only 3% of the US$900 billion of public funds lost through tax evasion schemes and other illicit practices by multinational companies.
Financial crimes such as tax evasion carried out by individuals and their Multinational companies, politically-exposed foreign elites’ collaborators are made possible and continue to be sustained by the unethical practices by the professionals, particularly accountants and auditors (local and foreign) (see the case of Osakwe, 2002). Despite the various statutory provisions, the tax legislations and policies, companies’ and professional bodies’ Acts in place in Nigeria, it is the members of the veteran Institute of Chartered Accountants of Nigeria (ICAN), in particular, who connived with Multinational companies and other foreign capitalists in siphoning the collective wealth of Nigeria into their foreign private accounts, and other their foreign collaborators [Dafinone, 2005; Aloba, 2002]. Despite the evidence, the consequent poverty all over Nigeria and the continued reluctance of these MNCs to cooperate with the regulators in Nigeria, little have been done by the authorities in the developed home countries of the MNCs and other foreign capitalist, to curb the act of tax evasion and avoidance and other trans-organised financial crimes atrocities being constantly perpetrated or sometimes collaborated by these multinational companies and some other foreign capitalist elite operating in Nigeria.
The relationship between tax evasion/avoidance and the multinational companies in developing countries can be situated in a contradictory role of capital accumulation ambition for the multinational companies and defence of capitalism for the developed capitalist countries (see Hoogvelt and Tinker, 1978]. It is the above capitalistic ambition of the Western economic powers, their multinational corporations (MNCs) and other foreign capitalists of reproducing capitalist relations at home that brought about the contradictory alignment between the corrupt local ruling elite in developing countries and the “good governance”, “accountability” and “transparency”-preaching Western capitalist world. Thus, the corrupt activities of multinational companies and their accountants and the professional bodies, particularly accountants have got devastating effects on the socio-economic, political and cultural development of most developing countries.
