…citizens have a very poor perception of the government in relation to tax accountability. It is like pouring money into a bottomless pit. They often argue that they pay taxes and are still their own “local governments” – i.e. they still provide those amenities their taxes should have provided for them, if well spent.


The dominant view in most countries is that firms are excessively involved in tax avoidance. The odd thing is that tax avoidance, which is also known as strategic tax planning (a more appropriate business expression), is not illegal. Tax avoidance simply means adhering to the letters, and not necessarily to the spirit, of tax laws. As such, it is deemed wise and rational to take advantage of loopholes in tax laws and systems, where such exist.

In order to take advantage of the system, businesses usually employ an array of experts – ranging from lawyers, accountants, to lobbyists – to help them implement creative tax strategies. Some law and accounting firms have dedicated and lucrative services to this tax avoidance market. In their view, strategic tax planning can be a real value addition to any firm that does it well. Framed as such, it becomes a source of competitive advantage and a very attractive proposition to many business leaders and shareholders. Hence the popularity of strategic tax planning.

Obviously, strategic tax planning, as tax avoidance, will have negative implications for tax compliance and tax revenues. That is why tax regulators, collectors, and administrators do their best to discourage firms from being too innovative with their tax arrangements in order to enhance compliance and increase tax revenues. Some regulators have gone as far as asking firms to discuss any innovative tax practice they conceive before implementing them. This way, the degree of information asymmetry, which is at the foundation of tax avoidance, could be minimised. Hence, the emphasis on business taxation is heavily skewed towards ways of enhancing compliance, minimising tax avoidance, and eradicating tax evasion.

Tax compliance has its benefits. Beyond increasing tax revenues for the government, it has also been argued to be a good way of building democracy. In other words, taxation helps to restore the link between politics and citizenship. Through such, democratic processes and institutions are strengthened for societal progress. In addition, the quest for enhanced tax compliance can lead to better information and data management systems and enhance ancillary and complementary services, such as better policing and strengthened legal systems, for example. These are often referred to as positive spill-over effects of an enhanced tax system.

…the current structure does not have a place for tax accountability. The Federal Inland Revenue Service (FIRS) Act, for instance, only mandates it to raise tax revenues. Beyond that, it cannot account for how tax revenues are used. The ministry of finance and the ministry of budget and planning appear to be silent on this – perhaps due to capacity constraints.


Whilst compliance should be encouraged, it becomes difficult to realise in a system characterised by low trust and weak enforcement mechanisms. This is usually the case in most developing economies, where the formal institutions of democracy and capitalism are usually at their worst. Low trust regimes often lead to low tax morale. Weak enforcement mechanism often lead to low tax compliance. This leaves most countries in this situation in a double tragedy and brings to the fore the often challenging question of the egg versus chicken conundrum. Unfortunately, it is not a case of either high trust or better enforcement mechanisms; the two need to be pursued simultaneously, but how?

Our ongoing study on tax compliance in Nigeria confirms that the country experiences both low tax morale and low tax compliance. Although the government agencies – especially the Federal Inland Revenues Services (FIRS) – have invested a lot in aggressive compliance infrastructure, there have been some minor progress; however, tax revenues are still very much sub-optimal. This finding supports the view in the literature that tax enforcement infrastructure needs to be complemented by enhanced tax morale. Otherwise pursuing one and not the other comes across as a futile effort at clapping with one hand. Unfortunately, most governments in Africa seem to be in this trap.

One way to raise tax morale is for the government to be seen to be as transparent and accountable. Citizens need to know how tax money is used and spent. They need to feel the dividends of tax. In other words, tax needs to pay! But oftentimes, tax accountability is the missing part of the jigsaw. From our study, also, the citizens have a very poor perception of the government in relation to tax accountability. It is like pouring money into a bottomless pit. They often argue that they pay taxes and are still their own “local governments” – i.e. they still provide those amenities their taxes should have provided for them, if well spent. Some argue that the government cannot be trusted with more money until the government is able to make better use of oil revenues. But why does low tax accountability persist?

A possible and straightforward answer to this question coming from our research finding is the low capacity in the public sector to deal with tax accountability. In other words, the current structure does not have a place for tax accountability. The Federal Inland Revenue Service (FIRS) Act, for instance, only mandates it to raise tax revenues. Beyond that, it cannot account for how tax revenues are used. The ministry of finance and the ministry of budget and planning appear to be silent on this – perhaps due to capacity constraints. Another reason advanced by interviewees of our research is corruption. They simply think that the government is terrified by accountability and would rather keep mute about it because of the corruption that goes on in government. Whether this is true in reality or not is a different matter, but the perception is as strong and as real as it can be.

Whilst corporate social responsibility is on the rise in Nigeria, tax compliance and demand for tax accountability on the part of businesses and their leaders can contribute to strengthening taxation and democratic institutions in Nigeria.


Unfortunately, this lack of trust due to low tax accountability will continue to impede and undermine tax compliance, if not addressed. We suggest that one way to address the challenges of low tax accountability is for the government to set up a tax accountability desk that will be in charge of communicating and publicising how tax revenues are spent. The other suggestion is for tax revenues to be earmarked for development goals. For instance, the government can have a 10-year plan in which one of the Sustainable Development Goals (SDGs) could be identified a year ahead as the target of the following year’s tax revenues. Where and when these commitments are fulfilled over the suggested period, it would be a very good way to build trust and restore the social contract between the citizens and the government.

Beyond these options, the economic elites can also volunteer to ask for tax transparency and accountability. It is argued that they provide the largest share of tax revenues in most countries. So, it would not be out of place for them to demand for transparency and accountability. Whilst corporate social responsibility is on the rise in Nigeria, tax compliance and demand for tax accountability on the part of businesses and their leaders can contribute to strengthening taxation and democratic institutions in Nigeria.

The Nigerian Economic Summit Group (NESG) now has a fiscal policy committee, which is a development in the right direction. Hopefully, this committee would be able to galvanise business leaders and economic elites in Nigeria to make their taxes work for them. There are obvious risks harboured in this suggestion, but where danger lies, also lies the saving power, according to Holderlin, a German poet. And he who comes to equity must come with clean hands. Herein lies the taste of the pudding, for business and economic elites, so to speak!

Kenneth Amaeshi is a policy analyst and full professor of business and sustainable development at the University of Edinburgh, United Kingdom. He tweets @kenamaeshi

This article is from a study on “How to minimise tax avoidance and enhance tax compliance in Nigeria” led by Professor Amaeshi and fully funded by the International Centre for Tax and Development of the Institute of Development Studies, United Kingdom.