Nepel: Long Term Contract: A Nepalese Tax Perspective

Tax Avoidance 

Tax Avoidance can be defined as the process of minimizing taxable income by taking advantage of the loopholes in the existing tax laws. 

The Legality of Tax Avoidance 

Tax avoidance is the benefit derived from formulating ways and identifying loopholes in existing tax laws to minimize tax liabilities. 

Tax Avoidance includes acts such as: 

• Donations to not for profit organizations, educational institutions, research institutions and public health organizations such as, the Boys Brigade, Boys Scout, Christian Council of Nigeria, Girls Guide, Any Educational Institution recognized by the law, Islamic Education Trust, Institute of Chartered Accountants of Nigeria, Nigerian Red Cross etc. 
• Utilizing Tax Incentives. 
• Reinvesting the proceeds from the sale of an asset into the same class of asset. 

Tax Evasion 

Tax Evasion on the other hand can be described as the underpayment of tax or the deliberate refusal to pay tax. Tax Evasion gives rise to penalties and in some cases imprisonment.

Tax Evasion includes acts such as:

• False declaration of income, profits or gains earned. 
• Failure to render tax returns to the relevant tax authority. 
• False claim of contribution to pension schemes 
• Deliberate misrepresentation of material facts 
• Non-disclosure of relevant documents 
• Filing fraudulent tax returns, etc.

Effects of Tax Avoidance and Tax Evasion on the Nigerian Economy 

• TaxevasionandavoidancepreventstheGovernment from carrying out its responsibilities for the benefits of the people. Provision of basic amenities such as the creation of roads, provision of water, building of public schools, maintenance of public facilities and payment of salaries become difficult to achieve.
• Tax evasion and avoidance leads to a reduction in revenue that would have been realized by the government through taxation. This leads to the government borrowing money from other Nations and International bodies. 
• Continuous generation of low revenue has hindered the country from being able to pay back its debt; this has also led to the government borrowing more. 
• Stagnancy in economic growth and development. 

In conclusion, every year, Nigeria loses billions of dollars in tax revenues. Tax Evasion and Tax Avoidance have been detrimental to the growth and development of the Nigerian economy. The 2020 Finance Act has sealed some of the loopholes taxpayers are likely to take advantage of in trying to minimize tax liabilities. The laws have now been clearly spelt out and are no longer ambiguous, thereby reducing the practice of tax avoidance and evasion in Nigeria.

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