TAXBIT: BLACK MONEY SYNDROME IN NIGERIA: A CASE OF TAX EVASION CAUSING FINANCIAL INSTABILITY

1.0. INTRODUCTION

Money made illegally or otherwise legally but not recorded for tax purposes is referred to as “black money.” Proceeds from illicit economic activities are typically obtained in cash, and as a result, they are not taxed. Black money, in its most basic definition, is money on which no tax is paid to the government. The black market namely the underground economy is the most typical source of illicit funds. Selling illegal drugs, smuggling guns, supporting terrorism, and trafficking human beings are examples of black market activities. Inclusively, the sale of fake goods, credit card theft, or piracy of intellectual contents are vigorously part of black market activities. Black money’s influence on a nation’s income hurts its financial stability and economic progress, which results in financial leakages since the government loses money from unreported incomes that are not taxed. it becomes incredibly challenging to estimate the amount of black money in the economy. These unreported earnings are not included in a nation’s gross domestic product (GDP) or gross national product (GNP).

2.0. ECONOMIC MEMES OF BLACK MONEY
Black money effects are hard to pin down since excess wealth or income can either stay in the place of origin as a separate financial system that occasionally crosses over or merges with the licit economy, or it can depart for tax havens that also guarantee anonymity. It can have a variety of consequences on the amount and patterns of demand and supply for goods and services, and consequently on income and employment, depending on where it goes and how it is used if it stays in the nation. If this wealth is exported, there will undoubtedly be a drain on the nation’s surplus, which will have an impact on domestic investment and consumption at the same time, this outflow will have a negative influence on development. Along with this, economic regress, illegality and criminality are present. If the funds are not transported abroad, it is more likely that they would be invested in non-productive asset markets instead of the productive sector, such as real estate or the secondary stock market. Black money and wages are more likely to be spent than invested, with emphasis on luxury services and other consumption-oriented industries. Thus, even if there is illicit or black wealth and incomes in the market, the pattern of demand that would be created by that wealth would be very different if it has remained in the legal economy. The revenues that should go to the state from taxes on those incomes would not be easily realized. The higher the component of such an economy, the more the Government loses on revenues it could use to improve infrastructure, reduce disparities in income and provide better education and health services.
 
3.0. BLACK MONEY AND TAX EVASION
Money Laundering (Prohibition) Act, 2011 (as amended) section 15, subsection 6 of the act itemized these offenses such as organized criminal groups, racketeering, terrorism, terrorist financing, trafficking in persons, smuggling of migrants, sexual exploitation, illicit trafficking in stolen goods, corruption, bribery, fraud, currency counterfeiting, and piracy of products, environmental crimes, murder, grievous bodily injury, kidnapping, hostage taking, robbery or theft, smuggling (including customs and excise duties and taxes), tax crimes (related to direct taxes and indirect taxes), extortion, forgery etc. All the transactional activities and exchange of money through the aforementioned are categorized as black money transactions which mostly do not pass through legitimate procedures and in return lead to tax evasion and loss of revenue for the government, however, human greed combined with declining societal values and inability of the state to prevent them are among the few factors leading to black money activities.
Furthermore, various illegal economic operations by public officers that divert government fund which meant to provide basic amenities for the citizens is regarded as black money (a case in point was $153 million and over 80 properties recovered by EFCC from the former Minister of Petroleum Resouces), the population of Nigeria during the recovery in 2017 was 190,873,244, imagine the number of Nigeria citizens the recovered loot could take out of poverty or generate employment for directly or indirectly which would adequately contribute to the economic growth of Nigeria  
 
4.0. TACKLING BLACK MONEY TO ELIMINATE TAX EVASION
Under the Act, section 15 subsection 3, however, stipulates that a person who commits the aforementioned black money-related offenses shall be liable to conviction to a term of not less than 7 years but not more than 14 years imprisonment, aside from sanctions according to the law, it is practically impossible to adequately sanction various government officials who have in one way or the other plugged our economy into the state of comatose, however, with the numerous economic challenges facing our nation, every strategy to block any forms of loopholes is highly needed going into 2023 fiscal year.

Between 2016 and 2017 government of India made deliberate efforts and policies to target high denomination black money which the government believed was being stashed in different places. Proceeds of corruption and crime and criminality, within this period that Indian government was able to clean out was an equivalent of $26 billion.

In addition, many economies with numerous challenges like ours are moving right ahead in cleaning out black money and ensuring the following advantages:
➢ Ensuring most of the money supply resides in the banking system so that banks can be liquid and lend to the real sector of the economy;
➢ Reducing the influence of the crime economy and making it less attractive for citizens and foreigners to get involved in crimes;
➢ Reducing cash in people’s homes and therefore vulnerability to crimes
➢ Making it harder for currency forgers through innovation and technology; and
➢ Knocking out corruption in a big way by reducing cash slushing around the country.

The level of success recorded by the Indian government could form a model that will serve as a springboard for the elimination of tax evasion in Nigeria. To tackle the uncertainty and unreliable nature of Nigeria’s major foreign exchange earnings which is the income from crude oil as we approach 2023 fiscal year, this is a wake-up challenge to either sustain or increase our revenue to GDP ratio.
 
REFERENCES
https://www.drishtiias.com/daily-updates/daily-news-analysis/tackling-the-menace-of-black-money
https://guardian.ng/features/tackling-tax-leakages-in-the-21st-century-what-lessons-can-nigeria-learn-from-the-oecd-2/
https://deliverypdf.ssrn.com/delivery.php?ID=5
http://164.100.47.193/Refinput/New_Reference_Notes/English/Black_Money.pdf
https://www.investopedia.com/articles/markets/032916/how-big-underground-economy-america.asp
https://assets.kpmg/content/dam/kpmg/in/pdf/2016/11/Demonetisation.pdf
Regulated Entities as defined by RBI in its “Master direction-Know Your Customer (KYC) dated 25 February 2016 5. http://pib.nic.in/newsite/PrintRelease.aspx?relid=147082
https://www.premiumtimesng.com/news/headlines/461172-153-million-80-properties-recovered-from-ex-petroleum-minister-diezani-efcc.html
https://www.worldometers.info/world-population/nigeria-population/