As Economists would say, opportunity cost is the benefit forgone when an alternative item is chosen. Therefore, the opportunity cost of paying taxes could be other expenses that may have been settled using the taxes paid or the extra dividend that could have been enjoyed by the shareholders. This then begs the question, why pay taxes when the money can be converted to "other good use"? Realistically, very few people may actually voluntarily be tax compliant except there are incentives or punitive measures attached. Even when there are penalties attached to non-compliance, individuals/companies may see no need to comply where such punitive measures are not enforced.

While tax authorities have sought for more disclosure from taxpayers, the current push to greater tax transparency dates to the 1990s. A project of the Organization for Economic Cooperation and Development (OECD), which was aimed at harmful tax strategies and practices, was refocused in 2001 to expand and improve the exchange of tax-related information among jurisdictions. One outcome of this project is the Multilateral Competent Authority Agreement (MCAA), which seeks to facilitate exchange of information on tax matters. Another outcome of this project is the Country by Country Reporting under Article 13 of the Base Erosion and Profit Shifting (BEPS) initiative of the OECD.

Most tax authorities all over the world have realized that global companies appear to have taken advantage of the loopholes in the tax laws to move significant proportion of their income to tax havens. However, with the recent debate on tax morality, authorities are demanding more transparency in tax reporting by tax payers and companies are being asked to pay their fair share of tax.

In recent time, the Nigerian maritime sector has come under the radar of the tax authorities for possible enforcement actions to scale up tax compliance and increase tax collection. The tax authorities have encouraged taxpayers to comply with relevant tax laws, and devised means to ease compliance obligations. However, not much improvement has been seen, particularly within the maritime sector due to the "invisible" nature of these operators and little or no enforcement by the tax authorities.

The maritime sector is seen as one that is essential to the growth of the Nigerian economy. The crude oil and liquefied natural gas (LNG) explored in Nigeria is transported by sea using vessels majorly owned by non-resident petroleum shipping companies.

Section 14(1) of the Companies Income Tax Act (CITA) is quite clear on the compliance obligation of operators in the maritime sector. It states that "where a company other than a Nigerian company carries on the business of transport by sea or air, and any ship or aircraft owned or chartered by it calls at any port or airport in Nigeria, its profits or loss to be deemed to be derived from Nigeria shall be the full profits or loss arising from the carriage of passengers, malls, livestock or goods shipped, or loaded into an aircraft, in Nigeria". Consequently, the owners and charterers of these vessels may have tax obligations in Nigeria as a result of their operations within the Nigerian waters.

This article focuses on the role of some of the stakeholders in the Nigerian Maritime Sector in driving voluntary tax compliance.

The Role of the Government

One may ask whether government should completely raise a white flag due to its inability to proactively issue tax regulations to take care of the rapid changes in the business world. Government on one hand wants to increase revenue, and on the other hand distribute wealth. However, they sometimes use taxation to mould behaviour and influence the economy. As is commonly the case, most government pronouncements on tax policies are ambiguous. A modern tax system needs to be coherent with very few gaps to be exploited by tax experts. Ambiguous tax provisions are subject to different interpretations. This provides an opportunity for corporate leaders to plan their tax affairs in a manner that takes advantage of the ambiguity in tax codes. Therefore, calls to act in a socially responsible way on the part of tax payers will only be effective if backed by effective regulations.

In attempt to provide more clarity with respect to tax compliance obligation of non-resident shipping companies in the Nigerian maritime sector, the Finance Bill 2022 introduced an amendment to Section 14 of the CITA by introducing a new subsection (4) which provides that "notwithstanding the provisions of any other section of this Act, where any company files tax returns under the provisions of subsection (3) of this section and does not provide a separate financial statement of the Nigerian operations, for the purpose of filing its tax returns, such company shall submit detailed gross revenue statements of its Nigerian operations, showing the amount of full sums receivable during the period, certified by one of the company's directors as well as their company's external auditor and supported with all invoices issued to the relevant customers."

The introduction of this subsection would grant international shipping companies the liberty to file their tax returns using detailed gross revenue statements of their Nigerian operations, certified by the one of the company's directors as well as an external auditor as opposed to Audited Financial Statement. Considering the complexities in the international shipping industry owing to the fact that these companies operate in multiple jurisdictions, the introduction of this sub-section could be seen as an incentive that will ease compliance for operators who thought that the existing tax filing requirement was onerous, burdensome, and did not take cognizance of the peculiarities of their business.

Knowing the consequence of an action enables businesses to plan properly. It is on this backdrop that the Bill also introduced another amendment to Section 14 of the CITA, that mandates all companies liable to tax under Section 14(1) to present evidence of income tax filing for the preceding tax year and Tax Clearance Certificate (TCC) showing the income taxes paid for the three preceding tax years in order to continue to carry on business in Nigeria or obtain relevant approvals and permits. This implies that upon signing of the Finance Bill by President Muhammadu Buhari, Non-Resident Companies (NRC) carrying on business by way of sea or air and calls at any airport or port in Nigeria shall be required to present their TCC to enable them continue to carry on business in Nigeria.

Consideration for operators within the maritime sector

It is safe to say that highly mobile NRCs operating in the Nigerian maritime sector may not have any strong sense of owing a duty to a society in which they happen to be for the time being. This is especially so, given that the nature of these companies' operations within Nigeria makes it possible for them to come into Nigeria to lift crude oil and LNG, and go out without being tracked by the Nigerian tax authorities.

Notwithstanding, the importance of complying with the tax laws of jurisdictions in which these companies operate cannot be overemphasized. There is no denying the fact that corporate leaders have understandably become more wary of being called out for dodging their tax obligations. Tax Directors have found that they have an important role in tax that is over and above just reviewing complex accounting and financial impacts. It is important to consider the implication that a tax decision could have on the public image of a company. This clearly creates a conflict between two competing factors: the fiduciary responsibility to comply with all relevant laws and regulations with tax morality in mind, and the corporate directive to protect profit margins by minimizing tax liabilities within the confines of the law. However, the effects of the rise of the corporate social responsibility agenda on tax behaviour have been magnified by an increasing public interest in tax. Tax Directors now have to consider whether the company's tax strategies, in the eyes of the public, could be viewed as loophole-driven, devious, or even unpatriotic.

One may ask why companies should consider morality in their tax strategies. However, it may be important to start with truism: the fact that one is able to take advantage of a flawed system is not always moral.

With the recent focus on the maritime sector by the Nigerian tax authorities and the proposed amendments by the Finance Bill, it is important that NRCs operating within the Nigerian waters put in place tax strategies that will ensure that they are tax compliant, to mitigate the risk of exposure to interest and penalty for non-filing and payment of taxes due, and protect their public image.

Tax consultants

The concept of tax morality is more of our approach to interpretation of tax laws and our motives behind tax planning. As tax consultants, no one comes to us for a homily. What we provide is pure technical opinion based on our interpretation of the provisions of the tax laws. One school of thoughts believes that tax consultants owe no special duty to the tax system other than to abide by the law and the applicable standard of professional conduct. Nonetheless, it is the responsibility of tax consultants to appropriately advise their clients on their tax obligations, even when the tax administrative mechanisms appear inadequate and there are lax of enforcement actions by the relevant tax authorities.

In conclusion, rational taxpayers will always attempt to minimise their tax bills within the provisions of the law. As stated earlier, calls to act in a socially responsible way will be effective only if backed by regulation, because social responsibility does not work clearly in a uniform direction in a tax context, because of the differing philosophies of taxation. As a result, if aggressive tax planning is to be reduced, the focus must be on removing distortions from the tax system that make artificial behaviour worthwhile and even necessary for commercial purposes, and on improving the techniques used by the law to place legitimate limits on this activity1.


1. Fair Tax; towards a modern tax system: Professor Judith Freedman, Smith Institute, 200.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.