Most people use tax evasion and tax avoidance interchangeably, but they’re two distinct terms with different meanings and implications. In this article, we’ll explore the differences between them, mention scenarios in which the terms apply, delve into their legal definitions and examine consequences. But first, what is the difference between tax evasion and tax avoidance?
Tax evasion involves using illegal activities and intentional deception to avoid paying a percentage of the tax you owe to the government. Tax avoidance, on the other hand, is a legal practice where you use legitimate strategies to minimise your tax liabilities.
If you earn, spend, save or invest in Nigeria, you must understand tax evasion and tax avoidance. After all, nothing’s certain but debt and taxes. So, let’s start by discussing how they work.
What is tax evasion?
In simple terms, tax evasion refers to willful and intentional methods of avoiding tax obligations through fraudulent means. It involves acts like underreporting income, inflating deductions, keeping unrecorded transactions and hiding assets to deceive tax authorities.
Individuals who evade tax may also go as far as using offshore accounts to hide their income and other financial assets.
Tax evasion is a serious offence that can result in fines, penalties and even imprisonment. It undermines the integrity of the tax system and deprives governments of much-needed revenue for public services and infrastructure development.
What is tax avoidance?
Tax avoidance is a legal activity that aims to minimise tax liabilities within the boundaries of tax laws and regulations. It involves using legitimate strategies — including deductions, exemptions and credits — to reduce the amount of tax owed.
Both individuals and businesses can avoid paying taxes through careful tax planning and by structuring their finances in a tax-efficient manner.
However, while tax avoidance is considered legal (even in Nigeria), it may still attract scrutiny from tax authorities and require regulatory measures to prevent excessive abuse.
What Is A Tax Refund?
What is the difference between tax evasion and tax avoidance in Nigeria?
The difference between tax evasion and tax avoidance in Nigeria lies primarily in their legality and intent.
Under Nigerian law, tax evasion is a criminal offence punishable by fines and imprisonment. It involves willfully evading taxes through fraudulent means (such as filing false returns or concealing income). In contrast, tax avoidance in Nigeria is legal and refers to using legitimate strategies to minimise the amount of tax you pay.
To better understand the contrast between them, let’s summarise their key differences in a tabular form:
| Tax Evasion | Tax Avoidance |
| It is illegal. | It is legal. |
| It involves intentionally avoiding tax obligations. | It involves activities to legally minimise tax liabilities. |
| It involves deception, fraud and hidden transactions. | It involves exploiting tax laws and loopholes. |
| Nigerians who partake in tax evasion can be subject to severe penalties and criminal charges. | Tax avoidance may attract scrutiny and regulatory measures. |
Now, let’s explore some compliance tips.
Tips for ensuring compliance with tax laws in Nigeria
Taxation is an essential aspect of public finance, and it is your civic obligation to pay taxes. However, it’s also important you stay on the right side of the law — even if you want to enjoy the benefits of avoidance and tax refunds.
Here are some surefire tips to ensure you (or your company) complies with tax laws in Nigeria:
How to Fully Recover from a Financial Setback in Nigeria
- Ensure you maintain accurate records of all income and expenses.
- Submit your tax returns on time.
- If you’re unsure about any law, always seek professional advice from lawyers, tax consultants, financial advisors, or accountants.
- Stay informed about changes in tax laws and regulations.
- Take advantage of available tax incentives and reliefs.
Remember: complying with tax laws is crucial for individuals and businesses operating in Nigeria. Therefore, we recommend that you try to follow every relevant tax law to the letter.
What are the similarities between tax evasion and tax avoidance?
It’s easy to confuse tax evasion for avoidance and vice versa — and with good reason. Both are methods of reducing or completely removing your tax obligation. So, let’s see precisely what makes them so similar.
Tax evasion and tax avoidance share the following similarities:
How To Stop Gambling: 8 Practical Tips For Regaining Control And Saving Money
- Both involve minimising tax liabilities.
- Both can reduce the amount of tax paid.
- Both attract attention from tax authorities.
- Both have implications for government revenue.
Now you know!
What income is exempt from tax in Nigeria?
Taxes are a big deal in Nigeria, but not everyone has to pay them. In fact, certain individuals and income are legally not required to pay taxes.
The following types of income are exempt from taxation in Nigeria:
- Income earned by government bodies or agencies.
- Dividends from companies subject to the Companies Income Tax.
- Income from the Nigerian Stock Exchange (now the Nigerian Exchange Group).
- Interest on tax-free securities like FGN bonds.
- Gains from the disposal of shares listed on the Nigerian Stock Exchange (the Nigerian Exchange Group).
It’s important to consult relevant tax laws and regulations for a comprehensive list of income exemptions. Also, since amendments are commonplace in tax laws, the exemption status of some of the items on the list above may change.
Final thoughts
At the beginning of this article, we mentioned the phrase, “Nothing’s certain but debt and taxes.” While we wish we were the source of such clever words, they’re actually from a speech by Benjamin Franklin.
The quote references how one cannot avoid the inevitable — just like everyone in Nigeria must pay taxes except people who evade and avoid them. What is the difference between tax evasion and tax avoidance? Now you know!
The articles on the PiggyVest Blog are developed by seasoned writers who use original sources like authoritative websites, news articles and academic journals to perform in-depth research. An experienced editor fact-checks every piece before it is published to ensure you are always reading accurate, up-to-date and balanced content.
- Debt Management Office Nigeria: An Introduction to FGN Bonds
- Banwo & Ighodalo: Examining The Limits Of Tax Planning & Management In Nigeria
- Central Bank of Nigeria: Frequently Asked Questions: Government Securities
- HeinOnline:
What is the difference between tax evasion and tax avoidance?
