To tackle the huge revenue losses caused by illicit financial flows (IFFs), the Federal Inland Revenue Service (FIRS) is organising a national conference to build capacity and strengthen collaboration among key agencies.
The effort is aimed at improving the country’s ability to detect and prevent capital flight, especially through aggressive tax practices by multinational companies.
This move comes as part of a broader strategy to halt the steady drain of resources from Nigeria and other African nations—estimated at $88.6 billion annually from Nigeria alone, largely through commercial transactions disguised as legitimate trade.
Globally, Africa is said to lose approximately $1.6 billion every day to IFFs, translating to roughly $587 billion per year. These staggering losses are a major constraint on development financing across the continent.
Professor Bolaji Owasanoye (SAN), Coordinating Director of the FIRS’ Directorate on Proceeds of Crime and Illicit Financial Flows, revealed the upcoming conference during a recent appearance on Channels Television’s Business Morning.
According to him, while the FIRS is Nigeria’s principal revenue collection agency, its success depends on robust cooperation with other government bodies and improved technical capacity.
“FIRS cannot do it alone. If we cannot track properly, we cannot collect,” Owasanoye said. “This conference is meant to build synergy across agencies, foster information exchange, and enhance our capacity to understand and counter illicit flows.”
In recognition of the urgency and scale of the problem, FIRS has established a dedicated Proceeds of Crime and Illicit Financial Flows Department, a move consistent with its designation as a relevant organization under the Proceeds of Crime Act, 2022.
Owasanoye explained that the creation of this department aligns with Nigeria’s statutory obligations and reflects an understanding that the lines between tax evasion, money laundering, and other forms of financial crime are increasingly blurred. “Between tax evasion and money laundering, the boundary is very narrow,” he stated. “The service is preparing to play its role as required by law.”
When asked to identify where the financial leakages are most prevalent, Owasanoye pointed to three principal areas: commercial transactions, criminal activities, and corruption. Of these, he said, commercial activities—especially those involving multinational companies—are the primary culprits.
“A major source of loss is from commercial transactions, particularly aggressive tax avoidance by multinationals through methods such as trade mispricing, misrepresentation of transaction records, and especially transfer pricing within corporate groups,” he said.
Transfer pricing manipulation, he explained, allows firms to shift profits from high-tax to low-tax jurisdictions by inflating or deflating prices in transactions between subsidiaries. “Even though a company may be registered in Nigeria with an RC number, its operational decisions are often made from a foreign head office. The parent company directs pricing, procurement, and other key actions, including inflating costs to reduce taxable profits in Nigeria.”
To illustrate how trade mispricing works, Owasanoye gave a hypothetical example of a bottled water manufacturer in Nigeria importing bottle caps from a related entity in another country. If the caps are deliberately overpriced in the records, the company’s operating costs in Nigeria are artificially inflated, thereby reducing its taxable profits and facilitating capital flight disguised as legitimate expenses.
“This manipulation is done entirely in-house, and unless regulators know what to look for, such practices can pass unchallenged,” he said.
He also acknowledged the risk of collusion and complicity, citing potential lapses by company staff, external auditors, or even tax officials. “In some cases, auditors see questionable entries and ignore them. It’s not always malice—sometimes it’s simply a lack of expertise or access to comparative data.”
Owasanoye cited the findings of a report led by former South African President Thabo Mbeki, which concluded that over 60 percent of Africa’s illicit financial losses come from commercial transactions—particularly in the extractive sector. The remaining losses are shared between criminal enterprises and corrupt practices.
He noted that while Nigeria is eager to attract foreign direct investment, the country cannot afford to welcome capital that leaves the economy worse off. “We need investment, but not toxic investment. When companies bring in X amount and extract X plus Y, the host country suffers,” he stated.
Nigeria is not alone in this experience Owasanoye said. The issues around base erosion and profit shifting (BEPS) are part of a global concern, with international bodies like the Organisation for Economic Cooperation and Development (OECD) and the United Nations pushing for fairer taxation of multinationals. Nigeria is an active participant in the OECD’s BEPS framework, which is designed to curb these practices.
“The global north, where many of these multinationals are registered, also recognizes the problem. These are systemic practices that go far beyond individual countries,” he said.
On the implications of Nigeria’s evolving tax framework, especially for small and medium enterprises (SMEs), Owasanoye noted that the new policies are geared toward fairness. He explained that SMEs falling below a certain revenue threshold will now be exempt from taxation, a deliberate policy choice aimed at promoting economic growth and reducing hardship.
“The government is saying it does not want to tax poverty—it wants to tax wealth. If your business is still growing and below the tax threshold, you’ll be exempt. But once your enterprise matures and becomes profitable, then you’ll start paying taxes, as it should be.”
He stated that the new tax policy framework allows the FIRS to direct greater focus on large corporations that have the capacity to pay but often engage in evasive practices. “The poor can’t pay taxes. That’s not equitable. The tax system must reflect reality, and that’s what this reform aims to achieve.”
According to Owasanoye, one of the most critical reforms needed is access to cross-border corporate information through automatic exchange of information agreements. This enables tax authorities to compare declarations made by the same multinational entity in different jurisdictions.
“The key is to analyse the data submitted in other countries and compare it with what is filed in Nigeria. That’s how you detect anomalies and pinpoint profit shifting,” he said.
Ultimately, the FIRS initiative seeks to arm Nigerian authorities with the tools, skills, and partnerships necessary to safeguard national revenue from sophisticated schemes that have long undermined the country’s fiscal base.
