“Tax costs are inevitable costs payable by profit-oriented entities for carrying out business activities. Tax payment is an obligation owed to the Government,failure of which sanctions are imposed. Unlike tax costs, most other costs are evitable and may be circumvented by management decisions. As formidable as Tax costs are, they are not totally exempted from being avoided or minimized by tax planning strategists without contravening the law. This is “tax avoidance”.

There is no gain saying that the main focus of any profit-oriented entity is to minimize cost,thereby increasing the distributable profit and dividend of its shareholders, retained earnings and to enhance its goodwill as well as rating of the entity.The reason companies strategize to minimize costs is therefore not farfetched.

Tax cost is radically different from other incurable costs especially the direct cost of producing goods or rendering of services . The management of an entity has the power to make decisions on whether to incur other costs, unlike payment of tax which is beyond the whims and caprices of the alter egos and management decisions.

As formidable as tax cost appears to be, it is caught by the web of tax lawyers and unable to slip through the fingers of tax planning strategists who are employed by the management of tax paying entities. No doubt, tax is highly regulated by the law. Entities therefore employ tax experts to carefully arrange its affairs to minimize the amount of tax payable by it without any infraction of the law. This is known as tax avoidance

Tax avoidance is the strategic arrangement of the financial affairs of entities in a way to subject the taxpaying entity to minimum possible tax. Tax structures are frequently driven by the desire of the relevant parties to optimally utilize available tax planning opportunities and this is aimed at avoiding tax liability. This escape of liability usually involves no criminality .
The concerns of most entities go to the decisions relating to those activities (business or non-business) that have tax implications such as financial decisions, investment decisions and dividend decisions. A systematic structuring of related entities may as well serve as a tax avoidance strategy .

Few of the ways employed by entities to avoid tax costs include;Base erosion and profit shifting ,transfer pricing,thin capitalization , purchasing Nigerian manufactured goods to avoid custom duties, investing in capital assets ,application for pioneer status and extension of same within time ,prudence by tax experts to ensure all allowances and reliefs that are available in tax laws are claimed to minimize the profit that will be chargeable to tax etc.

In an attempt to checkmate tax avoidance in many climes, there have been promulgation of anti-tax avoidance legislations and development of judicial anti-avoidance doctrines.It is not unimaginable that tax avoidance may be unacceptable to tax authorities and not intended or within the purpose of tax legislation. This is the catalyst of the anti-tax avoidance legislations and judicial anti-avoidance doctrines.

Anti-avoidance legislations are statutory provisions which seek to prevent an escape from liability to taxpayer using artificial or fictitious transactions to dodge tax. However, Courts and Tribunals remain cautious not to undermine transactions entered by parties with commercial motive under the cynical impression that it was for the purpose of tax avoidance.

The most pertinent feature of tax avoidance is that it is carried out within the limit of the law. Tax costs are avoided inplethora of ways and manners beyond which the statutory,legislative net or judicial hooks can catch. Professor AbdulRazaq puts it that for close to what seems a millennium, tax avoidance activities have plagued global tax jurisprudence especially Nigeria where legislative and judicial solutions to it have remained illusory. Tax avoidance remains the thorns in the flesh of Tax authorities and the Governments as the treasury of the government is legally depleted while the three organs of government remain toothless bulldogs incapable of plugging the leakages.

In conclusion

It cannot be overemphasized that the sole objective of doing a business is to make profit while profit is maximized by minimizing costs. Tax costs could take the chunk of the chargeable profits of companies. For example, the average income tax under the Companies Income Tax Act is 30% of chargeable profit while in other businesses, it could be as high as 85%, 65.75% and 50% depending on the nature of business. Entities hence circumvent the avoidable tax costs to maximize the wealth of its shareholders and increase retain earnings of the company without being culpable.

As a final note, due care should be taken by profit making entities to ensure tax is not evaded by deliberately and willfully using illegal means to reduce tax liability. This will be criminal and will attract stiff punitive measures as contained in the tax laws and in compliance with the constitution.