Tax avoidance in banking institutions: an analysis of the top seven Nigerian banks

Abstract

Purpose The purpose of this paper is to review the quantum and magnitude of tax avoidance in Nigeria's top seven banks by using recognized tax avoidance proxies of the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standard (IFRS) effective tax rate (ETR) and book-tax gap analysis for the appraisal. Design/methodology/approach Data for the paper came from the annual reports of the banks between 2011 and 2019. The individual bank’s tax data was analyzed for trends and then consolidated to establish the average percentages and the exact amount of the tax the banks evaded each year and cumulatively over the review period. The data were then matched with analytics of the drivers of tax avoidance in the reconciliation statement to highlight essential tax planning items and strategies being exploited by each bank in the pursuit of aggressive tax avoidance behavior. Findings F-test comparing the aggregate means (all banks) for tax evasion proxies of ETR and the book-tax gap was conducted at a 95% confidence interval. The results of this paper indicate no significant difference between the means obtained, thus affirming that the same pattern of tax evasion was consistent among the banks for the years reviewed. Originality/value The findings of this paper highlight the tax avoidance behavior of the referenced banks, identify weaknesses in the corporate tax planning policy pursued and serve to alert policymakers of the need to strengthen the laws and block loopholes that provide rooms for unrestrained tax avoidance behavior in the banking sector.

The Impact of Financial Performance, and Institutional Owner-ship on Tax Avoidance in the Banking Sector Listed on the Indonesia Stock Exchange

“…This implies that the generated profit is comparatively higher with respect to the company's profitability, leading to increased tax payments (Putriningsih et al, 2018;Handayani, 2018). Folorunso & Lokanan (2023) concur with this notion and assert that tax avoidance serves as a commercial strategy for minimizing tax payments by evading them to maximize profitability. In comparison, the research conducted by Wahyudi & Rustinawati (2020) and Irawati et al (2020) posited that the implementation of ROA does not have any significant impact on tax avoidance.…”

“…The theory posits that a potential conflict of interest may arise between company owners and management due to their respective pursuits of self-interest (Andrean & Suryarini, 2023). According to Folorunso & Lokanan (2023), in their capacity as company managers, management typically adopts tax mitigation measures aimed at minimizing the tax liability of the company, irrespective of the potential profitability of such actions.…”

“…The Impact of Financial Performance 109 According to the findings of Seidu et al (2021), tax avoidance is the result of effective tax planning, which allows taxpayers to reorganize their activities within the framework of tax laws and regulations. Companies employ tax avoidance strategies and structures in an effort to pay the least amount of tax possible by circumventing statutory provisions in order to achieve efficient tax payments and maximize profitability (Folorunso & Lokanan, 2023).…”

“…It involves effective tax planning that enables taxpayers to reduce their tax obligations, such as taxable income or assets, in a manner that violates applicable laws and regulations (Folorunso & Lokanan, 2023;Seidu et al, 2020). Folorunso and Lokanan (2023) attribute tax avoidance in Nigerian banks to the challenge of comprehending the intricate tax strategy that underpins bank operations. Indonesian banks engage in tax avoidance practices through the use of intermediaries.…”

A Review Analysis of Earnings Management Report Disclosure

“…One, Generally Accepted Accounting Principles (GAAP), and second, the International Financial Reporting Standard (IFRS). It has been used extensively to examine several matters such as taxation (Folorunso & Lokanan, 2022;Fernando et al, 2021), board characteristics (Khan & Kamal, 2022;Almarayeh et al,2022), stock return (Ellahie & Peng, 2021;Derun & Mysaka, 2021;Al Mamun et al, 2021;Bouaziz et al, 2020), readability (El-Din et al, 2021;Liu & Liu, 2021;Bradley et al,2021;Arora & Chauhan, 2021;Napier & Stadler, 2020), corporate social responsibility (Habbash & Haddad, 2019), and award (Deng et al, 2020) in last four years.…”