Nigeria loses $2.2b on misinvoicing

A new study by Global Financial Integrity (GFI), says that the potential loss of revenue by Nigeria to mis-invoicing in 2014 was approximately 2.2 billion dollars.
This is according to an analysis of trade misinvoicing it carried out on Nigeria for 2014.
The Managing Director of GH, Mr Tom Cardamone, said in Washington DC that the amount represents four per cent of total annual government revenue as reported to the International Monetary Fund (IMF).
“Put still another way, the estimated value gap of all imports and exports represents approximately 15 per cent of the country’s total trade.”
The report which was published with the support of the Ford Foundation is titled: “Nigeria: Potential Revenue Losses Associated with Trade Misinvoicing.”
According to Cardamone, the report analyses Nigeria’s bilateral trade statistics for 2014 (the most recent year for which sufficient data are available) which are published by the United Nations Comtrade.
He said that the detailed breakdown of bilateral Nigerian trade flows in Comtrade allowed for the computation of trade value gaps that are the basis for trade misinvoicing estimates.
He added that import gaps represent the difference between the value of goods Nigeria reports having imported from its partner countries and the corresponding export reports by Nigeria’s trade partners.
“Export gaps represent the difference in value between what Nigeria reports as having exported and what its partners report as imported.
“The portion of revenue lost due to the misinvoicing of exports was 1.3 billion dollars during the year which was related to a reduction in corporate income taxes.
“The portion of revenue lost due to the misinvoicing of imports was 880 million dollars.
“This amount can be further divided into its component parts: uncollected Value Added Tax (VAT), 100 million dollars, customs duties 365 million dollars and corporate income tax 415 million dollars.”
Cardamone added that lost revenue due to misinvoiced exports was 1.3 billion dollars for the year, a figure he said was related to lower than expected corporate income and royalties.
He also said that the report’s examination of the underlying commodity groups which comprise Nigeria’s global trade showed that a large amount of lost revenue of 200 million dollars was related to import under-invoicing of just five products.
Those products and the related estimated revenue losses include: vehicles 100 million dollars, iron and steel products 40 million dollars, electrical machinery 20 million dollars, ceramics 20 million dollars and aluminum products 20 million dollars.
He also said that lost revenue due to mispriced exports which stood at 1.3 billion dollars might be related to the mineral fuels trade, given that this category of goods makes up over 90 per cent of all exports.
He said that the report added that trade misinvoicing occurs in four ways: under-invoicing of imports or exports and over-invoicing of imports or exports.
“In the case of import under-invoicing, fewer VAT and customs duties are collected due to the lower valuation of goods.
“When import over-invoicing occurs (when companies pay more than would normally be expected for a product), corporate revenues are lower and therefore less income tax is paid.
“In export under-invoicing the exporting company collects less revenue than would be anticipated and, therefore, reports lower income.
“Thus, it pays less income tax. Corporate royalties are also lower.”
Cardamone said that total misinvoicing gaps related to imports could be broken down by under-invoicing which was 2.4 billion dollars and over-invoicing which was 1.9 billion dollars.
“It should be noted that these figures represent the estimated value of the gap between what was reported by Nigeria and its trading partners.
“The loss in government revenue is a subset of these amounts and is based on VAT rates.
“It represents five per cent, customs duties 15.2 per cent, corporate income taxes 22.4 per cent and royalties 0.2 per cent which are then applied to the value gap.
“Export misinvoicing gaps were a massive 5.9 billion dollars for export under-invoicing and 5.6 billion dollars for export over-invoicing.
“Lost corporate income taxes and royalties are then applied to export under-invoicing amounts to calculate lost government revenue.”
The statement quoted GFI President, Mr Raymond Baker, as saying that the practice of trade misinvoicing had become normalised in many categories of international trade.
“It is a major contributor to poverty, inequality and insecurity in emerging markets and developing economies. 
“The social cost attendant to trade misinvoicing undermines sustainable growth in living standards and exacerbates inequities and social divisions, issues which are critical in Nigeria today.”