Tax Avoidance in Banking Institutions: An Analysis of The Top Seven Nigerian Banks

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

Dada Folorunso and Mark Eshwar Lokanan
Faculty of Management, Royal Roads University, Victoria, Canada
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.
Keywords Nigeria, Earnings management, Banks, Tax avoidance, Effective tax rate
Paper type Research paper
Introduction
Taxation is one of the most frequently discussed global issues today. Every country relies
on levies charged on the economic activities of corporations, firms and individuals operating
in its territory or local economy to generate revenue for various developmental interventions
falling within the bounds of the fiscal policy actions of a responsible government. Therefore,
it is incumbent on all economically active citizens and corporations to seek to pay and remit
taxes consistent with revenue earnings in the local economy in support of government
developmental efforts. While the usefulness of tax revenue in the development of every
economy is evident, many individuals, firms and corporations still strive to either outright
evade taxes or circumvent the laws in a bid to pay lower amounts. While the direction of
global tax reform and discussion has focused on cross-border tax evasion and the avoidance
practices of multinational companies operating in different jurisdictions across the globe,
little attention has been devoted to tax issues affecting large corporations that are tax-
resident entities in local economies. Journal of Financial Crime
The situation is much the same in Nigeria. Tax research focusing on reviewing tax © Emerald Publishing Limited
1359-0790
planning activities (involving avoidance) of banking institutions in Nigeria is not so DOI 10.1108/JFC-11-2021-0238
JFC common. This practice may be caused by the difficulty in understanding the complexity of
bank reporting vis-a-vis the tax strategies underlying bank operations. Tax evasion is
defined as deliberate misrepresentation, concealment or under-disclosure of taxable revenue
or assets in contravention of the extant tax law. In contrast, tax avoidance covers any act
that takes advantage of loopholes in the provisions of the tax laws with the intention of
reducing due liability (Easter, 2016, as cited by the Canada Revenue Agency). Tax planning
(avoidance) usually forms the basis of the strategies and complex structures operated by
corporations in a bid to pay the minimum amount of taxes through circumvention of the
provision of the law to achieve efficient tax payment and optimize profitability.
The banking subsector is the second largest by market capitalization of all sectors listed
on the floor of the Nigerian Stock exchange. Thus, the sector has evolved over time through
various reforms, mergers and acquisitions and through recapitalization and technology
transformation. While the Nigerian banking institutions have continuously posted stellar
growth and performance in the past decade, tax payments from the sector have not been
consistent with the magnitude of profit declared based on effective tax rate (ETR) and book-
tax gap disclosures in their published financial statements. Using selected banking
institutions as a case study, this research paper seeks to assess the quantum and magnitude
of tax avoidance in these institutions, identify the drivers of tax avoidance proxies
indicating avoidance behavior, highlight the weaknesses in current corporate tax planning
efforts and strategies, provide alternate tax planning recommendations to the banks and
suggest policy actions to fiscal authorities for stemming regulatory abuse.
The paper reviewed the quantum and magnitude of tax avoidance in a selection of
Nigeria’s top banking institutions over nine years by using recognized tax avoidance
proxies of the Generally Accepted Accounting Principles (GAAP)/the International
Financial Reporting Standard (IFRS) ETR and book-tax gap analysis for the appraisal. To
achieve this, yearly ETRs were compared with statutory tax rates. The absolute volume of
actual tax expense was reviewed vis-a-vis divergence from expected statutory tax payments
to identify the book-tax gap and the key drivers of tax planning strategy (indicative in the
proxies) pursued by institutions. The various extracted data were analyzed using
descriptive statistics to identify prominent drivers of tax planning and trends, highlight
divergence and conduct a comparative review of these proxies.
Significance of the study

This study is significant in that it highlights tax avoidance practices and tax underpayment
by Nigerian banking institutions over the years, despite the significant growth and
profitability recorded at the same time. This study also highlights current weaknesses in
exploited tax policy and exemption instruments, which ordinarily might have been well
intended but are now abused by banking institutions in their tax planning schemes and are
being used to massively erode tax bases and deprive the government of due tax revenue for
development spending. These outcomes alone are an indication that the policy might have
outlived its usefulness. Furthermore, given that the instrument (Companies Income Tax-
Exemption of Bonds and Short Term Securities-Order, 2011) granting tax exemptions on
bonds and other short-term financial instruments that serve as the core of the tax avoidance
strategy pursued by banks will be expiring in 2021, this study will encourage Nigerian
banking institutions to assess the sustainability of their current tax-planning strategies and
alert policymakers to the need to correct such policy mistakes and block all known loopholes
facilitating such revenue leakage. The paper will explore the following questions:
RQ1. What is the aggregate magnitude of tax avoidance and the pattern of tax Tax avoidance
avoidance behavior in the select banking institutions? in banking
RQ2. What is the key driver of the low effective tax rate posted by the identified institutions
Nigerian banking institutions?
The first part of the research question was answered with the computation of data on the tax
proxies of ETRs and book-tax gap numbers, including trend analysis. The second part of
the first research question was answered with the aid of an analysis of variance (the
ANOVA of the aggregate means and F-statistics at 95% significant levels) on both ETRs
and book-tax gap metrics. Thus, an established pattern of tax avoidance behavior was
identified as sustained throughout the years reviewed.
The paper used descriptive statistics and trend analysis on the values, frequency and
impact of every item in the tax reconciliation statement driving divergence between the
probable statutory tax and the actual GAAP tax expense incurred. This approach highlights
the strategies deployed by the banks to erode the tax bases and record low ETRs and large
book-tax gaps achieved year on year. In doing so, the volume, frequency and percentage
were identified for the impact of each tax planning item on tax base erosion.
Literature review
Income tax expense is one of the largest items in the income statement of corporations
(Serocki and Callaghan, 2012). According to Perez (2012), a tax disclosure statement is a
valuable source for assessing the true financial health of companies, for uncovering hidden
liabilities and for investigating the nature and extent of aggressive tax planning efforts
embarked upon by corporations. Information disclosed in a tax reconciliation statement
presents a means for assessing the quality of earnings declared by corporations.
Traditionally, tax researchers recognize GAAP/IFRS ETRs, cash ETRs, book-tax gap,
permanent difference and temporary difference indicators as proxies of tax avoidance. De
Simone et al. (2020) conducted research testing the relative powers of these proxies in
measuring tax avoidance. They found that when firms are not accruing reserves for
uncertain tax benefits, GAAP/IFRS ETRs are more effective in detecting uncertain and
permanent tax avoidance. The adoption of GAAP/IFRS ETR proxies in detecting
permanent tax avoidance (the exempt income item) is validated by the position of De Simone
et al. (2020). According to De Simone et al. (2020), the accretion of unrecognized tax benefit
reserves did not feature in the tax strategies or books of the samples reviewed, which
subsequently removed the possibility of having unsuitable ETR for tax avoidance
assessment. Drake, Hamilton and Lusch (2020) affirmed the use of the ETR as a proxy for
tax avoidance measurements across firms and time-space. He found a significant effect of
the valuation allowance adjustment on GAAP ETRs. Drake et al. (2020) also noted that the
valuation allowance seldom moderately released the rate of reduction in a domestic firm’s
ETR and that not all GAAP ETR reductions indicated tax avoidance (tax planning). De
Simone et al. (2016), however, opined that no single proxy is sufficient for the measurement
of corporate tax avoidance and believed that proxies more easily detect permanent tax
avoidance than the temporary planning strategies that are implicit in deferred tax.
Evans (2019) analyzed the ETR, its reconciliation and the impact of various
reconciliation items on the ETR movement. Evans (2019) found that temporary and
permanent difference, deductible temporary difference, taxable temporary difference, the
permanent difference in relation to deferred tax assets and liabilities and various permanent
and temporary tax planning strategies are usually pursued by corporations. Despite the
focus on tax avoidance, Evans’ (2019) study highlighted why FASB Accounting Standard
JFC Codification Topic 740 (with equivalence in IAS 12, Section 8, Subsection 1) on income tax
reconciliation per ETR and STR represents a topical issue of interest to tax analysts and
investors and why issues relating to taxes are a key cause of financial statement
restatements in recent times. The study improved the understanding of tax accounting,
earning management strategy and corporate tax planning in general. These findings are
consistent with the focus of the present study, in that it aims to explore tax-accounting
fundamentals, frameworks and accounting standards in the analysis of tax avoidance rather
than the approaches adopted in prior research on taxation. By design, this paper adopts the
use of tax proxies, focusing on identifying and analyzing permanent and temporary
difference items in tax reconciliation statements to understand what factors drive
underlying tax planning strategies and avoidance behaviors.
Other researchers examined the sources of declining ETRs for select groups of multinational
and domestic firms using both cross-sectional and time-trend data on the ETR effects of each
element of the reconciliation items (Drake et al., 2017; Flagmeier et al., 2020; McGill and Outslay,
2004; Nwachukwu and Mohammed, 2012). Drake et al. (2017) highlighted the frequency, tax rate
impact and the magnitude of the absolute dollar benefit of each reconciliation item across the
spectrum of the multinational enterprises and domestic firms studied. The study identified growth
in offshore income, lower tax rates in foreign jurisdictions and the decrease in states’ ETRs as
causes of the decline in ETRs for the multinational enterprises. At the same time, valuation
allowance releases were noted to be largely responsible for ETR declines in domestic firms. This
approach highlights the influence of individual factors of temporary and permanent differences on
tax avoidance proxy measures and target corporate tax objectives. Based on this premise, this
research paper also seeks to highlight the frequency, value and percentage impact of every tax item
disclosed on the tax avoidance proxies measured. McGill and Outslay (2004) also conducted a
similar study focusing on individual elements of tax reconciliation footnotes in Enron’s financial
statement in a bid to identify transactions providing tax shelters. The authors defined tax shelter
transactions as those producing permanent difference effects on tax rates like deductions not
expensed, exempt income, income not taxed at the full statutory tax rate and other similar strategies
touted to drive lower tax liabilities and, by extension, shareholder value improvement. The study
corroborated the findings of previous studies that the exempt income accretion strategy of the
identified banks was used as a qualifying tax shelter by companies. In Flagmeier et al.’s (2020)
study on factors guiding disclosure behavior on ETRs by firms, the findings showed that firms
tend to highlight ETRs when they are favorable and seldom avoid disclosures when ETR figures
go north. Some errors underlie this assumption, considering that ETRs disclosures and their
reconciliation to the statutory tax rate in financial statement footnotes is guided by the requirements
of International Accounting Standard 12 on income taxes (Section 8, Subsection 1) and ASC 740 for
companies reporting under the US GAAP.
This study’s methodologies and research strategy have never been used for any
corporate tax avoidance research in Nigeria. Thus, research on the measurement approach
derived from core tax accounting perspectives for proxies of tax avoidance like GAAP ETR
and the book-tax gap using the tax footnotes of financial statements are currently non-
existent in Nigeria and, more specifically, in Nigeria’s banking industry. In this regard, the
present study addresses a gap in the literature by using a tested tax avoidance measurement
approach in another jurisdiction and, in doing so, enhances the external validity of the
scholarship in this area. The paper will test the following hypotheses:
H0. (Null hypothesis): The aggregate mean tax avoidance behavior (indicated in the
effective tax rate and book-tax gap proxies) for all the banks was same for all the
years reviewed.
H1. (Alternate hypothesis): The mean tax avoidance aggregate indicated by tax Tax avoidance
avoidance proxies was different for all the years reviewed. in banking
institutions
Research methodology
This research was conducted via a quantitative case study research method. Data for the
study came from tax avoidance proxies for the referenced banks and covered the period
between 2011 and 2019. A quantitative approach allowed the researchers to review the
patterns and trends across key indicators and to identify the pattern of corporate tax
avoidance behavior among the banks studied. A longitudinal research design was adopted
to analyze the data on tax avoidance proxies over the nine years for the referenced banks.
Data on ETRs, book-tax gaps and tax avoidance drivers were extracted from the financial
statements of select banks from 2011 to 2019 and was then observed and analyzed from
2011 to 2019. The extracted data on tax avoidance proxies and drivers of tax avoidance
strategies for the selected banks were analyzed using descriptive statistics with other
analytics on individual banks and aggregated data over the time period. This analysis was
supported by trend analysis that highlighted the key variables and proxies of tax avoidance.
Samples and data collection

Eight banks were selected based on the metrics of profitability, risk asset volume, total
assets and deposit liability base and were used as case study samples in this research. These
banks lead the industry based on the listed metrics and, thus, represent more than 65% of
the entire Nigerian banking industry across all other known metrics. Therefore, it is possible
to come to a relative conclusion on the industry based on inferences obtained from this
research study of these subjects. The table below presents the market capitalization and
gross revenue of these banks as of December 31, 2019. Secondary data obtained from
original annual reports and accounts of these banks were collected, aggregated and
analyzed for this study. These data for the proxies and tax avoidance drivers were obtained
from tax reconciliation notes in the financial statements of individual banks over the period
of study from 2011 to 2019.
Result and analysis

Below are the highlights of the profit, tax payment and tax avoidance data of seven Nigerian
financial institutions from 2011 to 2019. As can be seen in Table 2, a 16% mean ETR over
the observed period suggests that about 50% of the statutory tax of 30% was avoided and
this translates to a book-tax gap of ₦681.6bn of avoided taxes from 2011 to 2019 for all the
Market capitalization and revenue

data as at December 31, 2019 Market cap ₦’billion Gross earnings ₦’billion
FCMB 36.64 181.20

Fidelity 59.4 217.3
United Bank for Africa 244.53 560.00
Access Bank 355.45 666.70
Guaranty Trust Bank 874.11 435.30
FBNH Plc 220.76 627.00
Table 1.
Zenith Bank 583.97 662.30 Market capitalization
and revenue data of
Source: Nigerian Stock Exchange and investors’ presentation data of individual banks selected banks
JFC
Table 2.
of All Banks
Tax Data Analytics
2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
FCMB-Figures in ₦'Million
ETR 13% 7% 12% 8% 39% 12% 19% 19% 14% 13%
Book-Tax Gap (1,439.25) 3,748.09 3,272.08 5,352.80 (702.77) 2,881.08 1,147.36 2,061.92 3,246.00 2,174.14 19,567.30
Most Prominent Tax Planning Item- 2,215.81 15,831.93 8,868.46 8,654.97 1,813.72 15,360.83 11,431.01 12,931.08 14,156.66 10,140.50 91,264.46
Exempt Income
Most Prominent Tax Planning Item- 21% 97% 49% 36% 24% 96% 107% 70% 70% 59%
Exempt Income as % of Total PBT
Most Prominent Tax Planning Item- NA 325% 163% 121% 79% 320% 357% 234% 234% 229%
Exempt Income as % of Statutory
Tax
FIDELITY-Figures in ₦'Million
ETR 1505% 16% 14% 11% 1% 12% 8% 9% 6% 159%
Book-Tax Gap 2,437.00 2,915.00 1,400.00 2,936.00 4,087.00 1,991.00 4,319.00 5,364.00 7,178.00 3,625.22 32,627.00
Most Prominent Tax Planning Item- 3,427.00 9,172.00 42,750.00 9,553.00 7,341.00 13,419.00 10,797.00 10,717.67 96,459.00
Exempt Income
Tax
GT BANK-Figures in ₦'Million
ETR 23% 16% 16% 15% 18% 20% 15% 14% 15% 17%
Book-Tax Gap 4,346.99 14,567.33 15,060.10 17,224.83 14,950.52 16,685.13 30,300.22 33,728.86 34,670.18 20,170.46 1,81,534.16
Most Prominent Tax Planning Item- 5,590.57 17,691.60 16,555.79 16,231.38 18,212.54 37,352.38 52,848.99 49,690.01 44,269.64 28,715.88 2,58,442.88
Exempt Income
Tax
(continued)
2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
ACCESS BANK-Figures in ₦'Million

ETR 32% 4% 20% 17% 12% 21% 23% 8% 15% 17%
Book-Tax Gap (461.87) 11,445.74 3,489.46 6,644.51 13,342.09 8,201.73 5,940.12 22,744.95 16,744.66 9,787.93 88,091.38
Exempt Income
Tax
FBNH-Figures in ₦'Million
ETR 48% 18% 23% 11% 30% 25% 16% 9% 12% 21% 1.91
Book-Tax Gap (6,468.10) 10,779.30 6,695.00 18,172.00 90.00 1,077.00 8,008.00 13,611.90 15,295.00 7,473.34 67,260.10
Exempt Income
Tax
ZENITH-Figures in ₦'Million
ETR 28% 1% 14% 17% 16% 17% 13% 17% 14% 15%
Book-Tax Gap 1,496.00 29,211.00 17,900.00 15,598.00 17,732.00 19,928.00 34,268.00 31,245.00 38,537.00 22,879.44 2,05,915.00
Exempt Income
Tax
UBA- Figures in ₦'Million

ETR 3% 1% 17% 15% 13% 20% 25% 26% 20% 15%
Book-Tax Gap 15,049.00 15,070.00 7,360.00 8,567.00 11,736.00 8,815.00 4,905.00 3,871.00 11,188.00 9,617.89 86,561.00
Most Prominent Tax Planning Item- 16,752.00 17,647.00 18,182.00 69,056.00 19,234.00 14,842.00 32,637.00 45,741.00 26,010.11 2,34,091.00
Exempt Income
(continued)
Table 2.
Tax avoidance
institutions
in banking
JFC
Table 2.
2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
Tax
Summary-All 7 Banks-₦'Million
Consolidated PBT ######## ######## ######## ######## ######## ######## ######## ######## ######## ######## 48,18,080.19
Consolidated Statutory Tax @ 30% 70,120.11 ######## ######## ######## ######## ######## ######## ######## ######## ######## 14,49,128.01
Consolidated Tax Expense 55,160.34 41,893.67 73,498.28 68,857.37 68,672.27 ######## ######## ######## ######## 85,285.79 7,67,572.07
ETR 25% 10% ; 14% 16% 19% 17% 15% 15% 16%
Book Tax Gap 14,959.77 87,736.46 55,176.63 74,495.14 61,234.84 59,578.94 88,887.70 ######## ######## 75,728.44 6,81,555.94
Most Prominent Tax Planning Item- 76,813.05 ######## ######## ######## ######## ######## ######## ######## ######## ######## 17,53,838.93
Exempt Income
Tax
Source: Adapted from annual reports of accounts of listed banks: Access, FBNH, Zenith and UBA
financial institutions combined. In the tax reconciliation data reviewed, the tax-exempt Tax avoidance
income item of permanent tax planning is the most prominently identified item effectively in banking
applied to erode the tax bases by all the banks. In the analyzed, consolidated and summary institutions
figure, a whopping ₦1.754tn in tax-exempt income was adjusted off the tax bases of all the
banks combined over the period. This was made possible by policy-exempting income
earned from trading in bonds and other financial instruments from taxation. The quoted
amount should ordinarily have been taxed, and it represented 36% of the entire ₦4.8tn
profit before tax (PBT) earned by all the banks during the period studied. As shown in Table
2, the trend of tax-exempt income as a percentage of PBT and statutory tax from 2011 to
2019 is, thus, indicative of the extent to which this item was exploited yearly for tax
planning and risk management considerations. When organizations engage in legal tax
planning, they intend to avoid tax (Putra et al., 2018). This is particularly true for
organizations that are tax aggressive (Sari, 2019).
A review of individual tax reconciliation statements of all the financial institutions
presented is presented in Table 2. The findings revealed that tax-exempt income featured
prominently throughout the years under review and represented the only significant
permanent tax planning strategy item that consistently eroded the tax bases and widened
the book-tax gap. The resultant effects are tax payments that are lower than the statutory
tax rates. Consistent with the finding in this study, Calegari (1998) reported that income
deferral opportunities or tax-exempt incomes are incentives for organizations to engage in
tax avoidance.
Analysis of individual banks

Zenith bank
As evidenced in the sustained record of profit performance since 2011, Zenith is one of the
most profitable banks in Nigeria. While Zenith made a significant aggregated profit of about
₦1.36tn between 2011 and 2019, it earned a tax-exempt income of ₦447bn, resulting in a
book-tax gap of ₦206bn and an average ETR of 15%. Table 3 highlights the tax
reconciliation statements and drivers of the book-tax gap and low ETR recorded over the
period under study.
Table 4 highlights the use of other tax planning items like the foreign jurisdictions tax
effect, capital allowance, deferred tax and tax losses; these occurred sparingly across the
years reviewed compared to tax-exempt income, which was featured prominently
through the period under review and represents a significant percentage of the PBT in all
years. For Zenith bank, the depletion of the profit tax base averaged 33% in the period
under review. These figures present overwhelming evidence that Zenith bank was
avoiding taxes through the exempt income strategy play of earning risk-free income that
was not being taxed, resulting in the huge book-tax gap and low ETR recorded over the
period reviewed. To put this into context, Zenith bank, in 2013, 2014, 2015, 2016, 2017 and
2018, resorted to paying the minimum or dividend tax as a minimum tax payment when
adjusting tax planning items. Moreover, other reconciliation items resulted in due taxes
lower than the minimum tax or no tax payable at all. These results are consistent with
Nigeria’s company income tax laws, which require company to pay a minimum tax based
on specific percentages of turnover, revenue, assets and the dividend paid when the
calculated tax based on adjusted profit falls below the minimum tax metric. The bank
has, thus, consistently exploited this strategy to ensure payment of the minimum tax
possible for the years under investigation.
JFC Zenith Bank Plc -Amount in
₦'B 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
PBT 67 102 111 120 126 157 199 232 243 151 1357
Income tax using the 20 31 33 36 38 47 60 70 73 45 407
domestic corporation
statutory tax rate @30%
Tax exempt income 18 38 32 26 35 48 86 85 79 (50) 447
Deferred tax 0 0 5 6 0 0 0 0 0 (1) 11
Others Tax Base Depleting 1 0 1 9 0 0 0 1 0 (1) 11
Items
Tax Cost Items 16 9 21 25 17 28 51 55 40 29 263
Total tax expense 19 1 15 20 20 27 26 38 34 22 201
Summary Highlights
ETR 28% 1% 14% 17% 16% 17% 13% 17% 14% 15%
Book-Tax Gap 1 29 18 16 18 20 34 31 39 23 206
Most Prominent Tax 18 38 32 26 35 48 86 85 79 50 447
Planning Item-Exempt
Income
Most Prominent Tax 27% 37% 29% 22% 28% 31% 43% 37% 32% 32%
Table 3. Income as % of Total PBT
Tax Reconciliation Most Prominent Tax 90% 123% 97% 73% 93% 102% 143% 122% 108% 106%
Statement and Tax Income as % of Statutory
Data Analytics for Tax
Zenith Bank from
2011 to 2019 Source: Adapted from annual reports of accounts of listed banks: FCMB, FIDELITY and GT
Highlights of Drivers of Book

Tax Gap and Percentage
Impact on Tax Base-Zenith
Bank 2011 2012 2013 2014 2015 2016 2017 2018 2019
PBT-₦'B 67.4 102.1 110.6 119.8 125.6 156.7 199.3 231.7 243.3
Income tax using the domestic 20.2 30.6 33.2 35.9 37.7 47.0 59.8 69.5 73.0
corporation statutory tax rate
@30%-₦'B
Drivers of Book Tax Gap and % Impact
Tax exempt income 27% 37% 29% 22% 28% 31% 43% 37% 32%
Table 4. Deferred tax 0% 0% 5% 5% 0% 0% 0% 0% 0%
Highlights of Drivers Others Tax Base Depleting 1% 0% 1% 7% 0% 0% 0% 1% 0%
Items-Widening BTG
of Book-Tax Gap and Tax Cost Items 24% 8% 18% 21% 14% 18% 26% 24% 17%
Percentage Impact on Total tax expense-₦'B 18.7 1.4 15.3 20.3 20.0 27.1 25.5 38.3 34.5
Tax Base, Zenith
Bank Source: Adapted from annual report and accounts 2011–2019 – respective banks
Guaranty trust bank

Guaranty trust bank (GT bank), like Zenith, also recorded consistent profits throughout the
period in review. As can be seen from Table 5, GT bank earned a combined total of ₦1.3tn
from 2011 to 2019, with about ₦258bn being exempt income and a book-tax gap of ₦181bn.
This translates to an average ETR of 17% over the review period. The opportunity for tax
GT Bank PLC -Amount in ₦'B 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
Tax avoidance
in banking
PBT 62 103 107 116 121 165 198 216 232 146.6 1319.4 institutions
Income tax using the domestic 19 31 32 35 36 50 60 65 70 44.1 396.6
@30%
Others Tax Base Depleting 5 4 5 6 7 7 1 5 1 4.3 38.4
Items
Tax exempt income 6 18 17 16 18 37 53 50 44 28.7 258.4
Tax Cost Items 6 7 6 5 10 27 23 21 10 12.8 115.3
Total income tax expense 14 16 17 18 21 33 30 31 35 23.9 215.1
Summary Highlights
ETR 23% 16% 16% 15% 18% 20% 15% 14% 15% 17%
Book-Tax Gap 4 15 15 17 15 17 30 34 35 20 182
Most Prominent Tax Planning 6 18 17 16 18 37 53 50 44 29 258
Item-Exempt Income
Most Prominent Tax Planning 9% 17% 15% 14% 15% 23% 27% 23% 19% 18%
Item-Exempt Income as % of Table 5.
Total PBT Tax Reconciliation
Item-Exempt Income as % of
Statement and Tax
Statutory Tax Data Analytics for
GT Bank from 2011
Source: Adapted from annual report and accounts 2011–2019 – respective banks to 2019

Tax Gap and Percentage Impact
on Tax Base-GT Bank Plc 2011 2012 2013 2014 2015 2016 2017 2018 2019
PBT-₦'B 62.1 103.0 107.1 116.4 120.7 165.1 197.7 215.6 231.7
@30%-₦'B
Others Tax Base Depleting 8% 3% 4% 5% 5% 2% 0% 2% 0%
Items-Widening BTG Table 6.
Tax Cost Items 10% 6% 5% 5% 8% 15% 11% 9% 4%
Total income tax expense- 14.3 16.3 17.1 17.7 21.3 32.9 29.8 30.9 34.8
Highlights of Drivers
₦'B of Book-Tax Gap and
Percentage Impact on
Source: Adapted from annual report and accounts 2011–2019 – respective banks Tax Base—GT Bank
base erosion through exempt income also enabled GT bank to pay the minimum tax payable
from 2016 through 2019. As shown in Table 5 and 6, the exempt income as a permanent tax
planning item also represents a significant component of GT bank’s tax planning strategy
from 2011 to 2019 compared to other tax planning items in the tax reconciliation statement.
Table 5 and 6 highlight the significance of tax-exempt income as a key strategic tax
planning item deployed in the erosion of the tax base to achieve a low ETR. Other tax
planning items listed barely appear and exert an insignificant impact on tax base erosion
compared to the exempt income element.
JFC Access bank
Access bank also performed fairly well in profitability terms but not nearly as well as GT
and Zenith banks. However, the story is the same on the tax avoidance behavior and
strategy followed. Of the total profit of ₦620bn recorded between 2011 and 2019, the book-
tax gap was ₦88bn (14%) and the ETR averaged 17% throughout the period under review.
At a statutory tax rate of 30%, a 15% mean ETR indicates a 50% (15%) tax gap was being
eroded on average. Thus, the tax proxies of ETR and the book-tax gap reveal the quantum
of tax avoided by Access bank for the period being studied.
Access Bank PLC -Amount in

₦'B 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
PBT 22 45 37 52 75 90 80 103 115 68.89 620.01

Income tax using the domestic 7 13 11 16 23 27 24 31 35 20.66 185.90
@30%
Tax exempt income 10 19 12 21 49 32 37 60 47 (32.00) (288.02)
Others Tax Base Depleting 4 3 0 0 0 0 0 10 3 (0.67) (6.05)
Items
Tax Cost Items 6 10 9 15 36 25 32 47 27 22.89 205.98
Total tax expense 7 2 7 9 9 19 18 8 18 10.87 97.81
Summary Highlights
ETR 32% 4% 20% 17% 12% 21% 23% 8% 15% 17%
Book-Tax Gap (0.46) 11.45 3.49 6.64 13.34 8.20 5.94 22.74 16.74 9.79 88.09
Most Prominent Tax Planning 9.80 18.97 12.22 21.39 49.48 32.34 37.32 59.55 46.95 32.00 288.02
Item-Exempt Income
Table 7. Item-Exempt Income as % of
Tax Reconciliation Total PBT
Statement and Tax Item-Exempt Income as % of
Data Analytics for Statutory Tax
Access Bank from
2011 to 2019 Source: Annual reports and accounts from 2011 to 2019

Impact on Tax Base-Access
Plc 2011 2012 2013 2014 2015 2016 2017 2018 2019
PBT- ₦'B 22.5 44.9 36.6 52.0 75.0 90.3 80.1 103.2 115.4
Table 8. @30% ₦'B
of the Book-Tax Gap Others Tax Base Depleting 63% 22% 0% 0% 0% 1% 2% 32% 10%
and Percentage Items-Widening BTG
Impact on Tax Base- Tax Cost Items 92% 78% 80% 94% 161% 91% 132% 151%
Access Total tax expense- ₦'B 7.1 2.0 7.5 9.0 9.2 18.9 18.1 8.2 17.9
The exempt income item also represents the key element of tax planning strategy in Access Tax avoidance
bank as obtainable in other banks. Table 7 indicates the range of relative percentages of in banking
exempt income to PBT (45%) and statutory tax (151 %) in Access bank, thus highlighting
its significance as a core tax planning strategy. Table 8 presents the range of relative
institutions
percentages of all tax planning and reconciliation items to PBT. A closer look at Table 8
highlights the significance of the tax base erosion by exempt income with an average
erosion percentage of 45% over the period including an impact as high as 66% on the tax
base in 2015. Again, compared to other items listed, exempt income featured prominently as
the key driver of tax avoidance.
As a result of significant erosion of tax base in 2012, 2013, 2014, 2017 and 2018, Access
bank also paid the minimum or dividend tax in line with the minimum requirements of the
law because taxable profit after adjusting all items was lower than minimum tax or the
dividend paid. This is also a reason for the sustained low ETRs and book-tax gap recorded.
It is thus evident that the tax planning strategy in Access bank is premised significantly on
the exempt income strategy, which provides the double advantages of risk-free investing
and tax optimization opportunities.
FBN Holdings
FBN Holdings (FBNH) also generated profitability to the tune of ₦568bn throughout the
period under review. The bank achieved an average of 21% ETR with a book-tax gap of
₦67bn and an exempt income of approximately ₦339bn. Apparently, FBNH also paid the
minimum or dividend tax in all the years under review except for 2012. This confirms the
effectiveness of the tax planning strategies in the erosion of the tax base to the point that
taxable income fell short of the regulatory minimum tax requirement; hence, the bank
FBNH PLC -Amount in ₦'B 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
PBT 36 93 91 94 22 23 57 64 84 63 563
Income tax using the domestic
@30% 11 28 27 28 6 7 17 19 25 19 169
Tax-exempt income 21 28 20 40 46 39 47 45 53 38 339
Origination and reversal of
temporary deferred tax
differences 0 0 0 0 0 0 0 6 0 1 6
Others Tax Base Depleting
Items 1 1 1 0 0 3 0 0 0 1 6
Tax Cost Items 28 19 14 22 46 41 39 37 38 32 284
Total income tax expense in
income statement 17 17 21 10 6 6 9 6 10 11 102
Summary Highlights
ETR 48% 18% 23% 11% 30% 25% 16% 9% 12% 21%
Book-Tax Gap 6 11 7 18 0 1 8 14 15 7 67
Most Prominent Tax Planning
Item-Exempt Income 21 28 20 40 46 39 47 45 53 38 339 Table 9.
Most Prominent Tax Planning Tax Reconciliation
Item-Exempt Income as % of Statement and Tax
Total PBT 58% 31% 21% 42% 215% 170% 83% 70% 64% 84%
Data Analytics for
Item-Exempt Income as % of FBN Holdings from
Statutory Tax 194% 102% 71% 141% 718% 566% 277% 234% 212% 279% 2011 to 2019
JFC resorted to paying the minimum or dividend tax. While the tax proxies of ETR and the
book-tax gap for FBNH highlight the events of tax avoidance behavior in the bank, the
exempt income analytics and comparison to the PBT figure is quite telling and significant.
As shown in Table 9 and 10, the exempt income averaged 84% of total PBT and 215% of the
entire statutory tax estimate of 30% of PBT. These findings are like the findings regarding
the other banks in that exempt income is at the core of the tax planning strategies.
Fidelity bank
Fidelity bank achieved an average 10% ETR with an aggregate book-tax gap of ₦32.63bn.
These figures represent 22% of the aggregate profit of ₦146.1bn recorded over the review
period. The low 10% ETR means that about two-thirds of the due tax per the entire
statutory tax rate of 30% was avoided. A close look at the tax reconciliation statement in
Table 10 indicates that the bank’s tax avoidance strategy was also based on the use of the
exempt income item as the key instrument for depleting the tax base and paying lower
taxes. On average, the aggregate exempt income over the review period represents about
₦106bn, which is about 73% of the total aggregate profit of ₦146bn. Thus, Fidelity, like its
counterparts, exploited the exempt income item as an effective permanent tax planning
strategy for tax optimization objectives in addition to the risk and income growth
opportunities of related instruments that grant tax exemptions. The bank also paid a
minimum tax from 2013 to 2019 because of the erosion of the tax base and, by extension, a
taxable profit that was lower than the minimum tax allowed by regulation.
United Bank for Africa

United Bank for Africa (UBA) achieved an average ETR of 15% and posted a book-tax gap
of approximately ₦86bn. As shown in Table 13 and 14, these figures represent 12% of the
total aggregate profit of ₦650bn recorded for the period under review. The ETR of 15%
implies that about 50% of taxes due per the statutory tax rate of 30% were avoided because
of the tax strategy being followed. On the tax reconciliation statement, the exempt income
tax item featured significantly from 2011 to 2019 as the key element of tax base erosion, far
above other tax planning instruments listed, all of which impacted sparingly on the tax
base. Aggregate tax-exempt income was ₦234bn and represents 34% of the total PBT for

Impact on Tax Base-FBNH Plc 2011 2012 2013 2014 2015 2016 2017 2018 2019
PBT-₦'B 35.9 92.7 91.3 94.1 21.5 22.9 56.8 63.9 83.6
@30%-₦'B
Tax-exempt income 58% 31% 21% 42% 215% 170% 83% 70% 64%
Deferred Tax 0% 0% 1% 0% 1% 14% 0% 0% 0%
Table 10.
Highlights of Drivers Items-Widening BTG
of Book-Tax Gap and Tax Cost Items 68% 20% 15% 25% 200% 110% 68% 43% 41%
Percentage Impact on Total income tax expense 17.2 17.0 20.7 10.0 6.4 5.8 9.0 5.5 9.8
Tax Base—FBNH in income statement-₦'B
Fidelity Bank PLC -Amount in
₦'B 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
PBT 0.2 21.6 9.0 15.5 14.0 11.1 19.2 25.1 30.4 16.23 146.07
@30% 0.0 6.3 2.7 4.7 4.2 3.3 5.8 7.5 9.1 4.85 43.64
Tax exempt income 23.4 29.2 242.8 29.6 26.4 23.7 27.3 213.4 210.8 (11.84) (106.55)
Others Tax Base Depleting
Items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.4 (0.60) (5.39)
Reversal of temporary
differences 0.0 0.0 0.0 0.5 1.4 0.0 0.0 0.0 (0.24) (1.96)
Tax Cost Items 1.0 6.3 41.3 7.2 3.7 1.7 3.0 8.1 9.0 9.03 81.27
Total income tax expense 2.4 3.4 1.3 1.7 0.1 1.3 1.4 2.2 1.9 1.22 11.01
Summary Highlights
ETR 1505% 16% 14% 11% 1% 12% 8% 9% 6% 10%
Book-Tax Gap 2 3 1 3 4 2 4 5 7 4 33
Item-Exempt Income 3 9 43 10 6 4 7 13 11 12 107
Total PBT 2129% 42% 474% 62% 46% 33% 38% 53% 36% 324%
Statutory Tax 24479% 145% 1579% 205% 152% 112% 127% 178% 119% 3011%
Fidelity Bank from

2011 to 2019
Tax Reconciliation
Tax avoidance
institutions
in banking
Data Analytics for

Statement and Tax
Table 11.
JFC the period under review. These findings indicate that the tax-exempt income was at the core
of UBA’s tax strategy.
FCMB
FCMB also posted an average ETR of 14% with an aggregate book-tax gap of ₦19bn out of
a consolidated profit of ₦120bn recorded for the period under review. In common with
FCMB’s counterparts, exempt income featured prominently as a core tax planning strategy
during the years in review. As is shown in Table 15 and 16, a total of ₦91.2bn in aggregate
exempt income was eroded from the total tax base to achieve the average ETR of 14% that
was recorded. This implies that 53% of the due statutory tax of 30% of PBT was avoided on
average through the years.
Analysis of tax avoidance proxy drivers

The tax reconciliation statement in Appendix 3a–g segregates tax reconciliation items into
tax base erosion and tax cost elements. The tax-base erosion items (tax avoidance proxy
drivers) are the below-zero items causing buildup in the book-tax gap and low ETRs
consistently declared. As the frequency tables in Appendices 3a–g indicate, the tax-exempt
item was featured as the key item driving tax strategies of all institutions reviewed. In six of
the seven banks, it was featured in all nine years but for UBA, only eight years. The tax
exemption status of organizations can be permanent, temporary or partial and is granted on
the income of taxpayers (Agyei et al., 2020; Mohsin et al., 2019). This can become an avenue
for tax avoidance and is caused by the multiplicity of laws and the tax officials’ lack of
experience. The findings presented above highlight the significance (volume, frequency and
impact) of tax-exempt items on every bank’s book-tax gaps and ETRs posted. One can argue
that the banks clearly had no other tax strategy or plan outside the reliance on the current
provision of the exempt income law to sustain earnings management and low tax payment
in the past nine years. The first step in tax management is tax planning, and the common
strategy deployed by most organizations is tax avoidance (Putra et al., 2018). Profit-making
organizations can legally plan taxes and still engage in activities that can lead to tax
avoidance. These findings corroborate the findings of other researchers that tax avoidance
is the common method adopted by organizations in tax planning and is usually exhibited
through tax-exempt status (Agyei et al., 2020; Putra et al., 2018).
The other above-zero items on the tax reconciliation statement are additional tax costs
relating to other taxes and levies and reversals of permanent difference items claimed
earlier. These were featured sparingly and had a minimal impact, barely worthy of
corporate attention. The findings presented here reveal a weakness in the tax strategies of
Highlights of Drivers of Book Tax Gap and

Percentage Impact on Tax Base-Fidelity Plc 2011 2012 2013 2014 2015 2016 2017 2018 2019
PBT-₦'B 0.2 21.6 9.0 15.5 14.0 11.1 19.2 25.1 30.4
Income tax using the domestic corporation statutory 0.0 6.3 2.7 4.7 4.2 3.3 5.8 7.5 9.1
tax rate @30%-₦'B
Table 12.
Highlights of Drivers Deferred Tax 0% 0% 0% 4% 10% na 0% 0% 9%
of Book-Tax Gap and Others Tax Base Depleting Items-Widening BTG 0% 0% 0% 0% 0% 0% 0% 0% 18%
Percentage Impact on Tax Cost Items 614% 29% 458% 46% 26% 15% 16% 32% 38%
Tax Base—Fidelity Total income tax expense -₦'B 2.4 3.4 1.3 1.7 0.1 1.3 1.4 2.2 1.9
UBA Plc -Amount in
₦'B 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
PBT 46 52 56 56 68 91 105 107 111 77 693

Income tax using the 14 16 17 17 21 27 32 32 33 23 208
statutory tax rate
@30%
Income not subject to 17 18 0 18 69 19 15 33 46 (26) (234)
tax
Deffered Tax 0 0 0 0 0 0 0 11 9 2 20
Others Tax Base 0 0 0 3 0 0 0 0 0 (0) (3)
Depleting Items
Tax Cost Items 2 3 7 13 57 10 10 18 25 14 130
Tax Expense-ETR 1 1 9 8 9 18 27 28 22 13 121
Summary
Highlights
ETR 3% 1% 17% 15% 13% 20% 25% 26% 20% 15%
Book-Tax Gap 15 15 7 9 12 9 5 4 11 10 87
Most Prominent Tax 17 18 0 18 69 19 15 33 46 26 234
Planning Item-
Exempt Income
Planning Item-
Exempt Income as %
of Total PBT
Planning Item-
Exempt Income as %
of Statutory Tax
Summary-All 7 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
Banks-Summary
Highlights
Consolidated PBT 224 433 429 478 433 553 669 765 836 535 4,818
70 130 129 143 130 166 201 229 251 161 1,449
(continued)
to 2019
UBA Bank from 2011
Tax Reconciliation
Tax avoidance
institutions
in banking
Data Analytics for

Statement and Tax
Table 13.
JFC
Table 13.
UBA Plc -Amount in
₦'B 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
Consolidated
Statutory Tax @
30%
Consolidated Tax 55 42 73 69 69 106 113 117 124 85 768
Expense
ETR 25% 10% 17% 14% 16% 19% 17% 15% 15% 16%
Book Tax Gap 15 88 55 74 61 60 89 113 127 76 682
Most Prominent Tax 77 145 132 140 226 195 257 298 294 196 1,764
Planning Item-
Exempt Income
Planning Item-
Exempt Income as %
of Total PBT
Planning Item-
Exempt Income as %
of Statutory Tax
Source: Annual Reports and Accounts

Tax avoidance
Tax Gap and Percentage Impact in banking
on Tax Base-UBA Plc 2011 2012 2013 2014 2015 2016 2017 2018 2019 institutions
PBT-₦'B 46.2 52.0 56.1 56.2 68.5 90.6 105.3 106.8 111.3
@30%-₦'B
Drivers of Book Tax Gap and % Drivers of Book Tax Gap and % Impact
Impact
Income not subject to tax 36% 34% 0% 32% 101% 21% 14% 31% 41%
Items-Widening BTG
Tax Cost Items 4% 5% 13% 17% 84% 11% 9% 27% 31% Table 14.
Loss/(Relief) not recognized in 0% 0% 0% 0% 0% 0% 0% 1% 4%
Deferred tax
Tax Expense-₦'B 1.2 0.5 9.5 8.3 8.8 18.4 26.7 28.2 22.2 of Book-Tax Gap and
Source: Adapted from Figure 7a Tax-Base—UBA
the organization, considering the overreliance on exempt income items and the seeming lack
of use of the other elements listed on the tax reconciliation statement that were barely
exploited.
The aggregate and individual bank data reviewed in this study identified the presence of
significant tax avoidance behavior in each of the banks based on computed proxies of tax
avoidance like the ETR and book-tax gap and the analysis of tax reconciliation data. The
FCMB PLC -Amount in ₦'B 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average Total
PBT 10.68 16.25 18.12 23.87 7.68 15.98 10.67 18.44 20.13 13.38 120.46
Income tax using the domestic 0.00 4.87 5.46 7.16 2.31 4.79 3.20 5.53 6.04 4.37 39.36
@30%
Others Tax Base Depleting 4.73 9.60 3.51 3.53 3.53 14.40 0.00 0.00 0.00 4.37 39.30
Items
Tax Cost Items 8.71 12.08 5.60 5.38 2.52 12.48 10.28 10.87 10.91 8.76 78.82
Tax exempt income 2.22 15.83 8.87 8.65 1.81 15.36 11.43 12.93 14.16 (10.14) (91.26)
Impact of timing difference 0.00 0.00 0.00 2.08 0.00 0.00 0.00 0.00 0.00 (0.23) (2.08)
Total Tax Expense 1.44 1.13 2.18 1.81 3.01 1.91 2.05 3.47 2.79 2.20 19.80
Summary Highlights 2011 2012 2013 2014 2015 2016 2017 2018 2019
ETR 13% 7% 12% 8% 39% 12% 19% 19% 14% 13%
Book-Tax Gap 1.4 3.7 3.3 5.4 0.7 2.9 1.1 2.1 3.2 2.2 19.6
Most Prominent Tax Planning 2.2 15.8 8.9 8.7 1.8 15.4 11.4 12.9 14.2 10.1 91.3
Item-Exempt Income
Item-Exempt Income as % of Table 15.
Total PBT Tax Reconciliation
Most Prominent Tax Planning NA 325% 163%121% 79% 320% 357% 234% 234% 229%
Statement and Tax
Statutory Tax Data Analytics for
FCMB Bank from
Source: Annual Report and Account 2011 to 2019
JFC Highlights of Drivers of Book
Impact on Tax Base-FCMB
Plc 2011 2012 2013 2014 2015 2016 2017 2018 2019
PBT-₦'B 10.7 16.2 18.1 23.9 7.7 16.0 10.7 18.4 20.1
Income tax using the 0.0 4.9 5.5 7.2 2.3 4.8 3.2 5.5 6.0
statutory tax rate @30%-₦'B
Tax exempt income na 97% 49% 36% 24% 96% 107% 70% 70%
Impact of timing difference na 0% 0% 9% 0% 0% 0% 0% 0%
Table 16. Others Tax Base Depleting na 0% 0% 0% 27% 19% 54% 18% 17%
Items-Widening BTG
Highlights of Drivers Tax Cost Items na 74% 31% 23% 60% 98% 42% 40% 37%
of Book-Tax Gap and Total Tax Expense-₦'B 1.4 1.1 2.2 1.8 3.0 1.9 2.1 3.5 2.8
Tax-Base—FCMB Source: Adapted from 8a
Effective tax rates % Year1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9
FCMB 0.00 6.93 12.05 7.58 39.15 11.97 19.24 18.82 13.88
Fidelity 0.00 15.84 14.48 11.08 0.86 12.00 7.52 8.62 6.35
GTB 23.00 15.86 15.94 15.20 17.61 19.90 15.06 14.35 15.04
Table 17. ACCESS 31.58 4.50 20.47 17.22 12.22 20.92 22.58 7.96 15.49
Trend of ETR from FBNH 48.04 18.37 22.67 10.68 29.58 25.31 15.91 8.68 11.70
2011 to 2019 for F- Zenith 27.78 1.39 13.82 16.98 15.88 17.29 12.81 16.51 14.16
test UBA 0.00 1.02 16.87 14.76 12.86 20.28 25.34 26.37 19.95
study highlights a sustained pattern of reliance on exempt income as the core basis of tax
planning strategies for tax optimization followed by the institutions. This assertion was
supported by Putra et al. (2018), who found that the common strategy adopted by
organizations in tax planning was tax avoidance. Organizations can identify loopholes in
the law to avoid payment of tax to the government. While this might have served the
intended purpose within the set time frame of the expiration of the policy granting
exemptions on income earned from financial instruments, it is not a sustainable strategy,
especially because the timeline expires in 2021. This means that the bottom-line profit of
these banks will take a significant hit should the equivalent income that is not exempt from
tax replace the exempt income component. Therefore, it is incumbent on banks to seek
alternative tax planning strategies that may provide equivalent effects on the tax base as
obtainable from exempt income.
Monitoring the timing of asset acquisition, making decisions on purchases, treaty
shopping across jurisdictions, making rightful claims on all allowances, setting the timing of
acquisitions, managing fixed assets, making decisions on income recognition, structuring
transactions and managing tax losses and a variety of other methodologies can be
considered vis-a-vis legality and the compliance obligation requirement of tax planning.
According to Sari (2019), organizations that are aggressive in their tax planning legally
avoid taxes, that is, they exploit all the avenues in the law to avoid taxation. This is usually
done through “increasing the number of fixed assets, increasing the amount of debt,
reported losses to get fiscal loss compensation and conduct earnings reporting Tax avoidance
management.” in banking
On the policy front, this is a good time for policymakers to carefully consider the pros
and cons of the expiring policy on the exemption of taxes on referenced financial
institutions
instruments vis-a-vis the intended objectives it was designed to achieve. One key
consideration is how this policy made deposit money banks abandon their core lending
obligations in favor of trading in risk-free instruments that provide risk minimization,
earnings and tax optimization opportunities compared to inherent credit, operational and
market risks associated with the creation of risk assets that may result in loan loss, balance
sheet erosion and earning loss and other uncertainties in the worse possible scenarios. Now
that the Central Bank has mandated that banks lend and comply with the regulatory loan-to-
deposit ratio of 65%, some noted progress on credit growth is, therefore, being observed. It
remains to be seen whether policymakers will choose to allow the continued depletion of the
tax base and the loss of tax revenue from banks to affect their decision to let the policy
expire in 2021 or renew it for another decade.
Discussion of F-statistics
As shown in Table 18, the F-statistics of 0.84 and 1.67, at a 0.05 level of significance, are
below the F critical values of 2.12 and 2.11 for ETR and BTG, respectively. These findings
confirm there were no significant differences between the tax avoidance behaviors of all
banks across the nine years studied based on the metrics of the ETRs and the book-tax gaps
reviewed. These results are in support of earlier analyzed data using the same metrics and
are combined with a review of exempt item elements being exploited to implement large tax
avoidance measures undertaken over the years. The consistency and close relationship
between the mean ETRs and BTGs year by year indicates a sustained strategy of avoiding
taxes by concentrating investments in instruments that provide tax optimization
opportunities to the entities involved, thus enabling them to pay little or no tax in proportion
to their level of revenue growth. The banks are, thus, moved by competitive pressures to
follow the strategy prevalent among their peers and the industry to achieve tax efficiency
through avoidance (Armstrong et al., 2019).
ANOVA: Single factor

Summary
Groups Count Sum Average Variance
Year 1 7.00 130.40 18.63 362.76
Year 2 7.00 63.91 9.13 54.60
Year 3 7.00 116.29 16.61 14.22
Year 4 7.00 93.50 13.36 13.20
Year 5 7.00 128.16 18.31 156.52
Year 6 7.00 127.65 18.24 23.87
Year 7 7.00 118.46 16.92 36.35
Year 8 7.00 101.32 14.47 45.82
Year 9 7.00 96.56 13.79 17.03
ANOVA
Source of variation SS df MS F p-value F crit
Between groups 542.79 8.00 67.85 0.84 0.57 2.12 Table 18.
Within groups 4,346.10 54.00 80.48 F-test results on
Total 4,888.88 62.00 effective tax rate
JFC This further highlights the massive opportunities for tax avoidance being exploited by the
banks on account of the lacunae lacuna in the law. As noted earlier, tax avoidance is not illegal, but
it presents the banks with a moral dilemma between choosing what is fair, just and honorable
practices and paying their fair share of taxes. The identified tax avoidance strategy is a consistent
behavior among the banks and can only be stopped with the removal of the current weak
regulations that allow such practices to fester. As organizations move to use the lacuna in the law to
engage in tax avoidance, they become so determined that the existence of fiscal policies is not
enough to deter organizations from avoiding tax (Mocanu et al., 2021).
The low mean proxy of GAAP ETR and the large values of the book-tax gap affirm the
propriety of the conclusions reached on the tax avoidance activities of these banks. Prior
research adopting the use of these metrics in tax avoidance research is further validated by
the outcome of the conclusions reached in this research paper. The low GAAP ETR and the
wide book-tax gap consistent over the nine years reviewed are affirmed, once again, as
strong metrics indicating the existence of tax avoidance practices. De Simone et al. (2020)
found additional proxies of unrecognized tax benefit reserves accretion and loss
observations.
Discussion: tax reconciliation statement data analysis

The highlights and analysis of the components of the tax reconciliation statements in
Appendices 2i–vii indicate the frequency of occurrence and direction of impact on the book-
Book tax gap-in ₦billion 2011 2012 2013 2014 2015 2016 2017 2018 2019
FCMB −1.44 3.75 3.27 5.35 −0.70 2.88 1.15 2.06 3.25
Fidelity 2.44 2.92 1.40 2.94 4.09 1.99 4.32 5.36 7.18
GTB 4.35 14.57 15.06 17.22 14.95 16.69 30.30 33.73 34.67
Table 19. ACCESS −0.46 11.45 3.49 6.64 13.34 8.20 5.94 22.74 16.74
Trend of book-tax FBNH −6.47 10.78 6.70 18.17 0.09 1.08 8.01 13.61 15.30
gap data from 2011 Zenith 1.50 29.21 17.90 15.60 17.73 19.93 34.27 31.25 38.54
to 2019 for the F-test UBA 15.05 15.07 7.36 8.57 11.74 8.82 4.91 3.87 11.19
ANOVA: Single factor

SUMMARY
Groups Count Sum Average Variance
Year 1 7 14.95977 2.13711 44.28269
Year 2 7 87.73646 12.53378 77.11145
Year 3 7 55.17663 7.882376 39.35484
Year 4 7 74.49514 10.64216 38.70668
Year 5 7 61.23484 8.747834 55.87003
Year 6 7 59.57894 8.511277 54.47053
Year 7 7 88.8877 12.69824 184.5206
Year 8 7 112.6276 16.08966 175.3951
Year 9 7 126.8588 18.12269 181.6084
ANOVA
Source of variation SS df MS F p-value F crit
Table 20. Between groups 1,268.689 8 158.5862 1.676543 0.125493 2.115223
F-test results for Within groups 5,107.922 54 94.59115
book-tax gap metrics Total 6,376.612 62
tax gaps recorded. This reveals a snapshot of the banks’ decade-long tax activities with a Tax avoidance
view toward understanding the basis of the tax avoidance strategy pursued. The strategy of in banking
dependence on the permanent difference item of exempt income as the key focus of tax
strategy is overwhelmingly clear and common among the banks. This has been sustained
institutions
for the past nine years studied, when the tax base has been depleted.
It is easy to conclude that there is a complete lack of strategic consideration of other
options for tax planning outside this sole reliance apparent in the industry. Tax
reconciliation footnotes are disclosed subject to the requirements of International
Accounting Standards 12 on tax reporting. The items contained therein constitute the
components that drive the divergence between the statutory tax and tax expense in financial
statements. These individual items may also give insights into the tax strategy of the
disclosing organization. For the banks reviewed in this research, exempt income constitutes
the core of the strategy and instrument, enabling the banks to achieve the efficient GAAP
ETRs and wide book-tax gaps recorded. The sustainability of this strategy is in serious
doubt now because the policy ends in 2021 and a potentially negative P&L impact is a
reality the banks cannot avoid at this critical time.
Conclusion
This research paper highlights a major loophole in the law being exploited by banking
institutions in Nigeria. The paper illustrates how tax bases have been eroded in tax
avoidance schemes despite huge earnings declared year by year. The findings not only
highlight the weaknesses in the law being used to drive massive tax avoidance schemes but
also attempt to alert policymakers to potential taxable revenue being frittered away through
a policy that might have outlived its usefulness.
Initially, this exemption policy was designed to boost capital formation and attract the
interest of local and foreign investors to the Nigerian economy (Nwachukwu and
Mohammed, 2012). It was part of a coordinated effort to boost funding of corporate growth
and public sector initiatives through various debt issuances by the government and private
sector, respectively, targeted at subscribing local and foreign investors. Although the initial
ten-year gazette period will come to an end in 2021, significant tax planning opportunities
still exist in government bonds (i.e. significant components of the targeted exempt income
instruments for tax planning efforts) whose tax-exempt status has no expiry date.
While the proxies of the tax avoidance ETR and book-tax gap present an indication of
the extent of the tax avoidance and the actual gap in tax payment of all the banks reviewed,
the tax reconciliation statement reveals the key drivers of the tax-planning avoidance
measures being undertaken by the institutions. The banks recognized this loophole and,
thus, sustained the practice of allocating huge capital to these efforts in exchange for tax-
free earnings, high yields and the low risk associated with the instrument instead of creating
risk assets that come with huge default, counterparty and repayment risks. Because of this
weakness, the banks appear to be too inefficient to implement other strategic tax planning
measures that should match the dynamics of their structure and reality; hence, no tax
planning strategy of note (frequency, impact and volume) is apparent on the tax
reconciliation statement. From 2011 to 2019, the exempt income component featured
prominently in terms of frequency, volume and impact as a key driver of the tax gap
recorded, tax base erosion and low tax payment achieved.
The F-test on aggregate means of tax proxies was assessed on the similarity in tax
behaviors exhibited in the period under review. This affirmed a consistent pattern of tax
avoidance behavior based on the F-test results on ETR and BTG of 0.84 and 1.67,
respectively, which was observed to be lower than F-critical for both proxies. This result
JFC highlights the sustained exploitation of the identified exempt income item that provides a
permanent difference adjustment on earnings that never get taxed; hence, there was no
significant difference in the means tested for the nine years reviewed for all banks.
It is high time the banks reviewed their corporate strategy on tax planning to move away
from overreliance on this identified policy weakness because it may not be available for long
and because of the potential negative impact on earnings that may in result after 2021 when
the policy granting exemption should have expired. Therefore, an immediate cushioning tax
planning strategy must be in place if the banks are to sustain current earnings and profit
profiles. Therefore, a shift to better tax strategies or to fair, just and moral planning must be
the norm.
Finally, the Nigerian Government must review all existing policies granting undeserved
exemptions and tax incentives to already profitable and established businesses not
necessarily bringing targeted social and economic benefits that such exemptions aimed to
attract in the first place. This is important because we cannot continue to deprive the
treasury of development revenue through the failure to ensure collection of due taxes from
private institutions doing business. While one may argue that corporations have the right to
exploit all means possible in a bid to achieve set corporate objectives for efficient taxation, it
may be difficult to push the argument further considering that this particular window being
exploited made banks abandon their financial intermediation role and the provision of funds
to the real sector (a key engine of growth for the economy). Financial instrument trading,
thus, became an attractive endeavor for the banks because of the high yields, low risk and
tax advantages therein. Thus, this is happening at the expense of the generality of
businesses and individuals being denied funding and has forced the Central Bank’s
pronouncements on a minimum 65% gross loan-to-deposit ratio and set a punitive financial
penalty on default against the banks from 2019 to the present.
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in banking
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Further reading
Access Bank Plc (2012), “Annual reports and accounts”, available at: www.accessbankplc.com/
AccessBankGroup/media/Investors/AnnualReport2012/2012-Annual-Report.pdf
AccessBankGroup/media/Investors/AnnualReport2013/2013-Annual-Report.pdf
AccessBankGroup/media/Investors/AnnualReport2015/2015-annual-report.pdf
AccessBankGroup/media/Investors/Annual-Reports/2017-Annual-Report.pdf
AccessBankGroup/media/Investors/Annual-Reports/2019-Annual-Report.pdf
FBN Holdings Plc (2012), “Consolidated financial statement for the year ended December 2012”,
available at: www.fbnholdings.com/wp-content/uploads/2014/02/FBN%20Holdings%20Plc%
JFC 20Financial%20Statements%20for%20the%20year%20ended%2031%20December%202012.
pdf (accessed 20 March 2021).
FBN Holdings Plc (2013), “Consolidated financial statement for the year ended December 2013”, available at:
www.fbnholdings.com/wp-content/uploads/2014/02/FBN%20Holdings%20Financial%20Statement%
20For%20the%20year%20ended%2031%20December%202013.pdf
FBN Holdings Plc (2015), “Consolidated financial statement for the year ended December 2015”, available
at: www.fbnholdings.com/wp-content/uploads/2014/02/FBN_Holdings_Plc_FY_2015_Financial_
Statements.pdf
www.fbnholdings.com/wp-content/uploads/2014/02/FBN_Holdings_Plc-FY_2017_Financial_Stateme
nts.pdf
www.fbnholdings.com/wp-content/uploads/2020/04/FBN_Holdings_Plc_FY_2019_Audited_Financial_
Statements.pdf
FCMB Plc (2012), “Annual reports and accounts 2012”, available at: https://drive.google.com/file/d/
1mlY3MnIhk_xPKAzk2J_he_xX3butpaOm/view
FCMB Plc (2013), “Annual report and account 2013”, available at: https://fcmbgroup.gcs-web.com/
static-files/5fea8716-59b5-462c-80ad-9969c04475c9
FCMB Plc (2015), “Annual reports and accounts 2015”, available at: https://fcmbgroup.gcs-web.com/
static-files/90a538a0-0a37-4c09-932d-f302dd340381
FCMB Plc (2017), “Annual report 31 December 2017”, available at: https://fcmbgroup.gcs-web.com/
static-files/97b178ee-4935-4029-a3b8-d8fa6064e2cc
FCMB Plc (2019), “Annual reports and accounts 2019”, available at: www.fcmbgroupplc.com/images/
press/FCMB%20Group%20Plc_FY19_Annual%20Report%20&%20Accounts[34199].pdf
Fidelity Bank Plc (2012), “Annual report and accounts 2012”, available at: www.fidelitybank.ng/
documents/FYE%202012%20Audited%20Financial%20Results.pdf
Fidelity Bank Plc (2013), “Annual reports and accounts”, available at: www.fidelitybank.ng/
documents/FYE%202013%20Audited%20Financial%20Results.pdf
Fidelity Bank Plc (2015), “Annual report and accounts 2015”, available at: www.fidelitybank.ng/
documents/Fidelity_Annual_Report_2015_Web.pdf
Fidelity Bank Plc (2017), “Annual report 2017”, available at: www.fidelitybank.ng/documents/Fidelity
%20Annual%20Report%202017%20web-version.pdf
Fidelity Bank Plc (2019), “Annual reports 2019”, available at: www.fidelitybank.ng/documents/2019%
20Annual%20report%20Final%20Web%20Version.pdf
GT Bank Plc (2012), “Annual report and accounts 2012”, available at: https://drive.google.com/file/d/
1Xnp72xeEaBEEJ2gkZizhu5YW_FSTApLW/view
GT Bank Plc (2013), “Annual report”, available at: www.gtbank.com/uploads/annual-reports/2013-
annual-report/gtbank-annual-report-2013.pdf
GT Bank Plc (2015), “Annual report”, available at: https://vdocuments.mx/gtbank-annual-report-2015.html
GT Bank Plc (2017), “Group financial statement together with directors’ and auditor’s report”, available at:
www.gtbank.com/uploads/financial-information/GTBankPlc_Dec2017Audited_FinancialStatement.pdf
GT Bank Plc (2019), “Annual report 2019”, available at: www.gtbank.com/uploads/financial-
information/2019-Annual-Report.pdf
Hanlon, M. and Heitzman, S. (2010), “A review of tax research”, Journal of Accounting and Economics,
Vol. 50 Nos 2/3, pp. 127-127.available at: www.sciencedirect.com/science/article/abs/pii/
S0165410110000340
IAS (2021), “International accounting standard 12”, available at: www.efes.group/wp-content/uploads/
2018/11/ias12_en.pdf
UBA Plc (2012), “Annual reports and accounts 2012”, available at: www.ubagroup.com/wp-content/ Tax avoidance
uploads/2018/08/2012-annual-report-financial-s_K8JAC_20130510113351kgapgbksff.pdf
in banking
UBA Plc (2013), “Annual reports and accounts 2013”, available at: www.ubagroup.com/wp-content/
uploads/2018/08/2013-annual-report-and-financi_UK4JS_20140509081439rnfungrxmk.pdf (accessed institutions
22 March 2021).
UBA Plc (2015), “Annual reports and accounts 2015”, available at: www.ubagroup.com/wp-content/
uploads/2018/08/uba-plc-2015-annual-reports-an_ZR9PX_20160401122140fc6jc7fnbb.pdf
UBA Plc (2017), “Annual report and accounts”, available at: www.ubagroup.com/wp-content/uploads/
2018/10/2017-annual-reports-and-accounts.pdf
UBA Plc (2019), “Annual reports and accounts”, available at: https://lionkingmagazine.ubagroup.com/
file/UBA_Plc_2019_Annual_Report_and_Accounts.pdf
Zenith Bank Plc (2012), “Zenith bank Plc. and subsidiary companies consolidated and separate
financial statements for the year ended 31 December 2013”, available at: https://drive.google.
com/file/d/1-TuxBhDT52J2SkLoDIp3gE5Z_gBm941i/view
Zenith Bank Plc (2013), “Zenith bank Plc. and subsidiary companies consolidated and separate
financial statements for the year ended 31 December 2013”, available at: www.zenithbank.com/
media/1971/financialstatementfull_12032014.pdf
Zenith Bank Plc (2015), “Annual report 2015”, available at: www.zenithbank.com/media/2482/zenith-
bank-group-2017-fye-full-financial-statement.pdf
Zenith Bank Plc (2017), “Annual report 2017”, available at: www.zenithbank.com/media/2482/zenith-
bank-group-2017-fye-full-financial-statement.pdf
Zenith Bank Plc (2019), “Annual report 2019”, available at: www.zenithbank.com/media/3041/2019-
annual-repor
JFC Appendix 1i. Trend of key ratios
Fidelity 2011 2012 2013 2014 2015 2016 2017 2018 2019
(%) (%) (%) (%) (%) (%) (%) (%) (%)
Capital adequacy 24.00 29 25 23 17.2 17.2 16.0 17 18.30

Non-performing loan 7.80 3.9 3.7 4.4 4.4 6.6 6.4 6.1 3.30
Cost of risk 4.40 1.3 2 0.8 1.0 1.2 1.5 0.7 0.10
Cost of fund 4.30 5.9 6.3 5.9 6.2 5.8 7.2 6.6 6.30
Liquidity 55.30 56.3 45.7 38 3.6 33.2 35.9 33.2 35.00
Loan to deposit 67.09 61.88 52.8 66.1 66.5 91 102.6 91.82 68.20
Net interest margin 7.20 6.4 3.72 48 6.9 6.4 7.3 6.5 6.20
Cost to income 68.90 66.6 76.7 74.2 76.4 77.3 67.5 67.7 73.40
Return of equity 1.80 11.8 5.5 9 7.6 5.3 9.3 13 13.30
Return on asset 1.40 2.8 0.8 1.3 1.1 1 1.5 1.5 1.33
Risk coverage 0.00 0 0 0 79.5 83.5 109.4 112.7 169.10
FCMB 2011 2012 2013 2014 2015 2016 2017 2018 2019
% % % % % % % % %
Capital adequacy n/a n/a 0 n/a 18.1 18.7 16.9 18.01 17.17
Cost of risk 8.55 3.48 1.4 1.8 1.3 4.9 3.1 1.8 1.30
Cost of fund 5.95 6.38 5.86 5.13 5.6 6.5 6.8 6.3 4.69
Liquidity 43.00 49 0 0 35.9 31.2 35.3 40.6 32.90
Loan to deposit 78.74 55.36 63 84.2 84.7 100.4 88.4 60.9 75.90
Net interest margin 7.52 6.57 7.9 9.1 8.1 8.4 7.8 8 7.10
Cost to income 27.01 34.15 69 65.8 74.8 56.1 67.2 72.1 70.70
Return of equity −7.87 11.58 11.6 14.6 3.0 8.4 5.1 6.3 8.10
Return on asset −1.54 1.66 2 2 0.4 1.2 0.8 1 1.10
Risk coverage 0.00 0 0 0 114.5 105.3 0.0 132.5 154.40
UBA 2011 2012 2013 2014 2015 2016 2017 2018 2019
% % % % % % % % %
Capital adequacy 21.70 23.5 20 17 20.0 20 22.0 23 23.43
Cost of risk n/a n/a 1.36 0.7 0.5 1.8 2.0 0.8 0.90
Cost of fund 3.00 3.2 3.6 3.8 4.0 3.7 3.7 4.3 4.00
Liquidity 69.00 69.8 67 48.9 53.0 39 50.0 48 43.90
Loan to deposit 44.20 38.7 43.4 50.2 49.1 61 60.3 51 52.90
Net interest margin 4.50 5.9 5.9 6 6.3 6.7 7.0 7.37 6.00
Cost to income 89.20 67 60.9 67.4 66.6 63 58.0 61.6 62.70
Return of equity −4.50 31.9 21.8 19.2 20.0 19 16.1 17.1 16.20
Return on asset −0.40 2.6 1.9 1.8 2.2 2.3 2.1 2.1 1.70
Table A1. Risk coverage 0.00 0 0 0 0.0 0 0.0 0 122.00
Appendix1ii. Trend of key ratios Tax avoidance
in banking
institutions
Access 2011 2012 2013 2014 2015 2016 2017 2018 2019
(%) (%) (%) (%) (%) (%) (%) (%) (%)
Capital adequacy 22.00 23.00 19.2 18.4 19.5 21.0 22.5 20.8 20
Cost of risk 1.60 1.70 0 1.2 1 1.2 1.7 na 0.8
Cost of fund 3.40 4.60 4.7 4.6 5.2 4.3 5.1 5.8 5
Liquidity 72.00 60.00 41.4 36 38 43.6 47.3 43.2 47
Loan to deposit 52.00 51.00 57.8 71.4 80 74.0 68.7 58.7 62.9
Net interest margin 6.20 7.70 5.8 6.8 5.9 6.2 5.8 5.3 6.6
Cost to income 43.00 69.00 73 62.2 62 58.8 62.1 0.0 65
Return of equity 9.00 18.00 14.8 16.5 20.4 74.0 12.8 16.2 17.7
Return on asset 2.00 2.70 2.4 2.6 3.2 2.1 1.6 1.9 1.36
Risk coverage 0.00 0.00 0 0 279.8 169.0 106 105.0 107
GTB
Capital adequacy 20.68 24.23 23.91 21.4 18.17 19.8 25.68 22.0 22.51
Cost of risk 2.85 0.10 0.31 0.61 0.91 4.3 0.76 0.1 0.34
Cost of fund 2.11 3.10 3.33 3.12 3.43 2.8 3.17 3.1 2.3
Liquidity 52.65 53.32 0 0 42.21 42.2 47.56 50.3 49.33
Loan to deposit 68.91 68.27 60.14 67.14 69.28 75.3 67.49 54.5 60.62
Net interest margin 8.20 9.46 8.87 8.1 8.26 9.0 10.42 9.6 9.28
Cost to income 52.94 42.73 43.53 44.79 44.4 40.8 38.1 38.8 36.11
Return of equity 23.15 33.98 29.32 27.93 25.55 28.8 30.17 34.1 31.16
Return on asset 3.73 5.22 4.69 4.43 4.07 4.7 5.27 5.5 5.59
Risk coverage 0.00 0.00 0 0 186.73 222.9 119.63 167.5 126.58
Zenith bank
Capital adequacy 29.00 31.00 26 20 21 23.0 27 21.0 22
Cost of risk 1.85 0.94 0.97 0.9 0.8 1.4 4.3 0.9 1.1
Cost of fund 2.02 3.23 3.2 4 4.1 4.2 5.2 3.4 3
Liquidity 59.00 61.36 60 47 51.4 59.6 69.7 77.0 57.3
Loan to deposit 55.60 52.59 52.1 60.3 67.2 67.8 60.5 53.5 57.8
Net interest margin 7.75 8.19 8.7 8.4 8.1 7.4 9 10.1 8.2
Cost to income 63.28 53.95 57.1 57.74 57.2 52.7 52.7 54.9 48.8
Return of equity 12.71 23.49 19.61 18.7 18.4 20.0 23.3 21.2 23.8
Return on asset 2.09 3.87 3.3 2.9 2.7 3.0 3.4 3.0 3.4
Risk coverage 0.00 0.00 0 0 96.9 100.1 143.4 229.2 148.2 Table A2.
JFC Appendix1iii. Trend of key ratios
FBNH 2011 2012 2013 2014 2015 2016 2017 2018 2019
(%) (%) (%) (%) (%) (%) (%) (%) (%)

Capital adequacy 22.20 21.90 17.7 21.5 17.1 17.8 17.7 18.1 15.5
Non-performing loan 2.60 2.60 3 2.9 18.1 24.4 22.8 20.8 9.9
Cost of risk 3.00 0.90 1.2 1.3 5.7 10.4 6.4 4.7 2.5
Cost of fund 1.80 2.54 3.3 3.5 3.7 2.8 3.4 3.5 3.1
Liquidity 55.40 65.40 44.2 44 58 52.7 51.1 55.0 38.2
Loan to deposit 64.20 64.22 71.42 60.39 65.9 77.1 72.5 67.0 48
Net interest margin 9.30 9.60 8 7.6 8.1 8.8 8.4 7.1 7.7
Cost to income 53.10 61.90 62.7 66.7 61.4 47.0 53.5 56.5 70
Return of equity 5.10 18.80 15.5 16.7 2.7 2.8 7.6 10.0 12.4
Return on asset 0.70 2.50 2 2 0.4 0.4 1 1.3 1.3
Table A3. Risk coverage 0.00 0.00 0 0 40.2 40.2 61.9 82.3 47.5
Appendix 2i
Frequency as a tax base Frequency of Frequency as a tax cost

Analysis of tax avoidance drivers depleting item occurrence item
2011–2019
FCMB <Zero frequency tax base Frequency of >Zero frequency tax
depleting occurrence base building
Balancing charge 0 3 3
Non-deductible expense 0 6 6
Tax exempt income 9 9 0
National information technology 0 7 7
development agency levy
Impact of timing difference 1 1 0
Tertiary education tax 0 6 6
Impact of excess dividend tax 0 2 2
Minimum tax 0 7 7
Unrecognized tax losses 2 5 3
Nigeria police trust fund levy 0 1 1
Capital gain tax 0 3 3
Impact of excess dividend 0 1 1
Over provision of tax because of 1 1 0
restatement
Table A4. Total tax expense
Fidelity <Zero frequency tax base depleting Frequency of occurrence >Zero frequency tax base building
Appendix 2ii
PBT
corporation statutory tax rate @30%
Effect of tax rates in foreign
jurisdictions 0 0 0
Education tax levy 0 2 2
Information technology tax 0 9 9
Tax loss effect 0 1 1
(Over) / under provided in prior
years 1 1 0
Tax incentive 0 2 2
Unused tax losses 0 2 2
Income tax expense based on
dividend 0 7 6
Current taxes referring to previous
periods 0 1 1
Reversal of temporary differences 2 2 0
Use of previously unrecognized tax
losses 1 1 0
Unrecognized deferred tax assets 1 1 0
Income tax expense based on
minimum tax 0 1 1
Police trust fund (note 16e) 0 1 1
Total income tax expense
Tax avoidance
Table A5.
institutions
in banking
JFC
Table A6.
<Zero frequency tax base Frequency of >Zero frequency tax base
UBA depleting occurrence building
Appendix 2iii
PBT
Income tax using the domestic corporation statutory tax rate @30%
Companies’ income tax 0 1 1
Effect of tax rates in foreign jurisdictions 2 4 2
National information technology development agency levy 0 9 9
Disallowed permanent differences 0 3 3
Income not subject to tax 8 8 0
Effect of excess dividend tax on 2012 0 1 1
Effect of capital gains tax 0 1 1
Effect of tax assessment based on minimum tax law 1 5 4
Tax losses for the year 0 2 2
Origination and reversal of temporary differences (note 29) 2 2 0
Tax on dividend paid 0 2 2
Education tax 0 6 6
WHT paid on dividends 0 7 5
Capital gains tax 0 2 2
Profit before income tax 0 0 0
Withholding tax on dividend 0 0 0
Minimum tax/excess dividend tax adjustment 0 4 4
Interim dividend tax adjustment – current year 0 4 2
Effect of permanent differences – expenses not deductible 0 4 4
Effect of excess deferred tax recognized 0 4 1
Nigeria police trust fund levy 0 1 1
Deferred tax written off 0 1 1
Prior year under provision of current tax 0 2 2
Effect of temporary difference not recognized in deferred tax 0 2 2
Loss/(Relief) not recognized in deferred tax 0 2 2
Tax expense-ETR
ETR
Appendix 2iv
Access <Zero frequency tax base depleting Frequency of occurrence >Zero frequency tax base building
PBT
jurisdictions 6 7 1
National information technology
development agency levy 0 5 5
Capital allowance used for the year 0 2 2
Tax losses unused 1 3 2
Impact of dividend as tax base 0 2 2
Over provided in prior years 1 2 1
Capital allowance 1 2 1
Under provided in prior years 0 3 3
Minimum tax effect 0 2 2
Nigerian police fund levy 0 0 0
Impact of dividend tax 0 3 3
Effective tax rate in foreign
jurisdictions 0 0 0
Total tax expense
Tax avoidance
Table A7.
institutions
in banking
JFC
Table A8.
<Zero frequency tax base Frequency of >Zero frequency tax base
Appendix 2v
FBNH depleting occurrence building
PBT
Income tax using the domestic corporation statutory tax rate @30%
Effect of education tax levy 0 9 9
National information technology development agency levy 0 9 9
Effect of capital gains tax 1 7 4
Effect of minimum tax 0 8 8
Effect of contingent tax 0 2 2
Tax-exempt income 9 9 0
Effect of disposal of subsidiary 1 1 0
Effect of change in PBT because of IFRS conversion 0 2 1
Tax incentives 5 9 4
(Over)/under provided in prior years 2 2 0
Effect of excess dividend tax 0 7 7
Effect of change in tax rate 1 1 0
Effect of exchange rate 1 1 0
Origination and reversal of temporary deferred tax differences 2 2 0
Tax loss effects 1 7 6
(Over)/under provided in prior years 2 7 5
Police trust fund levy 0 1 1
Effect of national fiscal levy 0 6 4
Effect of prior period adjustment on deferred tax 1 2 1
Effect of prior period adjustments on deferred tax 2 2 0
Effect of disposal of items of PPE 1 1 0
Effect of change in PBT because of IFRS adjustments 0 1 1
Total income tax expense in income statement
Appendix 2vi
GT bank <Zero frequency tax base depleting Frequency of occurrence >Zero frequency tax base building
PBT
jurisdictions 1 8 7
Tax reliefs/WHT credits 7 7 0
Net capital allowance 2 2 0
Education/NITDEF tax levy 0 2 2
Under provision in prior years 0 2 2
Income taxes for discontinued
operations 1 1 0
Net capital allowance 4 4 0
Deductible expenses 7 7 0
Dividend tax 0 4 4
Prior year’s under provision 0 3 3
Total income tax expense
Tax avoidance
Table A9.
institutions
in banking
JFC
Table A10.
Zenith bank <Zero frequency tax base depleting Frequency of occurrence >Zero frequency tax base building
Appendix 2vii
PBT
Income tax using the domestic corporation
statutory tax rate @30%
Tax effect information technology levy 2 2 0
Deferred tax 2 2 0
Excess dividend tax paid 0 4 4
Minimum tax - 0 1 1
Used capital allowance 1 1 0
Education tax 0 1 1
CGT on disposal of subsidiary 0 1 1
Prior year (over)/under provision 2 4 2
Minimum tax 0 2 2
Unrecognized deductible temporary
differences 0 3 2
Changes in estimate relating to prior year 0 1 1
Unrecognized deferred tax asset 0 1 1
Dividend tax paid 0 3 3
Changes in estimate relating to prior year 0 0 0
Total tax expense
Appendix 3 Tax avoidance
in banking
institutions
Figure A1.
Tax-to-GDP ratio
vary significantly
across African
countries
JFC About the authors
Dada Folorunso is a Professional Accountant and tax consultant with more than 15 years of private
and public practice experience in Canada and Nigeria. He holds a bachelor’s degree in Agricultural
Economics (UI, Nigeria) and a master’s degree in Global Management (Royal Roads University,
Canada). He is an Associate of The Chartered Institute of Management Accountants, CIMA, UK,
Associate of The Institute of Chartered Accountant of Nigeria and Chartered Institute of Taxation of
Nigeria, respectively. His experience spans corporate tax planning, tax strategy and advisory,
business planning, financial reporting, accounting advisory, investors and treasury services and
business research.
Mark Eshwar Lokanan is an Associate Professor in the Faculty of Management at Royal Roads
University. He is a graduate from Simon Fraser University, Canada, and is an expert in fraud,
forensic and investigative accounting. Mark Eshwar Lokanan is the corresponding author and can be
contacted at: [email protected]
For instructions on how to order reprints of this article, please visit our website:
www.emeraldgrouppublishing.com/licensing/reprints.htm
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Tax Avoidance in Banking Institutions: An Analysis of The Top Seven Nigerian Banks

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top seven Nigerian banks

Signiﬁcance of the study

Samples and data collection

Result and analysis

Market capitalization and revenue

FCMB 36.64 181.20

ACCESS BANK-Figures in ₦'Million

UBA- Figures in ₦'Million

Analysis of individual banks

Highlights of Drivers of Book

Guaranty trust bank

Highlights of Drivers of Book

Access Bank PLC -Amount in

PBT 22 45 37 52 75 90 80 103 115 68.89 620.01

Highlights of Drivers of Book

United Bank for Africa

Highlights of Drivers of Book

Fidelity Bank from

Data Analytics for

Analysis of tax avoidance proxy drivers

Highlights of Drivers of Book Tax Gap and

PBT 46 52 56 56 68 91 105 107 111 77 693

Data Analytics for

Source: Annual Reports and Accounts

ANOVA: Single factor

Discussion: tax reconciliation statement data analysis

ANOVA: Single factor

Capital adequacy 24.00 29 25 23 17.2 17.2 16.0 17 18.30

(%) (%) (%) (%) (%) (%) (%) (%) (%)

Frequency as a tax base Frequency of Frequency as a tax cost

FBNH depleting occurrence building

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