Tax Compliance to begin on July 1 – VAIDS
The tax amnesty programme under the Voluntary Assets and Income Declaration Scheme (VAIDS) is scheduled to come to an end on Saturday, June 30. And in line with plans on tax reforms to achieve tax compliance, the Federal Inland Revenue Service (FIRS) and the Economic and Financial Crimes Commission (EFCC) have come to a conclusion – to start a massive operation against tax defaulters that fail to take advantage of the twelve months tax amnesty window.
EFCC and FIRS
Both agencies have also drawn a standpoint – to strengthen and improve their collaboration to place a radar on, and track both individuals and organisations that refused to pay the right amount of taxes.
Already, the Executive Chairman of FIRS, Mr Tunde Fowler, and the Acting Chairman of EFCC, Ibrahim Magu, have agreed to work together to ensure that all unpaid taxes by both individuals and companies, which are due to government, are recovered and remitted into the federation account.
History of the Amnesty Programme
The tax amnesty programme, which started on July 1, 2017, offers a 12 months window of opportunity for tax payers to regularise their tax liabilities.
In exchange for full and honest declaration, the government promised to waive penalties that should have been levied and also waive the interest that should have been paid on overdue taxes.
Also, those who declared their tax obligations honestly would not be subjected to any investigation or tax audit.
Update on Prosecution of Tax Defaulters
It was learnt that after the expiration of the June 30 deadline, the Federal Government may establish special tax courts to prosecute those who fail to regularise their tax status under the VAIDS programme.
Findings showed that government was aware of the slow nature of the judicial system and may be setting up special courts to fast track the adjudication of tax related offences under the VAIDS initiative.
It was revealed that all income, assets and other properties earned and acquired from 2010 to date must be accounted for by individuals and companies under the VAIDS scheme.
Investigations revealed that through the data mining programme being implemented under the “Project LightHouse” initiative of government, over 130,000 high profile individuals have been identified for scrutiny.
Upon the expiration of the deadline on June 30, the Federal Government will go after the 130, 000 high profile individuals if they fail to regularise their tax status by declaring under VAIDS.
Method of Data Collection on Tax Defaulting
Through the use of information technology, the government has gathered adequate data that would be used to prosecute them, according to senior government officials.
Challenges facing the Nation’s Tax System
Before the implementation of the current tax amnesty programme, Nigeria’s tax system had been plagued by challenges some of which are under-declaration of and non-declaration of income earned including income from government contracts and overseas trading; and collection of Value Added Tax which is not duly remitted to the Federal Inland Revenue Service.
Others are charging of non-allowable personal expenses to company accounts, particularly with reference to overseas school fees; and inconsistency between income declared for tax purposes and the value of assets owned.
Nigeria’s Tax Reform Predecessors
Before Nigeria’s adoption of the tax amnesty programme about 11 months ago, the scheme had been implemented in over 13 countries.
Some of these countries are Australia (2014), Belgium (2004), Germany (2004), Greece (2010), Italy (2003), and Portugal (2010).
Others are Russia (2007), Spain (2012), United States (2012), India (2016), Turkey (2016), South Africa (2016) and Indonesia (2016).
Many of the countries that had implemented the tax amnesty scheme had been able to improve on their level of tax compliance.
For instance, the scheme had been successful in countries such as South Africa, Turkey, Belgium, Germany, Greece, Italy, Portugal, Russia and Spain among others.
Dividends of Tax Compliance
When the tax amnesty programme was implemented in South Africa, the government was able to broaden tax compliance culture of the people.
There was also an increase in the country’s tax payers’ base, as taxpayers were able to disclose past tax and offshore assets without being prosecuted.
Fowler had noted that just as other countries across the world, the Federal Government was looking inwards to raise revenue from taxes and as such would not tolerate tax defaulters.
He expressed optimism that there were still so many tax defaulters that would come forward to declare their tax liabilities before the end of the amnesty window.
He said, “There are some issues of non-remittance of Withholding Tax, Value Added Tax and Personal Income Tax.
“The EFCC has shown support before. When tax defaulters are invited to your office (EFCC), we see result. I don’t know how you do it but we see result.
“Recently, two banks came forward to comply on their own. I think that they must have heard words. We want joint assistance with the EFCC, especially now with VAIDS, to make sure that all tax defaulters get the lawful treatment.”
More Prosecution Update
Fowler said the government would deploy all powers within its disposal to ensure that tax defaulters were prosecuted in line with tax laws.
“I want to let every taxable person in Nigeria know that we are ready to deploy all powers within our disposal to ensure that every tax defaulter is punished according to the law,” he said.
He said under the tax amnesty programme, the sum of N30bn had been realised from corporate companies and individual tax payers that have so far taken advantage of the scheme.
Tax Compliance Statistics
According to him, through the implementation of the scheme, the FIRS has been able to increase the number of taxpayers from 14 million to 19 million.
Fowler said while the FIRS was responsible for collection of 90 per cent of the N30bn, the states accounted for 10 per cent of the collection.
He said, “As at date, the scheme has recovered nearly N30bn both from individuals and corporate establishments.
“While the FIRS has collected about 90 per cent of this figure, the states have been responsible for collecting 10 per cent.
“Looking beyond the financial returns of the scheme, the impact it has had in promoting voluntary compliance is unquantifiable.
“One of the outcomes of the scheme, whether directly or indirectly, is the growth of the national tax payer database from under 14 million pre-2016 number to over 19 million in 2018.
“We are confident that these numbers will translate into a positive growth in the country’s tax revenue to Gross Domestic Product ratio when the official percentage for 2017 must have been released.”
The FIRS helmsman said some states had achieved significant progress in compliance rate under the scheme.
EFCC Boss’ Iteration on non-Tax Compliance
On his own part, Magu said the EFCC was ready to do more to bring tax defaulters to book.
He said, “People are in a hurry to collect taxes but are reluctant to remit them. It is very distressing. We may put a team together to ensure that whatever taxes collected by anybody is remitted and on time.
“I also want to congratulate you (FIRS) because of the change in the narrative. There is no doubt that there is a real improvement in our tax system.
“We will collaborate. We had done this in the past when we had a joint training in Kaduna. We will make sure that we do anything you ask us to do as far as it is lawful.”
The Experts’ Perspectives on non- Tax Compliance
Experts have said that VAIDS goes beyond just taking advantage of the immediate gains of the tax amnesty programme.
This is because, in recent times, the incidence of illicit financial flows, aggressive tax avoidance and outright tax evasion have come into the front burner.
For instance, the international community, recognising the need to present a united front against this trend is implementing a number of initiatives that will leave no hiding place for tax evaders.
The Executive Secretary, Joint Tax Board, Oseni Elamah, said tax evasion was a limiting factor in the quest for exploiting the inherent potential of tax as a viable alternative to sustainable revenue generation, especially for developing economies.
Rewards for Tax Compliance
He said in a bid to show the commitment of government to the scheme, the Minister of Finance, Mrs Kemi Adeosun, had approved the issuance of compliance certificate to taxpayers that had voluntarily declared their assets and income under the scheme.
Elamah said the issuance of the certificate was part of efforts towards appreciating and motivating taxpayers who voluntarily declared their previously undisclosed assets and income.
To guide against forgery, imitation and production of fakes, he explained that the certificate had been designed with embedded security features which include hologram, quick response code, visible and invisible certificate number and seal of the issuing tax authority.
Another tax expert, Mr Afeez Balogun, said implementation of VAIDS facilitated international tax cooperation and provided for all possible forms of administrative cooperation between the federal and state governments in the assessment and collection of taxes.
This, he noted, would assist in combating tax avoidance and evasion.
Balogun, a member of the Chartered Institute of Taxation of Nigeria, said: “Nigeria’s tax to GDP ratio stands at six per cent. Indeed, this index provides an incredibly low level of tax contribution to the economy.
“South Africa boasts of 27 per cent. As democracy continues to evolve and the citizens become more aware of their rights marked by their intensified demand for improved welfare, the government in the face of constant budget deficit cannot solely finance growing expenditures with borrowings.
“While taxes have always been a source of revenue, never have they proven to be more critical than in the last four years when oil prices fell significantly.
“All over the world, tax evasion is a crime. If the government were to jail tax evaders, perhaps 70 per cent of Nigerian tax payers would be behind bars. It is for this reason that the VAIDS is a smart move from the government and must be appreciated and sustained until such time when the sense of responsibility to pay taxes is ingrained.”
He explained that VAIDS would help government generate revenue that would otherwise have been lost for the period which it covers.
Balogun said at the expiration of the tax amnesty period, there is need for government to continue to promote voluntary tax compliance.
“To improve compliance, the government must restore confidence in tax payers through efficient use of public funds. Tax payer’s education must continue while the process around tax compliance must be simplified.
“The e-filing platform is commendable. Tax discounts may be introduced while all incidences of double taxation must be eliminated,” he added.