Tag: Benefits

Three weeks to the second expiration of the Voluntary Assets and Income Declaration Scheme (VAIDS), Assistant Editor, Nduka Chiejina looks at the build up to the introduction of the scheme and the possible benefits that can be derived from the successful execution of the laudable tax amnesty programme.

The Voluntary Assets and Income Declaration Scheme (VAIDS), is part of measures instituted by Muhammadu Buhari administration to improve tax collection. It was brought in via executive order number 004 of 2017.

The rationale for instituting VAIDS is to provide an opportunity for taxpayers, or amnesty for chronic tax defaulters, to voluntarily declare their assets and income and pay taxes due on them and in return obtain some benefits.

As part of this government’s exclusive economic pathway to growth, President Muhammadu Buhari, last year, launched the Economic Recovery and Growth Plan (ERGP). Anchored by Vice President Yomi Osinbajo with a totally buy-in by the economic team, Minister of Finance, Mrs. Kemi Adeosun, conceived the tax amnesty programme, Voluntary Assets and Income Declaration Scheme (VAIDS), “as first in the series of reforms that will transform the nation’s tax system and provide sustainable and predictable funding for all tiers of government.”

The scheme was designed to take effect from July 1, 2017 with nine months amnesty window initially scheduled to end in March, 2018, but the deadline was shifted to July 2018 to enable more tax defaulters take advantage of the scheme.

Giving more insight into the scheme, the Minister of Finance, Mrs. Kemi Adeosun, said that VAIDS is designed for all federal and state taxes like Companies Income Tax, Personal Income Tax, Petroleum Profit Tax, Capital Gains Tax, Stamp Duties, Tertiary Education Tax, Technology Tax and Tenement Rate.

The VAIDS amnesty programme she said also covers all back taxes for the last six years in line with the statutory periods of limitation under the relevant tax statutes. She noted that some individuals were “charging 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.”

According to Adeosun, “VAIDS specifically targets taxpayers who have not being fully declaring their taxable income/assets; have not been paying the tax due at all; have been underpaying or under remitting; are under a process of tax audits or investigations with the Relevant Tax Authorities; are engaged in tax disputes with the Relevant Tax Authorities but are prepared to settle the tax dispute out of court; new taxpayers who are yet to register with the tax authorities; and existing registered taxpayers who have new disclosures to make.”

Commenting further, Adeosun noted that “it does not matter whether the relevant tax default arose from undeclared assets within or outside the country. If tax should have been paid, the Voluntary Asset and Income Declaration Scheme is providing a once in a lifetime opportunity to declare the tax outstanding and resolve it definitively”.

She assured that anyone who takes advantage of the scheme to declare their assets and income for the purposes of taxation will be free to transfer their assets that they had previously held in nominee and other names into their own name.

According to her, “many Nigerians have lost assets in the course of trying to conceal such assets from the authorities. Such losses typically occur in the event of death or an urgent need to liquidate assets when required documentation and proof of ownership cannot be provided. The global focus on illicit financial flows is such that global regulations will only become tighter with time, thus this opportunity to regularise ownership of assets should be seized as proper declaration allows assets to be legally and formally held by the true owner.”

Other advantages for those who participate in the scheme she pointed out “include freedom from prosecution for past tax defaults, as provided in the law. Those taking advantage of the Scheme by declaring honestly and fully will be free from prosecution and will qualify for forgiveness of penalties and interest.”

The Federal Inland Revenue Service (FIRS) had revealed that the total number of taxpayers in the country before VAIDS was introduced last year was around 13 million, with a preponderance of the tax payers, around 96% being those in paid employment, and whose taxes were deducted at source under the Pay As You Earn (PAYE).

However, months into the programme, the number of tax payers had swollen to over 19 million with local and foreign companies operating in the country now taking advantage of the VAIDS to regularise their tax status. A few days ago it was disclosed that the federal government had raked in N30 billion from the VAIDS initiative with the possibility of the amount increasing before the end of the programme.

The Deputy Director, Tax Policy and Advisory Department, FIRS, Gabriel Ogunjemilusi stated that “the tax amnesty programmes, from the lessons learnt from other countries, were very successful and Nigeria situation cannot be different. With the domestication of the automatic exchange of information effective April 1, 2018, adoption of Common Reporting Standards and the current updating of third parties data on taxable persons by government, there will be no more hiding place for tax evaders.”

“Prior to the introduction of the scheme last year, Nigeria’s tax-to-Gross Domestic Product ratio was one of the lowest in the world. As of May 2017, of the roughly 70 million Nigerians who were economically active only 14 million or 20 per cent paid any federal or state taxes. The number of Nigerians who paid more than N10m in self-assessed taxes is even more astonishing. As of December 2017, only 943 Nigerians paid self-assessed taxes of over N10m and of that number, 941 live in Lagos State, the other two live in Ogun State,” Ogunjemilusi.

Happy States

It was common knowledge that the states and the federal government were always at loggerheads over who gets what, especially how much, when it comes to sharing money. With insufficient funds coming from the sale of crude oil into the federation account, poor tax collecting history and weak Internally Generated Revenues (IGRs), many state governments found themselves in deep financial trouble so much so that they couldn’t pay salaries except for very few of them.

In comes the Voluntary Assets and Income Declaration Scheme (VAIDS) and all the states, having seen the benefit of the scheme, are cooperating with the federal government for the success of the scheme.

This is so because the tax components which the VAIDS amnesty targets are jointly operated by the federal and state governments and the scheme has opened a vista of opportunity for the states to pocket more resources hitherto unknown to them. Now many states have jumped onto the wagon of VAIDS and are willingly exchanging information and data with the federal government to help identify individuals and corporate entities prime for taxing.

The states have bought into VAIDS so much so that they gave the Federal Government all the necessary support. At an interview with journalists on VAIDS, Adeosun expressed happiness with the level of cooperation from the state governments. She said: “all the states are involved in way or another through the Joint Tax Board. Every state is now getting more people into their tax net. We have realized that taxes are sustainable source of revenue for government and government as you know cannot fully depend on oil. We cannot be going to FAAC always asking how much can we share this month.”

Now, the focus of sourcing revenue has shifted from sharing to generating and collaborating with the federal government to harvest more revenue. the focus now is on internal generation of revenue. According to Adeosun, “the VAIDS train visited a few states where governors received the programme with open arms; pledging cooperation for a successful execution.”

Kaduna state Governor Nasir El- Rufai in his exuberant manner promised during a stakeholders’ meeting on VAIDS in Kaduna state that his government would make available detailed data of assets, landed properties owned by wealthy Kaduna state individuals that escape taxes.

Growth Imperatives.

Revenue mobilisation is potentially the master key to unlocking Nigeria’s growth potential by massively financing its huge infrastructure projects including roads, power, health and rail. Regular payment of taxes by Nigerians and corporate organisations is fundamental to the country’s growth and development. The country needs predictable revenue inflow, which is very essential for increasing investments by the federal and state government in infrastructure.

Total tax revenue as a percentage of GDP indicates the share of a country’s output that is collected by the government through taxes. Therefore, there is a strong relationship between GDP and tax revenue. GDP is an indicator of a nation’s economic health, and economic growth is a major driver of the level of tax revenues. When tax revenues are up, they point to an economy that is in a better health. In the event of a financial meltdown occasioned by a fall in revenue from the sale of export commodities, the government can rely on a good tax base to fund its activities like pay salaries and contractors for the provision of infrastructure and services.

With VAIDS on track, Adeosun stated that all states of the federation now get more taxpayers in their tax net thus increasing their IGR. According to her, “every state is now getting more people into their tax net. We realised that taxes are sustainable source of revenue for government and government as you know cannot fully depend on oil. “We cannot be going to FAAC (Federation Account Allocation Committee) always asking how much can we share this month,” she said.

According to her, the focus had shifted from sharing to internally generated evenue. Under the Economic Recovery and Growth Plan (ERGP), The government made a key development objective of raising tax revenue from 6% to 20% by 2020. Both the ERGP published in March 2017, which seeks to keep the fiscal deficit within the boundary established by the Fiscal Responsibility Act, and the draft 2018 Budget emphasise this revenue target.

Tax administration remains a veritable source of revenue to initially supportrevenue realized from commodity export. This will involve measures such as increasing non-oil tax revenue through a series of tax administration initiatives (improving tax compliance, broadening the tax net, employing appropriate technology) combined with tax policy reforms (strengthening tax legislation, introduction of tax on luxury items, and other indirect taxes to capture a greater share of the informal economy.

With the interest generated by the VAIDS Programme, it appears Nigeria is on the path to growing its tax base significantly to challenge revenue from oil.