Nigeria has fully embraced a system of automatic exchange of data where financial data of citizens are easily accessible and makes tax evaders have nowhere to hide.
Tax evasion is now a serious global issue and the tools available to tax administrators to tackle tax evasion and aggressive tax avoidance have undergone a step-change in recent years.
For instance, high profile leaks, such as the release of the ‘Panama’ and the ‘Paradise’ papers by the International Consortium of Investigative Journalists (ICIJ) showed that the world has turned strongly against tax evasion and aggressive tax planning.
Also, thanks to ground-breaking international agreements which make difficult to hide assets by placing them in offshore accounts or structures. Banking secrecy has been quickly disappearing and cooperation between tax administrations is rapidly improving.
In Nigeria, when it comes to tax, there is no political party sentiment and prosecutors of tax evaders are expected to have no allegiance to any political party. It is very simple, Nigeria needs money.
In Nigeria today, it is less than three weeks to the June 30 deadline of the one year tax amnesty granted defaulters to regularise their obligations and the Federal Government is said to have set up necessary machinery to prosecute defaulters and organisations that fail to leverage this window of opportunity.
The tax amnesty –Voluntary Asset and Income Declaration Scheme (VAIDS) – which took-off on July 1, 2017 enables taxable Nigerians to declare their assets and incomes and get certain waivers, including penalties and interest payments.
The scheme covers the whole gamut of taxes, and gives Nigerians until end-June 2018 to regularise their tax affairs. Should they not meet the deadline, they are liable, if convicted, to imprisonment of up 5 years, the payment of accrued interest at an annual rate of 21percent, penalties and possible confiscation of assets.
The data mining efforts of the Federal Ministry of Finance domiciled in ‘Project Lighthouse’ helped identify a new batch of more than 130,000 high net worth Nigerian individuals and companies that have potential tax underpayments.
Nigeria had signed the Multilateral Competent Authority on Common Reporting Standards, which allows for exchange of financial account information. AsoRock also engaged a leading international Asset Tracing and Investigation Agency (Kroll) to trace and track illicit flows and assets.
In addition to data mining and matching between government departments and agencies, the Federal Government also employed a US household name in asset recovery to link land registry records and tax receipts.
Other areas of interest to the authorities include bureaux de change records, the whistle-blowing scheme, data held at the Corporate Affairs Commission (CAC), Wikileaks, the ‘Panama papers’, the registration of private jets and yachts, and bank verification numbers.
Currently, a total of N30billion has been recovered from individuals and companies under VAIDS, of which the Federal Inland Revenue Service (FIRS) collected 90 percent or N27billion.
Nigeria’s tax-to-Gross Domestic Product (GDP) ratio at just 6percent is one of the lowest in the world compared to India (16percent), Ghana (15.9percent), and South Africa (27percent). Most developed nations have tax-to-GDP ratios of between 32percent and 35percent.
The Taxman collected data from a number of sources including land registries of the Governments of Lagos, Kaduna, Kano and Ogun States as well as the Federal Capital Territory (FCT) and also has been able to request and receive data from a number of nations including traditional tax havens.
For the overseas data Federal Government has used exchange of information protocols. Under these protocols, information relating to bank records and financial filings for tax purposes is obtained from tax havens like British Virgin Islands and Mauritius that are signatories to information sharing agreements.
The Taxman has been unearthing tax payers data from using Bank Verification Number (BVN), foreign exchange (FX) application, land registry, company dividends, car registration, Corporate Affairs Commission, and foreign property ownership.
“The focus right now is on those that make substantive amount in Nigeria that have not declared or are underpaying their taxes,” according to Tunde Fowler, FIRS executive chairman.
With a record of N30billion revenue through VAIDS, Federal Government has only succeeded in realising only 8.3percent of the target $1billion (N360billion) expected tax revenue through the amnesty programme.
President Buhari had in April approved the extension of the Voluntary Assets and Income Declaration Scheme to June 30, making it easier for corporates and individuals that have been defaulting in tax payments to take advantage of this amnesty scheme so as to avoid reputational risk.
The national taxpayers’ database has now increased from 14 million in 2016 to over 19 million in 2018. Federal Government set out to bring in 4 million new tax payers into the tax net.
The Federal Government has approved the issuance of Declaration Certificates to taxpayers under VAIDS. The Declaration Certificates, which was approved by the Finance Minister, Kemi Adeosun are to be given to taxpayers who voluntarily declared their previously undisclosed assets and income.
“The robust implementation of VAIDS has seen an increase in the number of tax payers from 13 million before the assumption of office by the President Muhammadu Buhari administration to 14 million in 2016 and 19.3 million in 2018,” Adeosun twitted recently.
The taxman’s stepped up its role as a result of increased desire by Federal Government to shore up tax revenue as Nigeria’s tax-to-GDP ratio at 6percent is one of the lowest in the world, implying tax’s contribution to the economy is low.
“The Taxman derives no joy in closing businesses of tax defaulters. The Taxman’s only desire is to raise funds for the well-being of Nigeria and her citizens,” according to the VAIDS office at the Federal Ministry of Finance.
“The macro importance of mobile money is that it helps to bring people into the taxpaying net”, according to Gregory Kronsten’s team of analysts at FBNQuest in their June 4 note, where they noted that the principal drivers of record increase in the number of taxpayers may “have been computerisation, enforcement steps and the tax amnesty rather than mobile money.”
The Joint Tax Board (JTB) had in a communiqué issued at the end of its 140th meeting held from March 25 to 28, 2018 wants revenue authorities nationwide to ensure that all efforts are made to increase the ratio of national tax revenue to GDP to at least 20percent by December 31, 2018.
VAIDS is one of the key policies being used by the Federal Government to reposition the Nigerian economy and correct inherited underdevelopment. This tax amnesty scheme is not to persecute individuals and companies but an opportunity for everyone to regularise all their tax irregularities, according to Federal Government which has also empowered the taxman who has been busy digging into the financial transactions and wealth structures of individuals and corporates.
The Chartered Institute of Taxation of Nigeria in its TaxBits noted that when then Acting President, Yemi Osinbajo, signed the Executive order that ushered in the Voluntary Assets and Income Declaration Scheme, in June 2017, it promised waiver of interest and penalties, among other sweeteners in the course of the programme.
“These waivers are considered the best yet by any tax amnesty programme anywhere in the world as the government has only requested for what should ordinarily have been paid over to its coffers, in terms of taxes. This is analogous to a wealth manager who has only indicated interest in collecting his principal leaving interest and other default charges on transactions of mutual interest.
“The whole idea was to make the tax package juicy enough for tax defaulters to come forward and make their declaration in as honest and complete way as possible further to their call to civic action as provided by Section 24(f) of the 1999 Constitution of the Federal Republic of Nigeria, as amended”, CITN noted.
The way forward, according to CITN is that the clear and unambiguous words of the executive order need to be carried out to the letter.
As part of the implementation of VAIDS, many high net worth individuals (HNIs) and very important personalities (VIPs) have been receiving letters from Ministry of Finance and various State Boards of Internal Revenue Services on their tax status, requesting them to take advantage of VAIDS to regularise their tax status.
As deadline for VAIDS gradually approaches, penalties for non-compliance include: liability to pay in full, the principal sum due, all interest and penalties due (10-100percent of the tax due or forfeiture of related asset); and criminal prosecution in accordance with relevant extant laws, including up to 5 years in jail.
Federal Government insists that tax evasion is one of the easiest cases to prosecute and has put in place a prosecution team including the Ministries of Finance and Justice, the Economic and Financial Crimes Commission (EFCC) and the Federal Inland Revenue Service (FIRS) to follow through in the prosecution process.
Other penalties facing tax defaulters include withdrawal of any reliefs, which may have been granted to the participant; liability to undergo comprehensive tax audit; and relating to undisclosed information, any sum voluntarily declared may be counted as part payment of outstanding tax.
The International Monetary Fund (IMF) in a most recent country report on Nigeria blamed the nation’s revenue administrators for the low tax collection records of Africa’s largest economy. “The very low tax collection rates in Nigeria are a direct reflection of weaknesses in revenue administration systems and a high level of systemic noncompliance” IMF noted.
“Estimates of tax potential from the literature suggest that a non-oil tax capacity of 16 to 18 percent would be optimal for a country with Nigeria’s economic structure and per capita income levels. This estimate implies space for additional tax collection of 12 percent of GDP”, IMF stated.
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