• Saturday, April 20, 2024
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The Buhari Legacy Series: VAIDS – How ambitious tax amnesty scheme was derailed

Tax Appeal Tribunal begins digital operations to boost reforms

Launched on June 29, 2017 by President Muhammadu Buhari’s government during a well-attended event at the State House Conference Centre of the Presidential Villa in Abuja, the Voluntary Assets and Income Declaration Scheme (VAIDS) – a tax amnesty programme – sought to boost the country’s very low tax base and shore up revenues.

VAIDS is a programme that provides tax defaulters an opportunity to voluntarily regularise and truthfully declare previously untaxed assets and incomes and in turn enjoy amnesty from the government.

Targeting at least an additional 4 million new taxpayers to the net, the idea was basically to encourage tax defaulters to voluntarily come forward and pay tax arrears without being punished.

The scheme was to run for nine months, beginning July 1, 2017 to March 31, 2018, but was afterwards extended a few times to August 2020, to give an additional opportunity for compliance. VAIDS was not limited to just Companies Income Tax but covered all taxes.

In exchange for full and honest declaration of previously undisclosed assets and income, taxpayers who enrolled into the programme would benefit from forgiveness of overdue interest and penalties, and the assurance that they would not face criminal prosecution for tax offences or be subject to tax investigations.

Yemi Osinbajo, who was the acting President at the time, signed an Executive Order at the launch to facilitate effective implementation of the programme by the Federal Inland Revenue Service (FIRS) in collaboration with all 36 States Internal Revenue Services and the Federal Capital Territory’s IRS. A memorandum of understanding was also signed between the federal and state governments, which put into place the structures for anticipated full compliance.

During the launch, authorities informed that Nigeria’s taxpayers were only about 14 million out of the country’s over 70 million economically active population and 40 million eligible taxpayers.

The concern was that even Nigeria’s highest-income net-worth individuals who ought to shoulder the greatest proportion of the tax burden were evading tax payments.

Quoting available data, Osinbajo said then that only 214 Nigerians paid annual taxes of N20 million and above and that all of them were based in Lagos State.

He had warned that tax evasion was not just a civil offence but criminal.

It was also said that some companies and individuals were able to evade full tax payment due to the inability of the tax authorities to access and assess their true income and thereby tax them accurately. This informed the deployment of technology for VAIDS implementation and the subsequent engagement of young professionals in the process.

The government committed to providing free training to accountants, lawyers, wealth managers, stockbrokers and other professional advisers to the public on the scheme. The free training aimed at equipping them to be able to advise their clients on participating in the scheme.

Reliefs and benefits available to any taxpayer who took advantage of VAIDS included immunity from prosecution for tax offences, immunity from tax audit, waiver of interest, waiver of penalties, as well as option of spreading payment of outstanding liabilities over a maximum period of three years as may be agreed with the relevant tax authority.

But six years after the launch, VAIDS remains one of those laudable projects many point to as failing to deliver on promises, having missed an opportunity to help turn the country’s revenue trajectory, as figures would show.

Tunde Fowler, former FIRS chairman, had said that VAIDS was aimed at helping to raise Nigeria’s tax contribution to the Gross Domestic Product (GDP) to 18 percent by 2020.

But today, at a mere 8 percent tax-to-GDP ratio, Nigeria ranks among the lowest globally, amid concerns that total debt stock is about N77 trillion as President Buhari leaves office.

VAIDS was also to target up to $1 billion as revenues to the government, encourage investments and drive economic activity.

The World Bank has warned that Nigeria needs to increase spending from its current very low levels, to promote economic development, and that the key to raising public spending lies in urgently raising more revenue.

“At 7 percent of GDP in 2021, Nigeria’s revenue to GDP ratio is among the five lowest in the world. Putting Nigeria on a sustainable fiscal path with improved service delivery requires a multi-pronged approach anchored around three interlinked and mutually reinforcing pillars,” it said.

In December 2017, Fowler announced that VAIDS had raked in about N17 billion for the government from less than 500 firms, with expectations of more inflows. It also helped raise the country’s tax base significantly to 19 million, the tax office claimed, even though enforcement had been a major issue.

The federal government later warned that it would prosecute, name and shame tax evaders who failed to utilise the tax amnesty programme to regularise their tax profiles.

However, not much was heard afterwards about the scheme and enforcement has barely happened as touted.

During the Post-VAIDS stakeholders meeting webinar in June 2022 to discuss the status of the scheme and the next steps in enforcing the consequences of non-compliance as contained in the Executive Order 004, it was disclosed that only about 5,000 companies had registered for the scheme.

While 1,751 of these companies had paid in full, another 1,464 requested for installments. In total, 3,215 successful applications were made for VAIDs, while 1,907 applications were unsuccessful, according to data available to BusinessDay.

Stakeholders at that meeting strongly advised the government to go after the 48 million non-compliant active businesses that were outside the tax net and failed to take advantage of VAIDS as captured by the National Bureau of Statistics (NBS).

They also advised authorities to focus on the top 1 percent of defaulters by selecting 100 high-net-worth companies and 100 individuals using available data from the Nigerian Financial Intelligence Unit, Joint Tax Board (JTB) , federal ministry of finance, Nigeria Customs Service, Corporate Affairs Commission and the Central Bank of Nigeria.

At that event, Taiwo Oloyede, Africa tax leader at PwC Nigeria, described VAIDS as a well-intended scheme that failed to punish defaulters who did not take advantage of the amnesty, hence making the scheme seem unsuccessful.

He affirmed that Post-VAIDS was necessary because of the widespread tax evasion by companies, government agencies and individuals.

He thereafter associated non-compliance with VAIDS to what he called “inadequate tone from the top” as well as lack of enforcement and prosecution.

At that meeting, Muhammad Nami, executive chairman of FIRS, raised concerns that the gap in compliance needed to be closed through enforcement.

Quoting data from the NBS, Nami admitted that tax evasion was huge as out of over 68 million businesses in Nigeria, less than 20 million of these were active taxpayers.

He added that the FIRS would ensure delivery of its mandate, assess defaulting taxpayers and enforce those laws accordingly.

He said the FIRS was collaborating with the JTB, ministries, departments and agencies, and other critical stakeholders like the Independent National Electoral Commission, and the judiciary to educate on constitutional provisions with regard to tax obligation of citizens, noting that the FIRS was working towards changing the narrative of tax compliance from a moral obligation to a legal one.

Read also: Top 10 banks with highest income tax payments in Q1

In a public notice the following month, titled: ‘Post-VAIDS Enforcement and Prosecution Exercise’ and signed by FIRS chairman, who doubles as the chairman of JTB, the two bodies announced they would immediately commence a full scale enforcement exercise on defaulting taxpayers who failed to take advantage of the programme.

But after several years, the government has not been able to punish or even name any tax defaulter. Information on the achievement so far is terse.

Asked for an update on the scheme and the long-awaited enforcement, Johannes Oluwatobi Wojuola, special assistant to the FIRS chairman on media and communication, said the Service was still preparing to commence full enforcement.

Kayode Ajulo, a constitution lawyer and human rights activist, blamed most failures of government on the absence of transparency and lack of political will.