At last, a tax amnesty is here

 

A long awaited tax amnesty has come into effect since July 1. It is long awaited because for many in the financial community, it has been suggested as one of the ways that could bring in a lot of Nigerians into the tax net.  Tagged the Voluntary Asset and Income Declaration Scheme (VAIDS), it aims to increase tax awareness and compliance while at the same time give Nigerians a nine-month time frame to regularise their tax position with the federal and state governments without any fear of paying a tax penalty or facing prosecution for default.  The tax amnesty runs from July 1 to March 31, 2018.

The renewed focus on tax is welcome because over the years, an over dependence on oil revenues, which has accounted for about 70 percent of federation revenues has ensured that taxation, especially taxes from the non-oil sector of the economy, have contributed negligible sums to the purse of government in the country.

In his speech at the launch of the initiative, Acting President Yemi Osinbajo exposed the poor state of tax compliance in the country. Quoting figures from the National Bureau of Statistics (NBS), Osinbajo notes that there are 69 million taxable adults in the country but only 14 million are in the tax net. Of this 14 million in the tax net, only 214 people pay tax of N20 million or more annually and another 900 pay N10 million or more annually with majority of them living in Lagos, which also has the highest tax compliance rate in the country.

A 2015 Knight Frank wealth report noted that there are about 770 naira billionaires leaving in Nigeria. With just 214 people paying taxes of N20 million and above, clearly indicates that many naira billionaires in the country are certainly not fully meeting up with their tax obligations and even of those paying, most are under paying. The corporate sector has also been poor with tax compliance especially for small businesses, for most of which the cost of compliance is higher than the cost of avoidance.

Osinbajo disclosed that the government’s goal with its tax amnesty initiative is to add a minimum of four million people to the tax net at the end of the 9-month amnesty programme, which he also hopes will bring in additional revenues of US$1 billion. The target revenue is relatively conservative.

A similar 9-month tax amnesty programme implemented in Indonesia this year raked in US$10 billion. It also resulted in about 970,000 new taxpayers with total assets of US$330 billion being added to the tax net. The success of the Indonesian programme may have encouraged Nigeria to adopt the initiative.

Nigeria’s tax to GDP ratio is acknowledged as one of the lowest in the world at just about six percent of GDP. Neighbouring Ghana has a tax to GDP ratio of 16 percent, which indicates that Nigeria could do better than what it is doing currently in terms of tax collection if it perhaps can put in similar effort like Ghana in collecting taxes. Faced with low tax revenues, Nigeria has been forced to borrow heavily pushing the country’s debt service to revenue ratio to about 36 percent, increasing the country’s risk of debt default. Increased tax collection could significant reduce the debt burden on the country and improve government spending significantly.

But many Nigerians have always argued that they have been reluctant to pay their taxes because of high levels of corruption in government. However, there is also the counter argument that corruption is high in government because most people do not pay their taxes. Once you get a critical mass of Nigerians paying their taxes, then that critical mass will start demanding accountability from those in government who have been elected to spend their hard earned money. So, paying tax is a good way to reduce corruption, which many Nigerians rightly condemn.

However, more is demanded beyond the tax amnesty to get Nigerians paying their taxes. It is important to simplify the whole tax process. It is good to note that something is already being done along this line with the automation of the tax filing process.

The Federal Inland Revenue Service (FIRS) and the States Inland Revenue Service (SIRL) also have to up their game in terms tax awareness and education. People have to be educated on what they have to pay as tax and how to pay it.

There is also a need to ensure that various forms of levies and taxes paid by the informal sector; market women, traders, artisans, bus drivers and motor cycle riders among others are formally captured in the tax net. Most of the players in the informal sector bear heavy tax burdens but that is not captured in national accounts. Part of the objectives of this tax amnesty period should be on the best process to ensure that these informal payments, which seem to enrich a few individuals at the expense of the nation or state, are eliminated and brought into the formal tax net.

There is also a need for the simplification and harmonization of the tax between the federal and state governments as well as across states. States do not need to have a uniform tax system, but it is important that businesses transacted across states are not subjected to avoidable taxes and levies that vary from one state to another.

Simplification of the tax process is critical to compliance.

Finally, accountability is critical. If the government is going to come down hard on tax compliance, it should expect citizens to demand for more accountability. Without accountability on the side of government, increased tax compliance would be elusive.

 

Anthony Osae-Brown