SAM DIALA offers insights into the gains of extending the Voluntary Assets and Income Declaration Scheme (VAIDS) Tax Amnesty.
Two schools of thought are reacting differently to the extension of the Voluntary Assets and Income Declaration Scheme (VAIDS) announced recently by the federal government. An initiative of the Federal Ministry of Finance in collaboration with the state Tax authorities, VAIDS is a revolutionary narrative in Nigeria’s fiscal policy landscape.
The scheme offers a nine-month window of opportunity for defaulting tax payers of all categories to voluntarily regularise their tax liabilities. Compliance attracts defined package of ‘forgiveness’ or incentive, which earns the tax entity a waiver against prescribed sanctions. This spate of official forgiveness is called Tax Amnesty, and it lasted for nine months: July 1, 2017 to March 31, 2018 initially.
In the event of refusal to take advantage offered by the amnesty period, defaulters are subject to consequences specified in Section 8 of the Executive Order (of June 29, 2017) creating the VAIDS programme. The sanctions include the full payment of outstanding tax liability and criminal prosecution.
Government had vowed not to extend the nine-month Tax Amnesty after the March 31, 2018 deadline. Chairman, Federal Inland Revenue Service (FIRS), Tunde Fowler, had maintained that the scheme would not be extended beyond March 2018. “Payment of penalties and interest on owed taxes, tax audit and prosecution will follow in the case of defaulters”, Fowler warned at a VAIDS enlightenment programme in Lagos February.
Stake holders and experts also amplified government position: “Full prosecution of tax defaulters will begin across the country. It will no longer be business as usual. There will be massive prosecution of tax defaulters. No one should be in doubt as to the next move of government when the nine-month generous tax amnesty ends in March 2018. It is that serious,” said Emeka Eze, Lagos-based Legal Practitioner and Tax Consultant.
However, the federal government on April 11, announced a three-month extension of VAIDS. By this policy shift, the tax amnesty scheme will now expire on June 30, 2018. Minister of Finance, Mrs Kemi Adeosun, revealed that President Muhammadu Buhari approved the shift in response to requests by the states and private sector for an extension. They cited logistic challenges such as non-availability of the declaration forms in some states, in addition to the coincidence of the deadline with the Easter public holidays.
The development has triggered reactions among stakeholders just as the VAIDS programme has been a subject of debate among financial experts, economists and other stakeholders. A school of thought had argued that the scheme would bring little succor to the tax payer and would not earn government the expected volume of tax revenue. According to this group, the economic structure of Nigeria and the fact that most viable activities have their life-line linked to government creates some challenge in the implementation of VAIDS.
They also maintain that the prevailing economic climate which throws up huge headwinds and saps productive energies, gulps excess resources amid frightening security challenges, is roundly counter-productive. Their argument is: aiming at huge tax revenue from an environment plagued with huge infrastructure deficit, amounts to an attempt to square a cycle.
Again, there are fears among this school of thought that the informal sector would be “squeezed” through tax as the searchlight would be beamed on this category of the economy when government is done with the already “over-taxed” formal sector. The informal sector is said to be bearing huge “informal” tax burden through multiple levies, taxes and official extortion, especially at the state and local government levels. They also point at our poorly regulatory environment which offers little incentive to corporate governance culture and add that the ‘Nigerian factor’ would consign the scheme to a permanent life support.
It is the view of this group that VAIDS would only consolidate the tax burden of this sector as no relief would be offered on the existing multiple taxation platforms. This school of thought strongly recommends the overhauling of the nation’s tax laws. Most of the laws are described as outdated and out of tune with present economic realities. Opinions shared among this group maintain that VAIDS would offer temporary solution and that the cost of executing and servicing the scheme would be enormous. This includes litigation-related expenses.
On the positive side, however, VAIDS offers a rare opportunity to straighten our unorganized tax system. The objectives of the scheme include encouraging voluntary tax compliance culture, discharge of outstanding tax liabilities as well as bringing more taxpayers into the loop. While the scheme ultimately boosts government revenue, the tax payer enjoys the benefit of having appropriate tax payment plans worked out for him. This also earns him immunity from prosecution for tax offences and tax audit.
Many stakeholders have noted that few government policies, in concept and implementation, were as well-articulated and creative as VAIDS. The birth of the scheme also occurred at the most opportune time when government at all levels is gasping for breath to survive the rapid dwindling oil revenue. This was occasioned by the dip in oil prices at the international market since mid-2014, which launched Nigerian economy into a 15-month recession in Q1 2016 – the worst in a quarter of a century.
To cast the country’s tax net wider, VAID embraces all federal and state taxes such as Companies Income Tax, Personal Income Tax, Petroleum Profits Tax, Capital Gains Tax, Stamp Duties, Tertiary Education Tax, Technology Tax, Tenement Rates, and Property Taxes. It also covers all back taxes for the last six years in line with the statutory periods of limitation under the relevant tax statutes. Critics however argue that the states would be the greater beneficiary since the bulk of the tax would accrue from personal income and pay as you earn taxes.
However, according to minister of finance, Mrs Kemi Adeosun, the Scheme is “specifically targeted at taxpayers who have not been 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 authority; are engaged in tax disputes with the Relevant Tax Authority but are prepared to settle the tax dispute out of court; are new taxpayers who are yet to register with the tax authorities; and are existing registered taxpayers who have new disclosures to make.”
The scheme is heavily tilted towards technology to enhance data mining and boost the integrity of the scheme. Government has blocked a major loophole in the scheme by using data to profile tax payers. Tax evaders risk forfeiting their assets and prosecution as its data mining unit in the Federal Ministry of Finance, Project Lighthouse, had compiled data of tax payers from land registries from 36 states and Federal Capital Territory (FCT) as well as their bank accounts with the aid of the Bank Verification Number (BVN).
According to Adeosun, “A lot of data mining is going on daily, both locally and internationally, on property ownership and other items. Data is an extremely powerful tool that is now being utilized. For instance, we have reviewed all companies that received major payments from the federal government in the last 5 years and found that even those who made money from government, under-declared.”
Government must be commended for adopting a policy shift in the implementation of VAID by offering listening ears to the pleas for an extension. Being a post-recession initiative, it is obvious that many tax entities – individuals and corporate – would experience some challenge in embracing the scheme.
A notable reason is the paucity of resources arising from enterprises that have suffered long period of inactivity as well as high operating expenses. Some businesses that closed shop due to operating challenges might be gripped by the fear of uncertainty, hence hesitant in embracing VAID.
Extending the tax amnesty programme does not in any way confer superficial charisma on the scheme, as many may argue. It does not suggest uncertainty or inability to confront the “inadequacies” of the programme on the part of government. Many had adorned their full garment of skepticism over VAID, and now entertain the belief that the extension signals an initiative rich in words than in action.
In adopting a tax reform, our focus should be to enthrone sustainable tax compliance culture that becomes part of us. There is need for government to nurture a growth-friendly fiscal environment that front-loads tax revenue beyond the paltry tax-to-GDP ratio of 6 per cent – said to be the lowest globally, compared to its South African peer’s 26.2 per cent.
A robust tax compliance culture takes priority over a coercive system that looks at punishment and penalty as “motivating” factors in tax compliance. The slogan of holding government accountable will be more realistic and void of a toxic combination of grand corruption, policy uncertainty and impunity in governance. Priority will be given to creating the enabling environment to create job opportunities and rake in more tax revenue.
The aggressive campaign should be maintained during the extension. A post-VAID initiative should also be designed in a way that motivates tax payers to compliance than fuming with threat of fire and brimstone. We must also institute a governance culture that promotes transparency in tax administration and application of tax revenue. When the citizens feel the positive impact of governance and government is seen as fulfilling its part of the social contract, the tax payer would see the need to fulfill his obligations. Being goaded into compliance becomes undesirable.
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