The federal government has for some months now been talking about VAIDS, don’t you think that the time left for people to respond to this scheme is quite short, taking into consideration Nigerians that live in the diaspora?
It is a nine months programme that we started on the 1st of July. We have four months left. So, there is enough time for anyone who wants to comply to pick up the asset declaration form. I filled my form two weeks ago, and it took less than 20 minutes to complete. The typical tendency of our people is to defer things. I am not sure that extending the time makes any difference because Nigerians will still leave it to last minute. There is plenty of time from now till March 2018 for those who want to read-up and get involved in the scheme
It has been five months into the programme, how has the response been?
We have had very good responses from companies. So far, we have received $110 million from just two companies. One of them paid a liability of $55 million, while the other paid $44 million. Let me give this illustration. If you live in Lagos, Lagos government does not know you run a business in Abuja. Lagos does not know that you have a property abroad, or that you moved some money to Dubai. Meanwhile Lagos State does not have the jurisdiction to go to the Emirates and say ‘this is my resident. What affiliation does he/she have with your country?’ Largely, no one was really paying the right tax because of these many loopholes.
When we did the analysis, only 241 people in country were paying above N20 million. South Africa has 950,000 people paying that equivalent amount. Whereas, some of the richest Africans are Nigerians living very good lifestyles, but because the tax system is so lose, people decided not to pay. The level of non-compliance informed the design of the programme. In jurisprudence, they say if nine out of 10 people comply with the rule, there is nothing wrong with the rule.
But, when nine of the 10 people are not complying, then there is a problem with the rule. That’s why we designed the amnesty programme, to let people come in and do the right thing. So, take that illustration I gave earlier of someone who resides in Lagos and runs a business in Abuja. Maybe the only thing he declares is a salary of N500,000 monthly, meanwhile, he has a private jet, an expensive yacht; his children are in school abroad, but government doesn’t know.
Now, we have pooled all the data together and profiled people. Once the lifestyle of the person does not match the tax paid, then the person has underpaid their taxes. So far, the response has been very good because people now know we have the data and we proven that we are ready to use it. We have given people until March before we call them tax evaders. After March, we can officially call them tax evaders; hence we can then name and shame them. Candidly, the response has been very good especially from high net-worth people.
One of the main reasons Nigerians do not pay tax is because of lack of social contract. Why should Nigerians be propelled to pay tax when the basic amenities are not even available?
It is a good argument but it is a flawed one. Today, of the 14 million taxpayers, 90 per cent of them are salary earners and they pay their taxes via P.A.Y.E (Pay Before You Earn). Salary earners are taxed whether they enjoyed amenities or not. So, why is it right for billionaires to make the decision whether to pay tax or not. Should billionaires pay taxes only when government does what they like, while salary earners are forced to pay regardless?
Interestingly, these billionaires pay taxes on their property and rents abroad, and they don’t complain. We have to change that mindset. Tax will help deepen the social contract between the government and citizens. When people pay taxes, they will take interest in how their leaders are elected. As long as it is oil money, nobody knows how much it was and what to expect. Then the social contract is broken; it is then very difficult to hold government accountable.
So, we need to break the cycle of, ‘I will not pay tax until government constructs the roads’. The truth is that those arguments do not benefit the middle class. It benefits the high class people who choose when and when not to pay. Most of the billionaires here made their money in Nigeria, so why should they evade? They make billions in Nigeria and take it to an offshore haven where they still pay tax.
How determined is the government to persecute tax defaulters after March 31st?
We must name and shame the defaulters after the deadline. We will definitely persecute them. In addition, the worst court is that of public opinion. We have about 500 letters ready, when I spoke to two people that I know of the 500 people, they were begging me to give them the letter personally. The truth is that people don’t want to be embarrassed. Tax evasion is a criminal offence and we will persecute evaders after March 31st.
Do you reckon you may have to deal with a significant number of people who may not want to comply?
It will be very disappointing if a large number of people that should comply, do not. That will mean that this work of getting the message out has failed. We are using every means, namely; social media, videos, adverts, website. We have done a lot to get the message out. When we were designing this programme, the team went to Indonesia, Turkey, India and other countries that have done big tax amnesties; we found out that once people know you have the data, they will comply. Lagos, Ogun states and FCT have given us their land registry. We have also gotten data from CAC, FIRS, SEC, CBN, Remita, NIBBS, FRSC, NCAA, among others. There is really no hiding place, frankly. We are in no hurry. Nigerians have until March to declare, while the government has from March going forward to persecute.
How about people in the rural areas? How do you plan getting them into the scheme?
Using the 80/20 principle, the people in the villages are not my problem, honestly. When I was Ogun state Finance Commissioner, even after I chased and chased people in the villages to pay tax, at the end of the day, each person paid about N2000 at most. I am not after chasing people like them. As mentioned earlier, two companies declared their assets and income, and paid a liability of $55 million and $45 million. So, we are concerned with big people that made their money from Nigeria.
Let me give you an example. We asked the Office of the Accountant General to send us the data of every payment over N100 million in the last five years. We then checked FIRS for the data on taxes they paid. These government contractors had declared less than the amount the government actually paid them. This does not even include their other income streams which would have included the transactions they had done with the bank and personally. This was business with the government, yet they weren’t declaring their income aptly.
Nigeria’s tax to GDP ratio is just six percent, while Ghana and South Africa are at 15 per cent and 24 per cent, respectively. The numbers do not lie; people are not paying taxes. Let’s get to the deadline first, before we start asking for deadline extensions. Interestingly, on the list of the 500 addressees, the people that are most worried are the politicians. They are the ones pushing to comply before the deadline. We have built in payment in instalments. We understand that a lot of people may not have the money at their disposal now. As long as people are ready to do the right thing, we will give them time to pay up.
What is the aggregate amount that has been realized from the VAIDS?
The scheme has not ended, so it is difficult to answer that question. The declaration forms are filled on a daily basis and we review the declarations against our database. By human nature, people may not declare honestly, so we write back to them telling them that what they had declared is inaccurate. However, we have two companies that have complied already, as I mentioned earlier.
The experience from the study tells that people will want to wait till the last minute to declare. We are expecting a big rush towards the end. There is something in the psyche of Nigerians that leaves everything to last minute. It is fine nonetheless, because we will be fully ready when the rush comes. A lot of the processes are automated, hence, there won’t be challenges when the rush comes.
This scheme is largely data driven. Are you satisfied with the level of cooperation you have received from federal and state agencies that should supply the data required for the scheme?
The cooperation with the agencies has been fantastic. At the recent National Economic Council (NEC), I gave all the governors an update on where we were. The governors are the biggest beneficiaries in this, so they have been very co-operative. Like I said, they have shared their land registry. Thereafter, we wrote to them to give us the data of people who registered high net-worth cars and they have been very responsive. I think because it’s a national programme, it has been useful to them.
Some of these states had problems approaching the high-net worth people in their states because they are powerful people. Since it is a federal programme for everybody, the states are taking advantage of this and they are more than willing to help us push the agenda. One of the things that we have noticed is that, high net-worth people have responded the quickest. The federal government has opened the window for them to come in.
Some of them are very uncomfortable going to their local tax officers. In some cases, the amount they have to pay is too big. So they are asking us to talk to their state governors to give them time to pay. We are acting as an interface between them and the state governors. That’s a good sign. We have made provision for payments in instalments. We understand that a lot of people may not have the money at their disposal to pay immediately. As long as people are ready to comply, we will give them time to pay up.
Nigeria has signed to be part of the Automatic Exchange of Information (AEOI). Do we have the infrastructure require to be a part of the information exchange programme?
We are already part of it. Automatic Exchange of Information kicks-in January 1st 2018. That again was part of the design of this programme. In fact, initially, we wanted the programme to end 31st of December, so that 1st January when the AEOI kicks-in, anyone that has not fully declared his/her assets and income would be fished out. Yes, we have the requisite infrastructure- data. Project Light House, the programme in the Ministry of Finance responsible for pooling data, also has the data. Hence, we will be sharing data with them and vice versa.
Already, bilaterally, a number of countries have given us data. When we started, we spoke to the British, America and UAE governments. Interestingly, the Canadian government approached us themselves to remind us that a lot of Nigerians have got property in Canada. There is a general global movement against illicit financial flows. Every country is saying enough is enough. It is usually high net-worth companies that make their money in a country and refuse to contribute anything to that country. It just violates fairness.
The general movement against illicit financial flows has helped us pursue this agenda. The law requires you to pay tax on your income. However, because this is an amnesty programme, we want to know your income for the last seven years. Hence, one way to derive that is to ascertain the individual’s or company’s assets. You must be able to explain how you were able to finance the assets. We ask people to declare their assets only to the extent that explains their income.
For example, as a Nigerian resident who has a house in the UK, on which you paid a mortgage. You have made a deposit of 100,000 pounds; you will pay the rest in installments. The question we will ask is, “where did you get the 100,000 pounds from to pay for the house?” so, if you paid tax on the 100,000 pounds before you transferred it to the UK, we do not have a problem with you. In a situation where as a Nigerian resident, you declared N2 million as your income for the year, we will then ask you where you got the 100,000 pounds from.
So you have two options. You can either tell us that you stole the money, in which case, it becomes an EFCC case, or you under declared your income that year. We have also taken into consideration if money was inherited. We do not even think that people who have stolen money will come and declare. We think this tax amnesty scheme applies more to people who saw loopholes in the system and took advantage of it.
VAIDS is expected to create jobs through the deployment of Community Tax Liaison Officers (CTLO). How many CTLOs have been engaged and how many states are they operating in?
Currently, we have 2,200 Community tax liaison officers and 33 states have received them already. The plan is to have a total of 7,500 liaison officers. We train every week. The training is a one week residential course in Abuja. We train young people on the tax system and deploy them to various states. We attach them to Internal Revenue Service (IRS). This is part of the N-power programme. N-power was doing this trainings in schools and other places. So, we convinced them to get tax professionals as well to handle this trainings. Impressively, some of our trainees are now thinking about taking tax exams.
They are beginning to consider a career along the career of tax. In other countries tax is such an important element and you find a good number of tax professionals. Whereas, in Nigeria, tax advisors are not as many. Even if people want to comply with the tax system, where are the tax advisors to help them? So, some of our tax liaison officers have expressed interest and we have said that if they successfully execute their assignment, we would sponsor them to take the tax exams. The truth is that, Nigeria will need more tax professionals, if she is to have an effective tax system.
Some government agencies collect taxes and do not remit. What will be done to them?
Rightly, the biggest culprits are the federal and state government. They have been deducting Value Added Tax (VAT) and Withholding Tax without remitting them. The FIRS has implemented an automated programme across all offices of the Accountant General in various states. When a payment is made and tax is deducted, the ministry can now see it. This has improved the level of compliance.
In October, the VAT was N89 billion. This is first time VAT has exceeded oil revenue. Thus, if we continue in this direction, tax will be a sustainable revenue for Nigeria. We have issued a circular to agencies stating that withholding taxes and not remitting them, is a disciplinary offence. In the past, they used to withhold tax and place the funds with the bank. With the presence of Treasury Single Account (TSA), there is no incentive to do that anymore. What we need to do is to make sure that they remit these taxes. So far, we have seen remittances go up.
The central data for the analysis of Nigerian population data is fairly accurate. How then do you hope to determine the success of the scheme?
Although, we have set $1 billion as the benchmark for the success of the scheme, it is however not about how much money we are able to get via the scheme. It is really about getting people into the tax net going-forward. That for me is the game changer. Once someone is in the net and they are declaring properly, that money becomes a continuous revenue for the government. Regardless of the oil price, government will a steady revenue. Oil money will just be the icing on the cake. So the problems we had in the last two years would not have occurred, if we had a better tax collection system. We faced those problems because we were heavily dependent on oil. Every month people in government would ask, how much is the money from oil? Let’s sit down and share it. No government in the world runs that way, from month to month. How does the government plan capital projects when they do not know how much revenue to expect per time.