VAIDS: Lessons to Learn from Tax Amnesty  

In less than two weeks, the curtains will be drawn on the Voluntary Assets and Income Declaration Scheme. Ndubuisi Francis reports that there are enormous benefits and useful lessons from the tax amnesty

Taxation is not an end in itself, but an instrument for advancing citizens’ well-being as part of a well-functioning state. Tax is a core part of state-building and constitutes a visible sign of the social contract between citizens and the state, enshrining the principle of revenue-for-service. Estimates of tax potential from the literature (Fenochietto 2013, IMF 2017b) suggest that a non-oil tax capacity of 16 to 18 per cent 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 per cent of gross  domestic product (GDP) since the current tax revenue-to-GDP is about six per cent.

The Nigerian authorities have made a key development objective of raising the non-oil revenue to GDP ratio to 15 per cent by 2020. Both the  Economic Recovery and Growth Plan (ERGP) published in March 2017, which seeks to keep the fiscal deficit within the boundary established by the Fiscal Responsibility Act, and the 2018 Budget emphasise this revenue target. Increasing non-oil tax revenue would be realised through a series of tax administration initiatives (improving tax compliance, broadening the tax net, employing appropriate technology) combined with tax policy reforms (strengthening tax legislation, introduction of tax on luxury items, and other indirect taxes to capture a greater share of the informal economy). Therefore, the introduction of  Voluntary Assets and Income Declaration Scheme (VAIDS) tallies with the objectives.

What VAIDS represents

VAIDS is a time-limited initiative that allows taxpayers to regularise their tax status relating to the six previous years’ tax assessment periods. In exchange for full declaration of previously undisclosed assets and income, taxpayers are forgiven overdue interest and penalties and receive assurance of immunity from criminal prosecution for tax offences and from tax investigations.

VAIDS covers all federal and state taxes, including companies’ income tax, personal income tax, petroleum profits tax, capital gains tax, withholding tax, stamp duties, and tertiary education tax and technology tax (NITDA levy).

Implemented by the Federal Inland Revenue Service (FIRS) in collaboration with all States Internal Revenue Services (SIRS) including the Federal Capital Territory (FCT), the scheme commenced on July 1, 2017 running for a nine-month period until March 31, 2018.

However, when the initial nine-month duration elapsed, President Muhamadu Buhari approved a three-month extension which ends on June 30. 

Immediate Gains and the Aftermath 

At conception, VAIDS was expected to generate up to US$1 billion (N305 billion) in tax revenue. However, few weeks to the terminal date, it has generated N30 billion.

Beyond the quantum of revenue generated, the scheme has been applauded locally and internationally. The measure of the success of any venture, particularly a scheme like VAIDS is not tied to pecuniary gains only.

Speaking on the performance of the scheme, the Executive  Chairman, FIRS, Mr. Tunde Fowler confirmed that a greater impact of the scheme was the five million addition to the tax database from 14 million to 19 million.

While  presenting VAIDS certificates of declaration to the chairmen of the state tax revenue authorities, Fowler said the N30 billion raked in so far came from both individual and corporate establishments.

According to him, while the FIRS was responsible for the collection of 90 per cent of the sum, the states accounted  for 10 per cent of the collection.

Fowler told members of the Joint Tax Board (JTB) that the beauty of VAIDS transcended the financial gains but rather its potential of expanding the tax net.

He said: “Looking beyond the financial returns of the scheme, the impact it has had in promoting voluntary compliance is unquantifiable. One of the outcomes of the scheme, whether directly or indirectly, is the growth of the national taxpayer database from under 14 million pre-2016 to over 19 million in 2018, and we are confident that these numbers will translate into positive growth in the country ’s  tax revenue-to-GDP ratio when the official percentage for 2017 is released . “

According to him, some states had achieved significant progress in VAIDS compliance, adding that this informed the invitation of the executive chairmen of the revenue authorities of such states.

Fowler added : “VAIDS goes beyond just taking advantage of immediate gains. In recent times, the incidence of illicit financial flows, aggressive tax avoidance and outright tax evasion are on the front burner.

“The international community, recognising the need to present a united front against this trend, which is a limiting factor in the quest towards exploiting the inherent potential of taxation as a viable alternative to sustainable revenue generation, especially for developing and emerging economies, has designed and is implementing a number of initiatives that will leave no hiding place for the tax evader.”

Fowler urged the state revenue chairmen to constantly engage in enlightening taxpayers about voluntary tax compliance as a way of developing a friendlier tax environment.

As part of activities lined up to ensure increased awareness on the scheme in particular and tax compliance in general, staff of the JTB secretariat in collaboration with the Federal Ministry of Finance effective June 14, 2018 began a tax sensitisation exercise every Thursday in the states until the end of the scheme.

As the current advert aptly captures, “There’s no hiding place”, the introduction of VAIDS has tightened the noose on tax evaders.

VAIDS has opened the leeway for the  income, assets and transaction data of millions of Nigerians to be obtained from a variety of sources, including land registries, banks, FIRS, Corporate Affairs Commission, Nigeria Customs Service, Federal Airports of Authority of Nigeria and numerous payment information platforms.

Such data have been analysed to yield tax debt profile of individuals and companies after which letters were written to defaulters, warning them to comply with VAIDS before the deadline.

Owners of undeclared offshore assets are equally certain to be tracked through a variety of multi-jurisdictional agreements to which Nigeria is signatory.

Among these are Automatic Exchange of Information (AEoI), which  started January 1, 2018, and enables tax authorities in Nigeria to receive information, even without requesting, from tax authorities in other countries.

The federal government has also started working on modalities for the implementation of the Common Reporting Standards (CRS), which will deliver taxpayers’ information to government directly from commercial banks.

Full implementation of the CRS will enable the government receive information from accounts domiciled in countries by Nigerian tax residents.

Experts had warned that the availability of data from various sources makes it difficult for tax dodgers to evade the attention of tax authorities. They noted tax binformation had  always been available, but not as integrated as they now are because of VAIDS. Cooperation among government agencies and tax authorities at federal and state levels has ensured a profusion of data on incomes and assets, which would be matched with lifestyle to yield a full picture of the tax status of an individual or corporate entity.

Others contend that tax avoidance, especially for those with incomes and assets outside Nigeria has been made more difficult. They believe that the range of international instruments, which Nigeria is part of, facilitate the sharing of information among tax authorities even without request. Again, reference is made of the Automatic Exchange of Information (AEoI), one of such tools in the hands of tax authorities across jurisdictions.