AFRICA: Nigeria plans new tax amnesty scheme for the wealthy

Nigeria will go after wealthy citizens evading tax yet again in a new amnesty scheme that will correct the failings of the Voluntary Assets and Income Declaration Scheme (VAIDS).

“There’s a plan to introduce a national tax amnesty in 2024,” Taiwo Oyedele, chairman of the Presidential Fiscal Policy and Tax Reforms Committee, told BusinessDay.

“The new scheme will not repeat the mistakes of the VAIDS,” Oyedele said, urging tax evaders to come forward and settle their outstanding tax liabilities promptly.

The tax amnesty gives tax evaders immunity from prosecution, penalty charges and interest, if they voluntarily declare their previously undisclosed assets and income.

Oyedele did not specify how much the new amnesty is projected to rake in but VAIDS was supposed to add $1 billion to government revenue.

The collection from the VAIDS was about 6.6 percent of the target, with the policy failing to live up to expectations.

Among the factors that contributed to the underperformance of the scheme were insufficient and unreliable data to track tax defaulters, lack of sufficient and well-trained staff to carry out effective tax administration and revenue collection, massive corruption among tax officials and administrators, lack of political will by the government to pursue tax defaulters, and a lack of public trust in the judicious use of the funds derived from the programme.

However, the introduction of the programme still resulted in a 36 percent increase in the taxpayer database, from 14 million to 19 million taxpayers as of 2018.

Launched on June 29, 2017 under then-President Muhammadu Buhari, the VAIDS sought to boost the country’s low tax base and shore up revenues.

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.

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 countries with the lowest tax-to-GDP ratio globally.

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 said, 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.

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 , federal ministry of finance, Nigeria Customs Service, Corporate Affairs Commission and the Central Bank of Nigeria.

“VAIDS was a well-intended scheme that failed to punish defaulters who did not take advantage of the amnesty, hence making the scheme seem unsuccessful,” Oyedele said.