Nigeria's new tax amnesty regime to generate revenue

Many governments around the world have taken recourse to declaring periods of tax amnesty on the premise that it would encourage taxpayers to come forward and voluntarily declare their taxable income and ultimately drive revenue generation.

In recent years, Nigeria has been beset with the herculean task of finding alternative revenue sources in the wake of dwindling global oil prices and the resultant revenue shortages. It is therefore not surprising that on June 29, 2017, Oluyemi Osinbajo, vice-president, signed an executive order giving legal backing for a new tax amnesty regime in Nigeria termed Voluntary Asset and Income Declaration Scheme (VAIDS). The Federal Ministry of Finance estimates that the scheme will generate tax revenue of approximately $1bn and add about 4m new taxpayers.

VAIDS was set up on the backdrop of a renewed global movement to tackle illicit financial flows, such as tax evasion. The inability of the government to match the flamboyant lifestyles of wealthy Nigerians to the country’s tax revenues was also another driver for the introduction of VAIDS. According to the statistics released by Federal Inland Revenue Service, only 214 Nigerians pay taxes in excess of N20m ($70,700).

The scheme offers Nigerian taxpayers, both individuals and corporate entities, who have not been compliant with their tax obligations, the chance to regularise their tax affairs by providing a soft landing through a waiver of penalties and interest, as well as immunity from tax audit and prosecution. VAIDS also provides protection of confidential information of participating taxpayers.

The scheme’s participants have a nine-month window (from July 1, 2017 to March 31, 2018) to declare all assets and income from sources within and outside Nigeria, covering 2011 to 2016. Information submitted is expected to be in a prescribed format and must be complete and verifiable. Upon submission of relevant information, the relevant tax authority would scrutinise and verify the accuracy of the declaration made in arriving at the tax liability. Tax defaulters who fail to take advantage of the scheme would be regarded as tax evaders and as such face the full force of the law. Such defaulters would be required to pay the full principal tax sum outstanding, plus interest and penalty. They may also face criminal prosecution for tax offences.

However, this new drive is not without its challenges. Statistics from the Federal Ministry of Finance put the country’s tax-to-GDP ratio at 6%, a far cry from the projected 15% by 2020. Also, the total number of registered taxpayers in Nigeria is put at roughly 20% of the estimated productive populace of the country. The federal government appears to be taking a long-term view in tackling the problem of tax evasion by adopting other measures. One of the steps taken is the recent move to join the automatic exchange of information portal. The exchange, which comes into effect in 2018, will enable the country to access information required to successfully pursue tax evaders across the world. In addition, there are plans to harmonise all available databases of various government agencies and institutions into a single intelligent database from which tax authorities would be able to monitor compliance.

VAIDS emphasises the government’s renewed focus on taxation as a viable tool for revenue generation and economic development. However, it must be recognised that VAIDS – even if successful – is only a short-term solution to the challenge of tax evasion and limited tax revenue generation. Efforts should be channelled toward sensitising the public of their tax obligations and the impact of this on economic development. The launch of a “Tax Thursday” as a dedicated day for tax campaigns is a welcome initiative. Strong political will is also required to ensure that the drive for tax compliance is non-discriminatory in order for the target of 15% tax-to-GDP ratio to be a reality by 2020.