The Deadline for Tax eVAIDers

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Monday, February 05, 2018/   09.28AM / FBNQuest Research   

Figures cited by the federal finance ministry show that there are 14 million taxpayers in Nigeria, of which 13.4 million have their taxes deducted at source. Those paying some tax voluntarily represent less than 1% of the economically active population. 

Non-oil revenue inflows into the federation account amounted to just 2.3% of GDP in 2016, and total inflows 5.0%. The ratios from emerging markets such as India, Ghana and South Africa tell us that Nigeria should be managing a bare minimum of 15%. 

Against this background and the FGN’s ambitious plans for the infrastructure, the authorities launched the Voluntary Assets and Income Declaration Scheme (VAIDS) in June. The scheme covers the whole gamut of taxes, and gives Nigerians until end-March to regularize their tax affairs. Should they not meet the deadline, they are liable, if convicted, to imprisonment of up five years, the payment of accrued interest at an annual rate of 21%, penalties and possible confiscation of assets.  

At its launch, VAIDS had a target to raise at least US$1bn equivalent. We are not aware of any interim progress reports. 

The stronger part of the two-pronged strategy is data mining, and matching between government departments and agencies. The FGN has employed a US household name in asset recovery to link land registry records and tax receipts. Other areas of interest to the authorities include bureaux de change records, the whistle-blowing scheme, data held at the Corporate Affairs Commission, Wikileaks and the “Panama papers”, the registration of private jets and yachts, and bank verification numbers. 

We have heard extreme parallels made by Nigerian policymakers with data matching in Ethiopia where, it is said, a purchase in a store with a credit/debit card is captured by the tax agencies. We are not sure that this is practicable in Nigeria or indeed many countries with a different political tradition. 

The other part of the strategy is educational. This is long-term, and requires the state to provide services for which the population is willing to pay in the form of taxes. Lagos State offers the most-quoted template. 

A successful follow-up by the authorities after the deadline requires the full cooperation of the judicial system. 

Another challenge for the authorities is to convince the working population that the amnesty is really an once-in-a-lifetime opportunity. The experience from Turkey, Indonesia and elsewhere is that such programmes are repeated and gradually their edge in consequence. 

Proshare Nigeria Pvt. Ltd.

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