Wednesday, July 5, 2017

Nigerian government’s amnesty for tax evaders

Last Thursday, June 29, 2017, Acting President Yemi Osinbajo signed an Executive Order birthing Voluntary Asset and Income Declaration Scheme known as VAIDS. The scheme outlines the federal government’s plan to increase tax awareness and compliance, and grant taxpayers a time-limited opportunity to regularise their tax status without penalty. Taking a cue  from similar actions that have been successfully implemented in South Africa, Indonesia and India in 2016, Nigeria’s government hopes to bring more people to the tax net,  increase government revenue and reduce borrowing to finance budget. 
Indeed the country’s narrative of tax compliance is very appalling and heart rending. Unlike several African countries whose Tax to Gross Domestic Product Ratio is average of 15 per cent, while that of many advanced countries is 30 per cent and above, Nigeria’s Tax to GDP ratio is mere six per cent. According to the National Bureau of Statistics figures, Nigeria has a taxable class of no fewer than 69 million people, out of which only 14 million are currently in the tax net. Also, only 214 of taxpayers, irrespective of status, pay N20 million or more annually, while about 900 taxpayers pay N10 million per annum. All the 214 taxpayers are based in Lagos while out of the 900 also paying N10 million, all but two are based outside Lagos.
The above statistics quoted by Acting President in his speech at the launch of VAIDS last Thursday shows that 55 million taxable Nigerians are not paying tax. Also huge chunk of high net worth individuals voluntarily paying tax reside in Lagos. This is not surprising as the State of Aquatic Splendour also known as Centre of Excellence is the economic nerve centre of Nigeria. Lagos is to Nigeria what New York is to America and London to United Kingdom.  It is however a lie peddled too far to say that there are no handful of high net worth individuals in all the states of the country especially Abuja, Kano, Kaduna, Port Harcourt, Warri, Eket, Calabar and several other major cities. A further interrogation of those reported to have voluntarily complied with their tax obligations may also reveal underpayment.
Truth be told, Nigerian tax system is riddled with corruption. It’s not only individuals that evade tax; many companies operating in Nigeria either do not pay tax at all or under pay. Many tax officials and consultants are millionaires today as a result of sharp practices and malpractices. Many of them help their clients to commit tax fraud. They assist them to procure fake tax certificates and in other respect did under declaration of their income and concomitantly tax liabilities.  
There are several reasons why people and companies do not want to pay tax. One of them is the high level of corruption among Nigeria’s politically exposed persons. Many political office holders do not either pay tax or do not pay the right tax. Yet, they take advantage of the governance system to corruptly enrich themselves. A look at Nigeria’s yearly budget at all levels will reveal high level of wastages of the nation’s resources. Frugality is not in the dictionary of Nigeria’s political office holders. They live ostentatious lifestyles and care less about the suffering masses.
Look at the number of cars in the convoy of the president and governors. Until recently, about 10 aircraft were in Nigerian presidential air fleet which is maintained annually with billions of Naira. Two Saturdays ago, while discussing the 2017 Federal Government budget on a Radio Nigeria network pidgin programme, ‘Kontri Mata’, a caller asked me why huge resources are voted annually for purchase of cooking utensils in State House as well as purchase of cars, computers and building renovations every year. Nigerians are indeed averse to a situation of “monkey dey work, baboon dey chop”.
Multiple taxation has also been a disincentive to Nigerians and enterprises operating in the country. For instance, apart from paying import duty on imported hardware and raw materials, companies operating in the country are also faced with plethora of other levies, duties and taxes by all the tiers of government viz. federal, state and local. Individuals pay Value Added Tax on their goods and services, Personal Income Tax  (Pay As You Earn scheme). There is also a Withholding Tax and last year a N50 Stamp Duty on every transaction has been made compulsory for every current account holder in the Money Deposit Banks. Do we have accountability for revenues collected under these myriads of taxations? No! I can’t recollect government at any level coming out to tell Nigerians how much has been realised from the payment of the Stamp Duty since the enforcement began.
There is also insufficient education on tax computation. For instance, who is supposed to pay tax? What constitutes tax reliefs? Does a business woman or man pay tax on all sales proceeds or on profit? What is tax holiday? Good enough, every Thursday during this nine month amnesty period has been declared by the government as ‘Tax Thursday’ meant to create awareness among Nigerians. To my own mind, voluntary compliance with tax obligations will work when there is tax justice. Tax policy must be customer friendly. Already, there is high cost of living arising from increase in pump price of petroleum products, high electricity tariff, epileptic power supply, high cost of rent and transportation and low salary which again is not paid as at when due. Without tax pressure, there is already high incidence of suicide and incidences of mental illness. Government will do well not to push people more into depression.
Under VAIDS, tax amnesty will run for nine months, effective July 1, 2017 to March 31, 2018, to give room for tax defaulters to voluntarily declare their assets and pay commensurate taxes. That is a fair deal. However, government should consider imposing high taxes on luxury items such as exotic drinks, clothes, and other non-essential items. It is also high time to issue Property Verification Number similar to Bank Verification Number. Owners of high net worth properties above certain threshold like N100m should be made to pay property tax.

There is no gainsaying that VAIDS is desirable as it will boost government revenue and reduce borrowing; however, issues bordering on corruption, lack of transparency and accountability as well as multiple taxation earlier raised in this piece should be critically examined and resolved within this amnesty period. The front horse is the one used by the back one to pace; therefore, change must begin with our leaders, in and out of government.