. What is the Voluntary Assets and Income Declaration Scheme (VAIDS)?
VAIDS is a 9-month Tax Amnesty scheme. It allows Nigeria to expose both individuals and companies to regularize their tax affairs. We have done quite a lot of work over the last 15 months looking at tax compliance in Nigeria. Our tax to GDP ratio is 6% — one of the lowest in the world. Now Ghana is at 15.9%, most developed countries are at about 30%. So it’s really very fundamental: very few people are paying the right taxes.
So, we did a study. Why are Nigerians not paying their tax or why are tax revenues so low? And what we found is that there is tax evasion on a major scale. A lot of people are not registered, many of the people who are registered are not paying the right taxes. And we now have the data. We actually engaged a team of experts and what we found was that in many cases, people’s lifestyles, which should really be from their tax income, did not correlate with their tax returns, so there was massive tax evasion.
For example, we looked at properties abroad, we looked at properties in high-value areas, we looked at BVN and found that some people’s assets and lifestyle when compared with their tax returns, for example you have somebody with five or six properties, yet shows a tax clearance that shows they paid N150,000 for the year. That’s the sort of evasion, on that scale, that we saw.
How many people are paying 20 million naira or more in Nigeria? Now to pay 20million naira in tax means you have an income of 80 million. For the whole country, 214 people. And all of them are in Lagos State. So are we saying that there are no rich people anywhere else in the country? And are we saying there are only 214 who are earning 80 million naira or more in the whole country? It’s not possible.
So those were the sorts of things that informed the need to actually declare a window of opportunity for people to actually do the right thing. We have the data and what we thought was if you go and pursue everybody, you will spend years in court pursuing tax evaders. So let’s open the window, lets allow those who want to regularise, declare honestly, do the right thing. And then that leaves those who don’t, we can then use the data that we have to go after them.
It all started really with the fight against corruption, when we were trying to trace stolen money and they were coming back to us and saying, No. Your problem is also untaxed money. A lot of money has gone out of Nigeria, bought properties in highbrow areas and they were giving us this data so we then began to look very closely at the issue of tax compliance. And when we saw the level of non-compliance, we just decided the best thing for us, rather than pursue everybody, is open a window and allow everybody to voluntarily regularize their status.
2. How do I take advantage of the VAIDS window?
We have designed declaration forms for Taxpayers — companies or individuals — so they can honestly declare all unpaid taxes. Effectively, what they are doing is restating their tax returns. They are basically saying that in the previous five or six years, I did not declare all my income sources. I’m now coming clean and I’m declaring those income sources.
Ordinarily, restating your tax returns should have penalties. The penalty is 10% and you should pay interest of up to 21% per annum. We’ve said okay, we’ll waive those penalties, waive that interest if you declare fully and honestly. And we’re giving you nine months to do so.
3. What if people don’t take this seriously, and don’t declare accurately or declare at all?
We have been working for the last 15 months on gathering Tax and Income information from various sources: from BVN data, from foreign property records, and we also engaged one of the world’s leading private investigation firms and they actually traced assets abroad. Technology has been very helpful in helping us to build accurate financial records of Nigerians. With this information, we are in a position to go after anyone and everyone guilty of tax evasion.
In January 2018, there is something called the Automatic Exchange of Information (AEI) that kicks in, which Nigeria is a party to, which means we will automatically get access to information, from all tax Havens, and from other countries, on Nigerians abroad.
We already have quite a lot of information. The sources we looked at also included the Panama Papers, and Wikileaks. We did a lot of data mining, picked up Nigerian names, and so we’ve built very accurate tax profiles of a number of people and it’s very clear that they are not paying the right taxes.
4. How does VAIDS affect/impact Nigerians who own property abroad?
The issue is this: the property that you own abroad, where did the money to purchase it come from? If that money came from Nigeria and you’re tax resident in Nigeria, one would assume that you’ve paid tax on that money before you bought the property. So if you paid your taxes, you bought the property for, say, a hundred million, and we can see that in the preceding years, you have declared income of a hundred million, then we don’t have a problem with you. But if what we are seeing is that you bought a property worth a hundred million, but your tax declaration suggests that you only earn a million naira a year, the question then is, where did you get that money to buy that property? We could go after that property and say it’s either you stole the money, or you just didn’t declare tax on it. Either one is a crime.
So we are giving people an opportunity because now we can see their assets, we can work backwards and ask, how did you finance those assets? If you say you borrowed the money, fine. Show us where you borrowed it from. If you say you inherited the property, show us who you inherited it from. But if you are not able to show where you got that money from, then our assumption is that it is income that you earned in Nigeria on which you didn’t pay the right taxes.
Recently, on the BBC, there was this programme — Lagos to London — which profiled how many properties were purchased by Nigerians in highbrow areas of London. Nigerians have a taste for this type of property, but when you then try to correlate those property values with how much tax people are paying at home, it’s just unfair. I mean, there’s a sense of unfairness. The British, the Americans, the UAE, the Canadians, interestingly, we hadn’t contacted them. They came to us to say, “You haven’t looked at us. There are a lot of your citizens who own properties in our countries.”
5. How will VAIDS affect State Governments, who are also involved in and beneficiaries of the Tax Collection process? How will they benefit?
Personal Income Taxes (PIT) go directly to the state government, so increasing the number of people that are paying PIT will of course improve the fiscal health of the state governments. And of course, this is part of our drive to reduce our reliance on oil. The way it happens, the practical application of that rhetoric — ‘oh I want to be less dependent on oil’ — is Tax.
Company Income Tax goes to the Federal Government and that’s shared in FAAC. VAT also comes to the Federal Government but is shared in favour of the states so 85% of VAT actually goes back to the State Government through the FAAC account — but PIT that is deducted from our salaries actually goes directly to our states of residence.
So, we are covering all taxes, and there is a huge education element to what we are doing, to make sure people understand that these are their obligations to the various authorities.
Many countries of course, have no natural resources. They rely on their taxes. So we need to rebuild that so it will help the state governments and I think it will also help accountability because when people pay taxes, they will take much more interest in what’s going on at state government level, they will get involved in the budgeting, they’d ask for more accountability because their money us in there rather than the money that’s shared from Abuja
We’re fortunate to be blessed us with oil, but what if we didn’t have oil? And before oil this is how Nigeria used to operate; everybody would pay his or her taxes — whether cocoa, groundnut, cowrie shells; we had a system. When oil came, we dismantled that system and began to just simply rely on what is shared from Abuja.
Now in the last few years, we’ve worked out that that’s not sustainable, that’s not the way to go. So we have to recreate that tax-paying culture and the governors have been fully in support of this initiative, and they are going to drive the ‘Tax Thursdays’, so that we’ll make sure that everybody pays.
Because at the moment, it’s really unfair; only salaried employees are effectively paying taxes, and they are carrying the burden that should be borne by everybody. And it’s manifesting, we have a lot of services we can’t provide — both Federal and State Governments, because there’s no money; there’s just not enough money to do the things that we need to do. So we have to correct this problem.
6. How much is Nigeria looking to raise from the implementation of VAIDS?
Well, we haven’t set a specific target, because it’s very difficult. Anything over one billion dollars will be great. For context, a couple of countries have done this and they’ve raised anything from between 7 billion dollars and 15 billion dollars. So it really does depend on how much compliance we get from Nigerians, and it’s not just high net-worth Nigerians.
They are a big target, of course. Companies as well. We found a lot of companies evading taxes, paying minimum tax, shifting profits to other jurisdiction through transfer pricing to make sure that Nigeria gets a very small percentage of the money that’s actually generated in Nigeria.
And even at the lower levels, we are also finding massive tax evasion. We only have 14 million taxpayers in Nigeria, and the majority of them are on PAYE; that is, people who have their taxes deducted from source.
If you look at the structure of our economy, the majority of people either run their own business or work for themselves, or are company directors. These are the people that are not in the Tax net. So they are not in the net at the high end and they are not in the net at the low-end. And we are trying to correct both at the same time.
7. What assurances or guarantees exist that the Income and Tax returns information that people provide will not leak or be compromised in any way, and used against them?
As part of this work, we did a study of four countries that had done this successfully. Indonesia, South Africa, India and Turkey. One of the things that we discovered was that a lot of people were worried that if they declared, they could become a target. And so one of the learning points is that we have is to set up a very small unit, which we have done, which allows people to come forward — and they can come forward through their lawyers, through their accountants — very confidentially. And people have actually started to do so.
We’re saying, reach out to us very privately, and say, look, this is my situation. How can you protect me? And we are making sure — and this is in the Executive Order — that the information that they provided is confidential, and it is a crime to leak that information. So there is no risk of the information being used in an unauthorized manner; we simply are looking for the tax revenues that are due to the Nigerian government.
It is an offense to leak that information, and we are building the safeguards. And for certain people, we are handling it directly in Abuja, in my office, and saying look, you can come directly. For some people, the level of tax non-compliance is really significant, and they know and we know. They have special situations that they need to come and discuss with us one-on-one, and we are opening that window.
8. What’s in all of this for Nigerians? What is the government promising in return for compliance with VAIDS? Why should people be eager to pay taxes if they don’t trust that Government is looking out for their best interests?
The focus has got to be delivery of service, and I think that the Buhari administration has demonstrated clearly that we will not condone corruption and we will not condone wastage, and we will be very judicious in the use of public funds. We have delivered services at a time when there was very little money, so you can begin to imagine what we will deliver when we have a lot more money.
The partnership between the taxpayer and the person collecting the tax is a very important one, and I think it will improve accountability. We used to, at the state government level, have town hall meetings, and very few people would turn up. If they pay Taxes I assure you everybody will be there to look at the budget, and ask questions, and say what have you done with our money? So VAIDS will improve accountability, and I think it will put a lot of pressure on the government to deliver.