Category: Tax Amnesty

An age long popular proverb says, “make hay while the sun shines”. It is our belief that the ongoing  amnesty scheme-Voluntary Assets and Income Declaration Scheme (“VAIDS” or “the Scheme”) in Nigeria can be likened to a shining sun. VAIDS is a 9 months’ programme which commenced on 1 July 2017, and is to run till 31 March 2018. 

This is the last month of the Scheme and government at all levels including the Presidency, the Federal Ministry of Finance, the Federal Inland Revenue Service (FIRS), all the States Tax Authorities and the trained Community Tax Liaison Officers (CTLOs) have consistently championed the sensitization programmes across several media. Thus, leaving room for no excuses for defaulting taxpayers who refuse to take advantage of the amnesty window.

The Federal Government and tax authorities are also currently threatening fire and brimstone for defaulting taxpayers (particularly the high net worth individuals and companies) who refuse to come clean under the VAIDS. 

The clock is ticking, time is fast running out and the Federal Government has reiterated that the Scheme will not be extended. 

Tax is the civic responsibility of any income earning individual or company in Nigeria. It is a compulsory levy which is backed up by various laws, therefore tax default or contravention is a legal offence. It is the position of the Federal Government of Nigeria that nobody should owe or short pay the Government any tax whatsoever. VAIDS is a time limited opportunity for everyone to come clean without being penalized or prosecuted.

The following categories of individuals and companies are encouraged to come clean with their full assets, incomes and tax declarations while the amnesty period subsists:

• Full time employees with multiple undisclosed income sources e.g. people earning rent or dividends from acquired/ inherited properties or from investments in shares
• Companies with understated revenues, unpaid capital gains taxes, issuing 2 or more sets of financial statements and their directors not paying taxes commensurate with their earnings
• Users of offshore tax shelters who did not pay all taxes due before transferring such funds or owning such assets in the offshore tax shelters
• People whose current standard of living or lifestyle is inconsistent with the amount of tax declared or paid over the years
• Individuals and companies owning assets indirectly through nominees
• Those whose employment statuses/incomes are well below their exotic lifestyles and assets owned in many places in Nigeria and abroad
• Entertainers who pay minimal taxes on Nigerian earned incomes but fail to disclose incomes earned from foreign shows and sources of the funds used in acquiring the expensive houses, cars, clothing, etc. displayed by them on their Instagram accounts
• Retirees with unexplained assets
• High net worth families with complex tax situations e.g. families owning oil and gas assets or high net worth companies, with wives, sons, daughters and other relatives living luxurious lifestyles and owning assets in Nigeria and in foreign countries without commensurate individual tax payment records.

Others include:

• Those who earn incomes or own assets but are yet to register for tax with the relevant tax authorities;
• Those who are registered taxpayers but have additional disclosures to make or need to amend prior disclosures, or are registered but have not been filing returns;
• Those who have not been fully declaring their taxable incomes and assets;
• Those who have been underpaying or under remitting taxes;
• Those who are under the process of tax audit or investigation with the relevant Tax Authorities; and/or
• Those who are engaged in a tax dispute with the relevant Tax Authority but are prepared to settle the tax dispute out of court.

In the aftermath of VAIDS, there will be four distinct groups of taxpayers.

1. Tax compliant individuals and businesses prior to VAIDS: These are taxpayers who have been fully tax compliant before the implementation of VAIDS, and so do not have any previously undisclosed income and assets to declare. 

• Taxpayers who declare fully and honestly under the VAIDS: Full and honest declaration is the requirement for grant of waivers and immunity under VAIDS. Therefore, only taxpayers who comply with the full requirements of the VAIDS will enjoy all its attendant benefits. 
• Taxpayers whose declarations are false/ incomplete: Whereas taxpayers who declared their assets and incomeshonestly and completely under the Scheme are absolved of all attendant liabilities, those who make false or incomplete declarations are denied the benefits of VAIDS. The relevant tax authority will deem declarations as being false or incompletewhere the taxpayer does not provide satisfactory documents to support their declarations. 

• Defaulting taxpayers who do not feel the need to come clean under the VAIDS: This group of taxpayers can be likened to the old English proverb, “you can lead a horse to water, but you cannot make it drink”. 

For taxpayers falling under groups 3 and 4 above, consequences of non-participation in the Scheme by defaulting taxpayers or discontinuation of compliance after declarations are dire. They include:

• liability to pay the full amount of the principal sum due;
• liability to pay all interest and penalties arising therefrom;
• liability to be prosecuted in accordance with relevant extant laws for tax offences;
• withdrawal of any previously granted relief to the participant;
• liability to undergo comprehensive tax audit/ tax investigation;
• Defaulting taxpayers will be indicted in the federal government’s ‘name’ and ‘shame’ programme; and 
• There may be widespread distrain and even sales of properties of those individuals and businesses who have not paid tax commensurate to the assets they own (as indicated by the Federal Inland Revenue Service Chairman at an event, earlier this week).

There maybe no hiding place from 1 April 2018, post VAIDS, for the aforementioned groups of defaulting taxpayers.

“There is a detailed analysis of those paying taxes and the statistics really are quite alarming. Despite having some of Africa’s wealthiest people whose lifestyles are the subject of global admiration, only 214 Nigerians pay taxes of N20 million or more each year. For the non-mathematicians amongst us, a personal tax bill of N20 million implies a personal income of N80 million. Even in this room and I’m not looking anywhere in particular, I am sure I can count at least another 214 people that earn more than 80 million a year. That group of 214 excludes many names and of course there are so many people who can pay well over 20 million.” said the Vice President, Professor Yemi Osinbajo on 29 June 2017.

Statistics released by the Federal Inland Revenue Service (FIRS), shows that the total number of active taxpayers in Nigeria is at 14 million, out of 69.9 million economically active Nigerians. Where are the other 55.9 million economically active Nigerians? 

The Federal Mistry of Finance (FMF) and the Federal Inland Revenue Service (FIRS), under the Voluntary assets and Income Declaration Scheme (VAIDS), have categorised these non-compliant taxpayers (who are mostly high net worth companies and individuals) as follows:

• Full time employees with multiple undisclosed income sources e.g. people earning rent or dividends from acquired/ inherited properties or from investments in shares
• Companies with understated revenues, unpaid capital gains taxes, issuing two or more sets of financial statements and their directors not paying taxes commensurate with their earnings
• Users of offshore tax shelters who did not pay all taxes due before transferring such funds or owning such assets in the offshore tax shelters
• People whose current standard of living or lifestyle is inconsistent with the amount of tax declared or paid over the years
• Individuals and companies owning assets indirectly through nominees
• Those whose employment statuses/incomes are well below their exotic lifestyles and assets owned in many places in Nigeria and abroad
• Entertainers who pay minimal taxes on Nigerian earned incomes but fail to disclose incomes earned from foreign shows and sources of the funds used in acquiring the expensive houses, cars, clothing, etc. displayed by them on their Instagram accounts
• Retirees with unexplained assets
• High net worth families with complex tax situations e.g. families owning oil and gas assets or high net worth companies, with wives, sons, daughters and other relatives living luxurious lifestyles and owning assets in Nigeria and in foreign countries without commensurate individual tax payment records.

This high non-tax compliance statistics has kept Nigeria’s tax to GDP ratio at a very low 6%, the 13^thlowest, out of tax to GDP ratios of 178 countries^[1]around the world. 

What is the Federal Government currently doing to seek out these non-compliant individuals and companies?

A high-level tactical team has been working with the Ministry of Finance, undertaking a major data mining exercise. The project (project ‘Light House’) has been able to search various databases including but not limited to:

• Bank Verification Numbers (BVN)
•  Exchange of Information (EOI) Protocols, which provide information relating to bank records and financial filings for tax purposes, obtained from tax havens (like British Virgin Islands and Mauritius) that are signatories to the information sharing agreements
• Corporate Affairs Commission (CAC)
• Nigerian Financial Intelligence Unit (NFIU)
• Land Registry Records
• Vehicle Registration Records
• Immigration and Travel Records
• Whistle Blower tips to track financial outflows
• Assets traces by one of the world’s leading asset tracing firms 

The databases reveal information ranging from, but not limited to, bank accounts linked to one individual, company(ies) affiliated to other companies owned by high net worth individuals, tracks of financial flows of revenue from the nation’s economy (just as it has shown an estimated 320 million pounds that Nigerians pay in oversees school fees in the United Kingdom alone annually), lands or luxury apartments and luxury cars owned or financed by individuals in and outside of the country, destinations travelled and time spent in other locations around the world by Nigerian individuals, all in a bid to properly ascertain the true tax liabilities of individuals and raise the county’s tax revenue. 

From these databases and information revealed, 500 High Net Worth Individuals (HNI) were identified and notified officially in November 2017, of government’s awareness of their tax indebtedness and the need for them to come clean under the VAIDS. A further 130,000 HNIs and companies that have potential tax underpayments were also identified recently.

Early in 2016, Nigeria and 30 other countries also signed a Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country (CbC) Multinational Entities (MNE)’s reports. 

On 17 August 2017, Nigeria as the 71st signatory jurisdiction, signed the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (“Multilateral Instrument” or “MLI”). On the same day, Nigeria also signed the Common Reporting Standard Multilateral Competent Authority Agreement (CSR MCAA) as the 94th signatory country.

The MLI is a legal instrument, designed to prevent tax base erosion, tax avoidance and shifting of profits to tax havens, through the modification or override of certain provisions in existing bilateral double tax avoidance treaties between signatory countries. 

The CRS MCAA was designed to implement the automatic exchange of Multinational Entities (MNEs)’ financial account information in line with OECD’s common reporting standards, and to deliver this automatic exchange by this year (2018) between 101 countries. 

The CRS MCAA makes the MCAA (mentioned above) effective and prescribes the minimum reporting standards (in line with OECD’s common reporting standards) for such financial accounts information to be exchanged.

In January 2018, Nigeria signed the Income Tax (Country-by-Country Reporting) Regulations 2018 into Law. The signing of these regulations give effect to one of the requirements of the MCAA for signatory Competent Tax Authorities in order to enable the automatic exchange of information.

Nigeria has also signed agreements which provide for the Automatic Exchange of Information (AEI), with a number of nations such as Switzerland, Panama, the Bahamas and other tax havens. Additionally, banking information will easily be shared across countries due to newly implemented Common Reporting Standards (CRS).

Lastly, Nigeria has signed up for the establishment of the Beneficial Ownership Register at the Anti-Corruption Summit in London. This will provide access to true owners of properties in the UK and other participating countries.

What are the expectations of the Nigerian government regarding the non tax compliant individuals and companies?

1. Come clean under the VAIDS
2. Come clean under the VAIDS
3. Come clean under the VAIDS

To participate in the VAIDS, taxpayers are required to voluntarily make their disclosures; ensure that the disclosures are full, frank, complete, and verifiable; and ensure that the disclosures are made using VAIDS form. * please note that declaration through the Scheme CANNOT be made anonymously.

What advantages/ protection does the VAIDS offer these categories of taxpayers?

• The taxpayers are assured of the confidentiality of information provided under the Scheme. Measures have been put in place for information received by the Tax Authorities to be kept in strict confidence, not to be disclosed to third parties.
• After declaring through the VAIDS, Individuals and companies owning assets indirectly through nominees will have the freedom to transfer the ownership of those assets back to themselves as the true owners without any backlash.
• For taxpayers who may be unable to make a lump sum payment of any outstanding tax liabilities, government also made provision for settling these liabilities in instalments (at the discretion of the tax authorities though) over a maximum of 3 years. Accruing interest on the payment spread is however payable on these liabilities.
• Individuals and corporate bodies paying between 1 July 2017 and 31 December 2017 will be exempted from the accruing interest and associated penalty, while those paying between 1 January 2018 and 31 March 2018 will only be exempted from the penalty but will be required to pay the interest due. 
• Other advantages include immunity from prosecution and exemption from tax audits for the period covered.

As a country who boasts to have a good number of Africa’s wealthiest people whose lifestyles are subject to global admiration, our tax revenue numbers do not reflect such. The VAIDS is an initiative of the Federal Government to remedy this. In the words of Professor Yemi Osinbajo ‘there must always be a correlation between personal income taxes and personal lifestyle’. It is ideal that the correlation be positive.

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^[1]https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_to_GDP_ratio. Last updated September 2015, Searched on 6 December 2017.