Category: Tax Waivers

The Voluntary Assets and Income Declaration Scheme (VAIDS) has now taken off in earnest, effective 1 July 2017 (to end by 31 March 2018) and heavily championed by the Presidency, the Federal Ministry of Finance, the Federal Inland Revenue Service (FIRS) and all the States Tax Authorities.

In fact, last week Thursday was characterised by serious nationwide tax campaigns by the government and tax authorities. We expect same today, in compliance with the instituted national ‘Tax Thursday’ sensitization campaigns which should continue throughout the 9 months’ duration of the VAIDS. 

As government intensifies its efforts towards raising at least USD 1 billion from the Scheme and increasing Nigeria’s tax to GDP ratio from its current level of 6%, to an acceptable ratio in line with the 20 to 40% trend in other developing/ developed countries, what does the taxpayer really need to know about VAIDS?

Basic Facts About VAIDS

1. The Federal Ministry of Finance had for the past 15 months, been busy, gathering information on why the country’s tax payment ratio is very low. Data from BVN records, foreign governments, land registries, Corporate Affairs Commission (CAC), beneficial ownership records, findings of the private investigative firm engaged to trace assets, forex allocation, Bureau De Change records, private jets/ yacht ownership records, review of panama papers, whistle-blower tips and the Nigerian Financial Intelligence Unit records (among others) have revealed that Nigerian taxpayers have grossly under-declared their assets and incomes for tax payment purposes. A lot of revealing information had been gathered regarding the following categories of taxpayers:

1. Full time employees with multiple undisclosed income sources e.g. people earning rent or dividends from acquired/ inherited properties or from investments in shares
2. 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
3. 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
4. People whose current standard of living or lifestyle is inconsistent with the amount of tax declared or paid over the years
5. Individuals and companies owning assets indirectly through nominees
6. Those whose employment statuses/incomes are well below their exotic lifestyles and assets owned in many places in Nigeria and abroad 
7. 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
8. Retirees with unexplained assets
9. 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.

• The federal government, instead of pursuing/ prosecuting all the above mentioned identified categories of individuals/ companies has decided to take the pragmatic approach of offering an amnesty window to allow Nigerians, who may have evaded tax, whether ignorantly or deliberately, the opportunity to perform their civic duty and pay the correct taxes, whilst providing the much needed revenue for Nigeria’s infrastructure. Government, through the Scheme, has provided opportunity for defaulting taxpayers to declare their assets and income sources from within and outside Nigeria and pay the correct taxes due thereon.

• The VAIDS will be anchored by both the Federal Inland Revenue Service (FIRS) and States Board of Internal Revenue Service (SBIRS), and is open to all individuals and entities that are in default of their tax liabilities in any way whatsoever, including those who: 

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

• The Scheme will cover all Federal and State taxes such as Companies Income Tax, Personal Income Tax, Petroleum Profits Tax, Capital Gains Tax, Stamp Duties, Tertiary Education Tax, etc.

Basic Facts About VAIDS… cont’d

• The Scheme covers all taxable persons and entities including individuals, trusts, executors, registered companies and statutory companies.

• Those who are resident outside of Nigeria are encouraged to make an online declaration, or to appoint a local agent to make the necessary declaration on their behalf.

• To participate, taxpayers are required to do the following: 
• voluntarily make their disclosures;
• ensure that the disclosures are full, frank, complete, and verifiable; and
• ensure that the disclosures are made using VAIDS form.

• Declaration through the Scheme CANNOT be made anonymously.

Process of Incomes, Assets and Tax Declaration Through the VAIDS

1. The first step to paying taxes under this Scheme is to register by completing the declaration form(s). Individual taxpayers should complete the Individual Form (VA1), while corporate taxpayers should complete the Corporate Form (VA2). The forms can be obtained/ downloaded from www.vaids.gov.ng. Click ‘download declaration form’ at the bottom right corner of the home page. Answers to frequently asked questions on the Scheme can also be assessed on the website via the link www.vaids.gov.ng/website-faqs.html.

• All taxes paid under the Scheme are to be collected by the relevant Tax Authority, either the FIRS or SBIRS depending on the type of tax in question. Payments are to be made to the Relevant Tax Authorities (through the banks as usual) quoting the full names and TIN of the taxpayers as reference. The banks will issue receipts for the payments.

• For taxpayers who have never paid taxes and have no Tax Identification Number (TIN)s, registration for TIN would be the first step. Their applications for a TIN will be fast tracked.

• For individuals and companies not aware of how much tax they are owing, professional tax advisers or agents of the relevant Tax Authorities can help calculate the tax liabilities for the period(s) for which the taxpayers are uncertain about their tax liabilities.

• Furthermore, the tax authority will review the information supplied by the taxpayers. If they are not satisfied with the completeness, they may ask for additional information. An applicant can file an amended declaration if further tax liabilities are identified from the tax authorities’ review of the additional documents. However, all additional information must be received within the duration of VAIDS.  

*Please note that the VAIDS caters to outstanding tax liabilities for 2011 to 2016 tax years. For non-wilful or non-fraudulent tax default, the defaulting taxpayers need not declare incomes and assets beyond this 6-year period. For wilful/ fraudulent tax default however, tax authorities may request for past financial information spanning unlimited number of years.

*Also note that the tax authorities are empowered to require participating taxpayers to further produce any books, documents, accounts, returns and other records. 

• After declaration through the Scheme, taxpayers will be expected to remain fully compliant with the tax laws. If the taxpayers fail in this regard, they may be forced to forfeit the tax forgiveness granted under VAIDS and be liable to pay past liabilities in full.

Advantages of the VAIDS

1. 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 periods covered.

Disadvantages of the VAIDS

1. Taxpayers seeking to declare the correct taxes on assets and incomes may need to incur additional costs in engaging professional tax advisers.

• Consequences of non-participation in the Scheme by defaulting taxpayers or discontinuation of compliance after declaration 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;
• After a taxpayer’s voluntary declaration, discovery of new facts by the Tax Authorities or discovery of certain non-disclosures or partial disclosures, such taxpayer will be made to face criminal prosecution and recovery of all taxes due with full penalties and interest. In addition, the taxpayer will be indicted in the federal government’s ‘name’ and ‘shame’ programme.

• There may be no hiding place after the Scheme for defaulting taxpayers who have not participated in the Scheme:

Recall that early last year (2016), Nigeria and 30 other countries ^[1]signed a Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country (CbC) Multinational Entities (MNE)’s reports. This was part of the continuing efforts of all participating countries and jurisdictions [from the Base Erosion and Profit Shifting (BEPS)’ 15 Point Action plan on improving the effectiveness of international tax system) to boost transparency by multinational entities (MNEs).

According to the provisions of the MCAA, by the time the first exchange of CbC reports took place, all signatory Competent Tax Authorities to the MCAA were expected to have in place, amongst other things, the necessary legislation to require Reporting Entities within their tax jurisdictions to file the CbC Report, and the effective date for such requirement.

On 16 August, 2016 the Federal Executive Council approved Nigeria’s participation in the Country-by-Country reporting standard, and scheduled the commencement date for beginning of 2018. It is not clear whether an enabling legislation has been put in place, but once this is done, automatic exchange of information on incomes and assets of multinational companies domiciled in any of these countries would be enabled. This therefore implies that there will be very limited escape window for non-declaring taxpayers owning assets/ companies in these countries.

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.

Conclusion

Tax experts in developed countries believe that the more tax revenue a country generates, the greater developmental growth it attains. A quick analogy to confirm the veracity of this assertion is to compare the tax to GDP ratios in developed countries to those of the developing countries. On the average, developed countries collect 34% while developing countries average 13%. Nigeria’s tax to GDP ratio is 6%. 

This statistic urgently calls for an increase in the tax compliance level. Defaulting taxpayers are therefore strongly advised to take advantage of the VAIDS to declare their hitherto hidden or under declared assets and incomes. This will ensure they remain on the right side of the law and avoid all the stated consequences of non-participation in the Scheme.

As government intends to raise USD 1 billion from the Scheme to finance its budget, instil voluntary tax compliance culture in its citizens and improve the nation’s tax to GDP ratio, it is hoped that the government remains accountable for all monies recovered through the Scheme. One challenge is for the defaulting taxpayer to come clean, another is for the government to be accountable for every tax collected, and to judiciously apply it to the much needed national development. 

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^{[1]Australia, Austria, Belgium, Chile, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, Mexico, Netherlands, Norway, Poland, Portugal, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland and United Kingdom.}