How about tax amnesty?

Daily Trust - - BUSINESS - By Frank Onero Obaro Obaro is an Abuja based tax and fi­nan­cial an­a­lysts

In­no­va­tion is driv­ing rev­enue collection glob­ally in the face of slow growth rate in trade and in­vest­ment. More and more tax ad­min­is­tra­tors are com­ing up with di­verse prod­ucts to raise govern­ment rev­enues to meet daunt­ing chal­lenges. In Nigeria and much of the fron­tier mar­kets, vol­un­tary tax com­pli­ance is still a mi­rage and spe­cial ef­forts need to be em­ployed to curb it.

Whereas in de­vel­oped na­tions tax­pay­ers remit vol­un­tar­ily, al­low­ing the tax ad­min­is­tra­tors time and space to de­velop new tax types such as car­bon tax, green gas tax, among, oth­ers, but one in­no­va­tion that stands out from this pack, even in de­vel­oped coun­tries, re­mains Tax Amnesty. In Nigeria, amnesty has be­come a cliché, so to speak, in view of the con­flicts in the Niger Delta and the North-east.

Amnesty, as we know, is a le­gal for­give­ness from cer­tain in­frac­tions. Tax Amnesty is de­fined as a waiver or re­duc­tion and some­times re­moval of penal­ties in back taxes to en­cour­age de­fault­ing tax­pay­ers to pay what they owe within a spec­i­fied win­dow. In­deed, like on crim­i­nal mat­ters, ma­jor­ity of el­i­gi­ble tax­pay­ers in Nigeria rarely remit their taxes and it is cru­cial we find a com­mon ground to achieve the ob­jec­tive of the govern­ment to raise funds from taxes through some in­ge­nious means that work with our cul­tural and eco­nomic land­scape. The ob­jec­tive of tax amnesty is to for­give or ne­go­ti­ate the tax li­a­bil­i­ties of in­di­vid­ual and cor­po­rate tax pay­ers in line with laid down statutes. An amnesty must nec­es­sar­ily have a le­gal or leg­isla­tive back­ing for it to take ef­fect with a cut­off date.

Amnesty will not com­pletely knock off the penal­ties for de­lib­er­ate tax in­frac­tions, but will seek a pos­si­ble re­lax­ation of some of these penal­ties to en­cour­age the ex­pan­sion of the tax net, al­beit tem­po­rary. And one key de­mand will be an agree­ment be­tween the tax­payer and the tax ad­min­is­tra­tor to file fu­ture re­turns on time in the fu­ture.

A ma­jor chal­lenge which the Federal In­land Rev­enue Ser­vice (FIRS) and var­i­ous State Boards of In­ter­nal Rev­enue (SBIR) con­tend with is the is­sue of mount­ing tax ar­rears. In some cases, the com­pa­nies have col­lapsed while the go­ing con­cerns are not com­ply­ing as and when due. While the tool of en­force­ment should not be re­placed with amnesty com­pletely, it is how­ever a tool that can be de­ployed to in­crease rev­enue collection. Amnesty or some of form re­lief will cer­tainly en­cour­age de­fault­ing tax­pay­ers to ne­go­ti­ate their tax debt obli­ga­tions with re­spec­tive col­lect­ing agencies, which will then en­able them to start on a clean slate. It im­plies that a tax­payer who has en­joyed the mag­na­nim­ity of amnesty will not be qual­i­fied more than once and stiffer penalty can then ap­ply to such a tax­payer in the fu­ture in the event of a de­fault.

It must also be taken into ac­count that not all de­fault­ing tax­pay­ers do it de­lib­er­ately. This may be due to in­ad­e­quate ed­u­ca­tion on when and how to file tax re­turns, even though the FIRS made tremen­dous progress in this re­gard.

Aus­tralia, Bel­gium, Ger­many, Greece, Italy, Por­tu­gal, Rus­sia and closer home South Africa are some coun­tries that have de­signed tax amnesty pro­grammes and suc­cess­fully im­ple­mented them. In 2003 via the Ex­change Con­trol Amnesty and Amend­ment of Taxation Laws Act, the South African Rev­enue Ser­vice (SARS) suc­cess­fully im­ple­mented their first amnesty pro­gramme. The sec­ond was the Vol­un­tary Dis­clo­sure Pro­gramme (VDP) im­ple­mented to cover all taxes in 2011. In Septem­ber 2010, the Greece par­lia­ment, in com­pli­ance with the EU bailout plan, hur­riedly sanc­tioned a tax amnesty pro­gramme to raise be­tween €2B- €3B from a back­log of un­paid taxes in the heat of the eco­nomic melt­down that hit them. It is vi­tal to point out that it is not only lo­cal tax­pay­ers that amnesty can be ex­tended to, but it is even more im­por­tant and at­trac­tive to repa­tri­a­tion of il­le­gal off­shore in­vest­ments.

On June 26, 2012, IRS Com­mis­sioner, Doug Shul­man said the IRS off­shore vol­un­tary dis­clo­sure pro­gramme has col­lected more than $5 bil­lion in back taxes, in­ter­est and penal­ties from 33,000 vol­un­tary dis­clo­sures un­der the first two amnesty pro­grammes im­ple­mented by the IRS.

It has not been all bliss for var­i­ous tax amnesty pro­grammes. In De­cem­ber 2012, the Span­ish Fi­nance Min­is­ter, Cristabol Mon­toro, de­clared that only €1.2B was raised against a pro­jec­tion of €2.5B. Mean­ing that amnesty in it­self is not fool­proof as a whole­some so­lu­tion to com­pli­ance. But it does help to close the ar­rears gap.

Though some will ar­gue that Amnesty ef­fec­tively le­git­imises eva­sion, which might be rea­son­ably cor­rect on the sur­face of it, how­ever, in the case of Nigeria that might not read­ily be so in the sense that the ca­pac­ity to en­force or pros­e­cute de­fault­ers as con­tained in the 4th and 5th sched­ule and sec­tion 4 of the FIRS Es­tab­lish­ment 2007 spec­ify ap­pro­pri­ate penal­ties for tax of­fend­ers.

In Fe­bru­ary 2013, the Mis­souri State Par­lia­ment ap­proved a tax amnesty pro­gramme pro­jected to raise as much as $75m to boost state rev­enue. Un­der the pro­posed law, tax­pay­ers will get a waiver on back taxes in­ter­ests and penal­ties if they pay past due obli­ga­tions be­tween Au­gust 1 and Oc­to­ber 31 tied to com­pli­ance to state tax laws for an­other 8 years, fail­ure of which waived in­ter­ests and penal­ties would be­come debts again. And such par­tic­i­pants would not be qual­i­fied for amnesty pro­grammes of such na­ture in the fu­ture.

Cer­tainly, tax amnesty pro­grammes help in claw­ing back needed funds to fund in­fras­truc­tural de­vel­op­ment but has to be care­fully de­signed with our unique en­vi­ron­ment in mind. The im­pact will be far reach­ing if the FIRS and SBIRSs, work­ing un­der the aus­pices of the Joint Tax Board (JTB), col­lab­o­rate for this pur­pose. How­ever ex­ec­u­tive and leg­isla­tive ap­proval will be vi­tal to the suc­cess of any pro­gramme of this na­ture that im­proves com­pli­ance lev­els among de­fault­ing tax­pay­ers. Let’s try tax amnesty for size.

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