‘VAIDS will expose big tax defaulters, boost IGR’
Mr. Hamzat Ayodele Zubair, is the Executive Chairman, Lagos State Inland Revenue Service (LIRS). In an interview with reporters, he explains how data obtained by the Voluntary Assets and Income Declaration Scheme (VAIDS) will be used to expose tax avoiders. He also spoke on other tax matters. PAULA ESEGHENE and VICTOR Uzohoreport.
What remedy do you think VAIDS can bring to the country’s tax system?
INterms of how much VAIDS will bring, probably, you have to consult Ministry of Finance for the actual statistics. But it is going to be significant. In terms of remedial measure, VAIDS has a lot of positives. First and foremost, the awareness of we need to pay taxes is getting more pronounced. A lot of people now see tax as an issue. A lot of people who are totally disconnected with payment of taxes have started to hear about it see the visuals on television and all the advocacy you guys are doing by doing that we have to develop and grow the culture of taxation.
So, that is the key aspect of it. One, it will also help us improve on data and documentation. When I speak, I am speaking for Nigeria as a whole because Lagos has always been at the forefront of taxation. Yet it will bring some incremental revenue to us, but in terms of processes, we have already established every process a long time ago. So in terms of aggregate amount, many states will now begin to catch up; they will to start to appreciate the need to increase their Internally Generated Revenue (IGR). These are the some of the benefits of the VAIDS programme: More data, more tax awareness and more money for development.
What classes of taxes are covered by VAIDS? VAIDS cuts across Petroleum Profit Tax, Personal Income Tax, Stamp Duty, Withholding Tax and Education Tax.
Primarily, those are the key ones. And any form of taxation that has been previously under-declared or not declared at all comes within the purview of VAIDS.
Why did it take Nigeria so long to initiate VAIDS?
Well, we all know the primary cause. The drop in global oil prices has reduced the amount of revenue for the Federal Government. In the past, many states were not too efficient in the collection of taxes and relied on revenue from the Federal Government to run their affairs. Lagos took the initiative many years ago not to be dependent of the federal purse, but to try and be self-dependent.
The whole taxation system was reviewed and overhauled in Lagos. You can see the success story. Again, I speak for the whole of Nigeria in terms of derivable for the state. It became very clear that taxation as a major source of internally generated revenue was necessary and so the decision then was how do we proceed? How do we increase IGR primarily from taxation? So the tax amnesty programme was, therefore, considered to bring taxation back to the forefront and then to increase participation. It was decided that interests and penalties will be written off if you come and state your taxes and then you get certain benefits: No prosecution, no further investigation once you declare totally. So, we cannot say it is too late. It is never too late.
We have to start from somewhere and we have realized the necessity to increase IGR. That is why it is coming at this time. Perhaps, if the oil boom was still on, maybe this initiative wouldn’t have been necessary because the Federal Government is also saving itself undue pressure from the states. You can see a lot of states that cannot even pay salaries. They often go to the government to request for more money so that they can pay salaries. If you can’t even pay salaries, how do you develop the state?
What category of people was VAIDS conceived for?
VAIDS, as I said earlier, is a programme that has been designed to grow the culture of taxation. Nigeria has a Tax-to- GDP ratio of six per cent, which is very poor. Neighbouring countries and some other African countries have a ratio above 20 per cent. So, why would we be on six per cent? That was one concern and the other concern is how to grow our IGR in a way that will lead to further development and provision of social services, which people are clamouring for as dividends of democracy.
VAIDS is for everybody because little drops make an ocean. So, just like somebody has under-declared hundred millions, whoever declares N500, 000 is equally important because everything comes to the same pot to grow IGR we are talking about. Anybody who has previously undeclared incomes will be required under VAIDS to come forward and take this time-limited opportunity to come and make good what they have previously not done. It is open to everybody.
There is a widespread belief that people with strong social and political connections will escape sanctions if they fail to declare at the expiration of window. Is this belief unfounded, given the way highly wired people get protection from the system?
In all economies, there is usually the fear of the very powerful and connected persons.
But with VAIDS, it is being made very clear that there shall be no sacred cows. Everybody is supposed to declare what they have previously under-declared or not declared at all. Irrespective of your position in the society, you are expected to do the needful and there are serious plans to ensure that the full weight of the law is brought against any defaulter. The Minister of Finance has been very emphatic on that one. She has openly engaged the high net- worth individuals, the very powerful within the society. A lot of warning has gone out already and continuous advocacy is being done on the need for them to come in.
A major challenge of tax administration in Nigeria is the absence of reliable data. How can VAIDS be implemented without data, especially where it involves individuals and corporate entities who have assets and money abroad?
You are right in suggesting that there is a dearth in data generally in Nigeria. It is a problem all tax authorities face. It is something that confronts us by the day. I mean the unavailability of complete or even credible data. When something is not available, it then means that you have to device various efficient means of obtaining this data. In our own case, along with the VAIDS programme, certain measures have been put in place.
First and foremost, we are going to get primary data from all the taxpayers that come forward. They will give us certain data. But on our own, we also have additional processes that have been put in place.
There is what we called Project Lighthouse and it has to do with data mining. We are looking at several sources of information and trying to develop and bring out certain data on all taxpayers. For instance, the Nigerian Financial Intelligence Unit (NFIU) has information on all payments above N10 million. This means all the people that have transactions in multitude of N10 million.
Again, state land registries are being reviewed and data mined from them. Through these, owners of certain properties will be established. That is another line. Pertaining to Nigerians who have assets and incomes in abroad, there is also what we called Automatic Exchange of Information. The agreement has been signed and Nigeria is party to it. Countries like UK, UAE, USA, France and Germany are and they are all signatories to this.
So, they are going to compile registers of Nigerians who own properties and have big bank accounts in their jurisdictions. This will be handed over to the Federal Government. The federal government and state internal revenue services are going to have access to such information.
It is confidential information and part of agreement is that it is kept confidential and restricted to certain level of persons. But primarily, we are going to have access to information. Now, the access to information will enable us to ask questions. What was the source of income through which you acquired these assets? Were those sources taxed? If those sources were taxed, they will not be subjected to further taxes. If you are able to establish that you made all the money in Nigeria and transferred it abroad to buy assets, then, we are going to subject those amounts to taxation in Nigeria.
Also, if you have huge balances in your accounts abroad, we are going to ask questions. What was the source?
If the source was Nigeria or elsewhere, we are going to ask if it was taxed. Even if you earn income in abroad, as long as you are resident in Nigeria, you file your taxes here. And it also subject to Nigerian tax laws. That way, we are going to be able build up data on taxpayers with which we can profile them for the unpaid taxes.
What about wealthy people who do not put their money in banks?
Talking about people who might put money under their mattresses and how to get information on them, the truth of the matter is that there is nothing we can about those who are involved in cash transactions. But people in this category must own landed property and cars, at least. So, there is a chance to profile them as taxpayers.
The government, over the years, has made huge efforts in terms of financial inclusiveness to allow Nigerians operate bank accounts. Even the banks are carried along in this and they are encouraged to open branches in the remotest parts of the country. It is easy to get information on people who use the banking system through their Bank Verification Numbers (BVN).
The BVN is going to be very fundamental in deciding the success of VAIDS because it gives information on all the bank accounts that owned by individuals. In the past, it was very difficult to profile you as a taxpayer because we did not have the financial statements of your business. You can simply say you are earning one million and bring a bank statement that would support your claim. But with BVN, we know all the various accounts that owned by an individual and we can also view the bank statements. If, for instance, you have N100 million running through your account, then, you have to account for your previous declaration of only N1 million. So we are going to have to be ingenious and build up all the necessary data that we need to be able to access the taxpayers. But this was already ongoing prior to VAIDS.
For instance, if you own a shop in Alaba and you tell us your income is N1million or N2million, we can determine if you are being honest or not. Data are currently being mined on all the customs duties that have been paid. If, through the data obtained, Mr. X and Sons Enterprises has shipped in goods worth N200 million and sold those goods, most likely at a profit and is a one-man business, you have to explain what accounts for the difference. So we are going to be building up data with which we can profile taxpayers. That is one of the beauties of the VAIDS programme. It is going to help us build up data of taxpayers. The Federal Government has repeatedly said it will not extend the deadline for VAIDS. Don’t you think the nine-month period given to people to comply is way too short?
Well, it’s not short. Even if you make it three years, two months to go, Nigerians will still clamour for extension. This extension talk started within one month of the Executive Order. So, it is not going to change. Six months ago, people were saying is this amount of time going to be enough. How long do you need to declare income that you have previously not declared? In January, we started seeing a lot of activities. It was a bit slow in 2017, when it was mostly enquiries. People were concerned and were making enquiries. But in January, people started coming in. By the time February came, more people started coming in to make enquiries. Many people remain undecided whether or not they want to declare under the VAIDS.
The issue of extension can be found in every sphere of our national life. Registration for voter’s card with the Independent Electoral Commission (INEC) is a good example. Whatever you come out with in Nigeria, there is always a clamour for an extension. The Minister of Finance, Mrs. Kemi Adeosun, has been very clear on this issue that she and Federal government will not entertain extension. And I think it should be kept as such.
What has been the impact of VAIDS on LIRS? As I said, there have been a lot of enquiries and there have been a lot of taxpayers, who have come forward with their applications and we have started to see the effect in terms of collections. It has had a positive impact on our collections. The effect is less than five per cent. We don’t yet know how many people have not truthfully declared. We have our budget estimate and we also have a department dedicated to VAIDS matters. They have been talking to people. We are involved in a lot of enlightenment; we have a programme called Tax Thursday under which we go to various shopping malls to go and talk to Nigerians and educate them more about VAIDS. A lot of clips are on the social media. See the remaining part of this article on www.guardian.ng