VAIDS: The Changing Dynamics of a Tax Amnesty
The introduction of the Voluntary Assets and Income Declaration Scheme (VAIDS) appears to be a potent attempt to raise Nigeria’s tax revenue-to-GDP ratio, with the additional five million taxpayers in the tax net. Ndubuisi Francis reports. For far too long, the Nigerian economy depended almost entirely on oil revenue for sustenance. While oil rent had provided the needed revenue to drive the economy over the years, the volatility in the market climaxing with the precitious fall in oil prices from mid-2014 made the drive for alternative sources of revenue more compelling.
Realising the desirability of shifting some attention away from oil and boosting other revenue sources, the present administration moved towards changing the nation’s rather uninspiring tax profile.
Out of 70 million taxable adults in the country, only 40 million of them are active taxpayers.
Also, on the African continent, with the exception of Angola (5.7 per cent), Chad (4.2 per cent), Equatorial Guinea (1.7 per cent), Congo Democratic Republic (5.9 per cent) and Libya (2.7 per cent), Nigeria has the least tax revenue-to-GDP ratio of 6 per cent.
This is abysmally low for a country the size of Nigeria and the largest economy in Africa. Tiny Swaziland in the Southern Africa region with a population of about 1.3 million inhabitants has a tax revenue-to-GDP of 39.8 per cent.
On the other hand, Vanuatu, a small Oceania country with a population of about 270,000 inhabitants has a tax revenue-to-GDP of 17.8 per cent. Overall, on the global scale, Nigeria’s 6 per cent tax revenue-to-GDP is slightly better than 13 other countries out of 183 sampled.
Tiny East Timor with a population of 1.3 million people has a tax revenue-to-GDP of 61.5 per cent.
Why Increased Tax Revenue is Desirable
A Tax revenue is defined broadly as revenue collected from taxes on income and profits, social security contributions, taxes levied on goods and services, payroll taxes, taxes on the ownership and transfer of property, and other taxes. Total tax revenue as a percentage of GDP indicates the share of a country’s output that is collected by the government through taxes.
Therefore, there is a strong relationship between GDP and tax revenue. GDP is an indicator of a nation’s economic health, and economic growth is a major driver of the level of tax revenues.
When tax revenues are up, they point to an economy that is in a better health. This was given practical expression in the United States of America between 2007 and 2009 with the global financial meltdown. The US revenue dropped from 26.9 per cent of GDP to 23.3 per cent of GDP.
Using VAIDS as Tax Driver
When in 2013, the Canada Revenue Agency introducwd something similar to VAIDS, 15,133 cases were processed and the sum of $1.2 billion was recovered. Swveral countries (both developed and developing), including many states in the USA, Greece, Italy, Ireland, Portugal, Argentina, Brazil, and Spain, among others have had their tax amnesty programmes and they had all been successful.
With the implementation of VAIDS on July 1, 2017, the centre appears to be holding for the government, (the executor) on one hand, and the economy (the beneficiary) on the other, with the reported addition of five million in the tax net.
The robust implementation of VAIDS has seen an increase in the number of tax payers from 13 million before the assumption of office by the incumbent administration to 14 million in 2016 and 19.3 million in 2018.
At the formal launch of VAIDS on June 29, 2017 as a revolutionary and bold reform initiative through which citizens (taxpayers) are offered a window of opportunity to regularise their tax status relating to previous tax periods, without incurring penalties, the federal government recruited 7,500 community tax officers to educate people about tax issues in communities.
VAIDS was initially designed to last for nine months between July 1, 2017 and March 31, 2018.
Before the deadline, the clamour for an extension by various stakeholders was vociferous, prompting President Muhamnadu Buhari to grant another three months extension, which ends on June 30, 2018.
As at early December 2017, about five months after take off, the Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr Tunde Fowler declared that VAIDS was yielding the desired result as some companies had voluntarily paid N17 billion. Some other firms, he added, were expected to pay an additional N6 billion before the end of December 2017.
The Minister of Finance, Mrs. Kemi Adeosun also posited that the robust implementation of VAIDS had seen an increase in the number of tax payers from 13 million before the assumption of office by the present administration to 14 million in 2016 and 19.3 million in 2018.
“It is instructive to note that some local and foreign companies are now disposed to the VAIDS initiative, and have started to regularise their tax status,” Adeosun stressed. It does seem that its implementation of has given further impetus to government to tackle unwholesome practices and abuses surrounding profit shifting.
Adeosun had noted that government was monitoring companies that generate profits in Nigeria but shift taxes to countries of jurisdiction where little or no tax is payable.
According to her, the practice was bad and unacceptable, stressing that the government would resist it.
“These practices harm Nigeria; these practices harm Nigerians and these practices must stop,” she declared.
The Larger Benefits
On the eve of the March deadline before President Buhari’s directive for an extension, the predilection by Nigerians to wait for the last minute was brought to the fore. In granting the extension, he stated that
doing so was based on the conviction of the Ministry of Finance that the overall objective to increase compliance would be attained, and that additional revenue would accrue.
In conveying Buhari’s extension of the tac amnesty, the Special Adviser on Media and Publicity to the President, Mr. Femi Adesina, said the three months extension followed appeals by professional bodies and individual taxpayers.
This is an indication that the willingness to embrace the tax scheme has risen.
To lend further credence to the success, Adeosun stated that all states of the federation now get more taxpayers in their tax net. “Every state is now getting more people into their tax net. We realised that taxes are sustainable source of revenue for government and government as you know cannot fully depend on oil. “We cannot be going to FAAC (Federation Account Allocation Committee) always asking how much can we share this month,” she said.
According to her, the focus had shifted from sharing to internally generated evenue. Under the Economic Recovery and Growth Plan (ERGP), the government madec
The made a key development objective raising of raising tax revenue from 6 per cent to 20 per cent by 2020
Both the ERGP published in March 2017, which seeks to keep the fiscal deficit within the boundary established by the Fiscal Responsibility Act, and the draft 2018 Budget emphasise this revenue target.
To realise this will involve measures such as increasing non-oil tax revenue through a series of tax administration initiatives (improving tax compliance, broadening the tax net, employing appropriate technology) combined with tax policy reforms (strengthening tax legislation, introduction of tax on luxury items, and other indirect taxes to capture a greater share of the informal economy.
It seems, from available indicators that VAIDS is making a towering impact.