By Adaeze Okechukwu
Ahead of the March 31 deadline for Voluntary Asset and Income Declaration Scheme (VAIDS), public finance executives have intensified campaigns preparatory to unleashing the full weight of tax laws on defaulters. In this interview, the Chairman of Lagos Internal Revenue Service (LIRS), Mr Ayodele Subair, provides insight into what to expect.
What has been the impact of VAIDS campaigns so far?
As a remedial measure, VAIDS has a lot of positives. First, the awareness of the need to pay tax is becoming more pronounced. A lot of Nigerians that were totally disconnected from the tax system are starting to hear about it. With the advocacy in the media, it is drumming home the need to develop and imbibe the culture of taxation.
Secondly, VAIDS will help us improve data and documentation. I speak with respect to Nigeria as a whole. Lagos has always been in the forefront. Yes, VAIDS will bring some revenue to us, but in terms of processes, Lagos established apt processes a long time ago. Nonetheless, VAIDS will help a lot of state to begin to appreciate the need to increase their Internally Generated Revenue (IGR). Hence, the benefits of the VAIDS program are increased data, increased tax awareness and higher revenues for economic development.
What are the taxes that are covered under VAIDS?
VAIDS cuts across company income tax, petroleum profit tax, personal income tax, stamp duties, withholding tax and education tax. Any form of taxation that has been previously under-declared or undeclared is covered under VAIDS.
Considering all the benefits of VAIDS you highlighted, why is the tax amnesty program coming late?
The primary drive for the establishment of VAIDS was the fall in global oil prices that led to significant decline in federal government revenue. In the past, a number of states had not been efficient in the collection of taxes. Many of them relied on the federal government for revenues to run their states. Lagos took the initiative many years ago to be self-dependent. The taxation system was reviewed and overhauled in Lagos and we can see the success story. It became very clear that taxation as the main source of internally generated revenue is necessary. The question then was how we could increase IGR primarily from taxation. So, government had to consider creating a tax amnesty program to increase participation of Nigerians in the tax system. It was decided that interest and penalty will be written-off. With the VAIDS program Nigerians can get certain benefits when they declare their assets and income correctly. Such benefits include: no further investigation, prosecution or penalties. I would not say it is coming late. We have just realised the necessity to increase IGR and that is why it is coming at this time. Perhaps, if we were still in the oil boom, this initiative may not be necessary. As we have seen, many states cannot even afford to pay the salaries of their workers. They run to the federal government for more allocations. If states cannot even pay salaries of their workers, how would development in the states occur? VAIDS will help relieve the federal government from undue pressure from states.
There are some wealthy people who do use the banks. There are also some Nigerians that have assets and incomes abroad. How do you plan on getting these people to comply with VAIDS?
We recognise that there is a dearth of data in Nigeria. The unavailability of complete and credible data is the challenge that confronts tax authorities. In the VAIDS program, certain measures have been put in place. First, we will get data from all the tax payers that come forward. On our own, we have additional processes put in place, one of which is Project Light House. It handles data mining. It will help mine out data on prominent tax payers. For instance, data of all payments above N10 million are being mined by NFIU. Also, the land registers of all the states are being reviewed, establishing the owners of certain property. Pertaining to Nigerians who have assets and income abroad, the Automatic Exchange of Information (AEOI) agreement has been signed. So, countries such as the United Kingdom, United States of America, United Arab Emirate, France, Germany, among others, are signatories to this agreement. So they will compile the registers of Nigerians who own assets in their countries and disclose this information to the federal government. The state internal revenue services will have access to this information as well. The information becomes useful to us because we can then ask questions on the sources of income used to finance the purchase of these assets. If those incomes were taxed, then property owners won’t be subject to any more taxes. Conversely, if we are able to establish that the money used to buy the assets abroad was earned in Nigeria but untaxed, then those incomes will be subject to the appropriate taxes. Money earned abroad and saved in foreign bank accounts by Nigerian residents is subject to Nigerian tax laws. That way, we can build up data on tax payers with which we can profile them for the unpaid taxes. Concerning people who put money under their mattress, frankly, there is nothing we can do about people that transact via cash only. Overtime, the government as well as the banks have made significant effort to drive financial inclusion. Banks have been encouraged by the government to open branches in remote parts of Nigeria. Through the BVN, it becomes easy for us to collate the data on people who run their transactions through their bank accounts. The BVN is very fundamental in determining the success of VAIDS because it gives information on all the bank accounts owned by an individual.
The federal government has repeatedly said that it will not extend the deadline for the VAIDS programme. Don’t you think nine months is short for everyone to comply?
If you make it three years, Nigerians will still clamour for an extension. This extension talk started within one month of the executive order. So it’s not going to change. How long do you need to declare income that you have previously not declared?
It’s our habit to wait till last minute for everything, hence clamouring for extensions. Nonetheless, the Minister of Finance, Kemi Adeosun, has been very clear on this issue that government will not entertain extension. Personally, I think it should be kept at such.
This is the last month for the amnesty program, how has the response been?
From our end, there has been a lot of inquiries and there has also been a lot of tax payers who have come forward with their applications. We started seeing the effect in terms of revenue collection for the states. Nonetheless, it’s less than 5.0 per cent effect on us.
Do you think VAIDS is fair to everyone? Some may have built their net worth over a long period of time, how then are the liabilities to be paid determined?
It is a voluntary assets declaration scheme that enables people declare their assets accurately. However, the time frame under examination is restricted to the last 6 years.
Who exactly was VAIDS designed for?
VAIDS was designed to grow the tax culture in Nigeria. Nigeria has a tax-to-GDP ratio of only 6 per cent compared to other African countries that have about 20 percent. The other concern was growing the IGR to 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. Someone who has under-declared N100 million and another who under-declared N500,000 are of equal importance.
There is the concern that people with very strong social and political links will escape sanctions after the deadline. Is this true?
Well in all economies, there is usually the fear of very powerful and connected persons. However, with the VAIDS programme, it’s been made very clear that there shall be no sacred cows. Irrespective of your position in the society, you are expected to do the needful. There are serious plans underway to ensure that the full wrath of the law is thrust against any tax defaulter. The Minister of Finance has been very emphatic on this. She has openly engaged all the very high net worth individuals, issuing them warnings to comply before the deadline.
Are there other similar strategies engaged by LIRS to encourage people to continue paying their taxes even after the VAIDS programme?
The need to enumerate tax payers and thereby increase the tax base is always clear, the biggest strategy that we have on that is advocacy and enlightenment. There is hardly any other day that you look at newspapers and you won’t see some message or the other talking and advocating about VAIDS and people paying their taxes. We have it as well on all social media platforms. Also, for businesses with any ministry, department or agency in Lagos state you must show tax compliance. Even if you want to build a house, an evidence of tax compliance must be shown. In some government hospitals, before patients are attended to, they must show tax compliance evidence. There a lot of strategies that are out there. Some are constitutional. For example, the banks are mandated to give us information on every account opened. We will then bring them into the tax net and then reach out to them to come in and properly complete their tax registration. Under VAIDS, whoever has not paid any tax before is encouraged to pay. Enumeration will be a continuous exercise even after VAIDS. Another thing we commenced long before VAIDS was careful examination of receipts. When I say receipts, I mean people who have paid certain tax for certain services. For instance, we get the data from Land Use. So, if someone is issued a Land Use bill, we get the information and match it with the individual’s tax record. This applies to new purchased vehicles as well. So, enumeration is a continuous process for us and we will continue to think of ways to improve this process.
What is the extent of tax compliance?
Well the extent of tax compliance is still quite low. We have about 5 million tax payers registered with us. Lagos is assumed to have 20 million residents, of which 8 million has been estimated as the minimum taxable persons. A taxable person is anybody who is engaged in an economic activity. Although, the level of compliance is high relative to other states, we still have not reached our goal yet, and this is largely because of the informal sector. The informal sector is our biggest problem. In some countries in Africa e.g. South Africa, tax ID is issued at birth and activated when the individual reaches taxable age. Every citizen is automatically in the tax net. That is not the case in Nigeria. The informal sector has a number of highly mobile people that change residence so often. Many of them probably do not have bank accounts and carry out their daily transactions on via cash.
Nonetheless, over time it’s getting more popular to have bank accounts and make payment via cards.
For this reason, the Governor of Lagos state, Akinwumi Ambode, has said all tax payments to the state must be done electronically going forward. The positive side to this is that it increases economic activities.