Nigeria’s tax landscape has changed very fast and efforts at bringing taxable individuals into the tax net are gaining momentum.
Currently, the taxman has gone wild using advanced data mining and analytics to aggregate taxpayers’ records from multiple sources with the sole aim of tracking tax evaders.
Data from sources such as Bank Verification Number (BVN), customers foreign exchange (FX) application, land registry, company dividends, car registration, Corporate Affairs Commission, foreign property ownership, and so on are being gathered and compared with tax returns, BusinessDay learnt.
Federal Government aims at raising at least $1 billion and bringing in 4 million new tax payers into the tax net through the ongoing tax amnesty –Voluntary Assets & Income Declaration Scheme (VAIDS).
As part of the implementation of VAIDS, many high net worth individuals (HNIs) and very important personalities (VIPs) have been receiving letters from Ministry of Finance and various State Boards of Internal Revenue Services on their tax status, requesting them to take advantage of VAIDS to regularize their tax status.
Informed sources said the first set of letters were issued last year following a special data mining project (Project Lighthouse) carried out by Ministry of Finance in preparation for aggressive tax chase upon expiration of VAIDS.
It is barely 24 days to the end of the nine-month tax amnesty programme targeted at all tax defaulters to voluntarily declare their assets and income within and outside Nigeria. The Federal Government has restated its resolve not to extend the deadline.
“We will close VAIDS at the expiration of the programme on March 31, 2018. Once closed, we will name and shame and also prosecute tax evaders. Aso Rock and Finance Ministry have the political will and data to go after tax evaders who fail to take advantage of the tax amnesty,” Kemi Adeosun, Nigeria’s Minister of Finance said in a recent tweet.
Nigeria had signed the Multilateral Competent Authority on Common Reporting Standards, which allows for exchange of financial account information. Abuja had engaged a leading international Asset Tracing and Investigation Agency (Kroll), to trace and track illicit flows and assets.
The Federal Government committed decision to name, shame and also prosecute tax evaders has swayed many taxpayers and analysts in Nigerians to consider the reputational risks.
Developing countries, including Nigeria, collect significantly lower levels of tax, as a percentage of Gross Domestic Product (GDP), than wealthier States. This is partly because the income and wealth being created, is taken out of the country illegally, without being taxed.
“It is therefore imperative for HNIs, VIPs, and indeed all taxable individuals, to be aware of how critical it is to take advantage of VAIDS while the window remains open. Companies will also need to step up their background checks and compliance monitoring on their Executive and Non-Executive Directors to prevent reputational damage that may be associated with tax prosecution,” according to Deloitte’s team of private wealth management.
Though, they noted that the depth of available information on the HNIs and VIPS will become staggering as soon as Nigeria receives its first data exchange under the newly signed automatic exchange of information.
“The UK has also signed “Unexplained Wealth Order” (UWO) which became effective in January 2018. Under UWO, properties in the UK with no justifiable source of earnings and evidence of tax payment in country of residence will be forfeited to Her Majesty’s Revenue and Customs (HMRC). There are fears that Nigerians will be largely affected by this Order,” according to Deloitte.
Ahead of the tax amnesty deadline, official of the Federal Government have been sensitising Nigerians on the benefits and rewards of honest asset declarations and tax payment, urging them to take advantage of the opportunity to declare their assets and income and regularise their tax affairs.
“The Government can now profile people. Their income, properties and as well as their bank accounts are monitored to know how they get their wealth,” Adeosun said at a recent VAIDS sensitisation workshop in Kaduna.
Nigeria’s tax-to-Gross Domestic Product (GDP) ratio at just 6 percent compares to India (16percent), Ghana (15.9percent), and South Africa (27percent). Most developed nations have tax-to-GDP ratios of between 32percent and 35percent.
“Our tax to GDP ratio is one of the lowest in the world. The right thing to do is to take advantage of the Voluntary Assets and Income Declaration Scheme to regularise your tax status,” the Federal Government noted.
“For Nigeria to achieve key fundamental growth and development, we need to raise our tax-to-GDP ratio,” said Babatunde Fowler, chairman, Federal Inland Revenue Service (FIRS).
The Federal Inland Revenue Service (FIRS) and the tax authorities of the 36 states under Joint Tax Board (JTB) launched the Voluntary Assets and Income Declaration Scheme (VAIDS) on July 1, 2017.
The Scheme is aimed at ascertaining many taxpayers outstanding tax liability for payment or making them face criminal prosecution at the expiration of the grace period.
Penalties for non-compliance include: liability to pay in full, the principal sum due, all interest and penalties due (10-100percent of the tax due or forfeiture of related asset); and criminal prosecution in accordance with relevant extant laws, including up to 5 years in jail.
Other penalties facing tax defaulters include withdrawal of any reliefs, which may have been granted to the participant; liability to undergo comprehensive tax audit; and relating to undisclosed information, any sum voluntarily declared may be counted as part payment of outstanding tax. Federal Government insists that tax evasion is one of the easiest cases to prosecute.
Adeosun had advised tax payers to demand for written notice when they receive phone calls from tax officials. She gave the advice in response to the activities of some fake tax officials alleging to be officials of the Voluntary Assets and Income Declaration Scheme.
“My attention has been drawn to reports of some unidentified tax officials requesting for bank details and address of tax payers. If you receive a phone call from someone claiming to be from the tax office, do not panic. Ask them to send you a written notice. Do not provide any details like your address or bank details,” the minister said in a statement on Sunday.
Iheanyi Nwachukwu
